NDRC Initial Draft Opinions on Cotton Circulation System Reform

This summer, Shumei Shumei (a pseudonym), a female car worker at a cotton spinning factory in Foshan, Guangdong, was unemployed because she had stopped production for three years. 43-year-old Wang Shumei was worried. Heared that the entire cotton textile industry was sluggish. Many small and medium-sized enterprises went bankrupt, and large companies that barely survived, even if they recruited people, were demanding.

Ms. Wang's boss Chen Yuan (a pseudonym) was even more hit than Wang Shumei. The 50-year-old man told China Economic Weekly that although he was only a small, small boss, the factory was like his own child, and he devoted a lot of hard work. However, the investment of more than 20 million yuan has just been recovered for several years. After earning more money, more than 200 workers just took care of themselves and they were so disheartened that they felt very uncomfortable.

There is only one reason why Chen Yuan's spinning mills can't go on: excessively high cotton prices at home and abroad (outside low and high) make him unable to get orders.

Since the second half of 2011, the prices of raw cotton used by domestic spinning companies have been higher than those in the international market, pushing up the prices of domestic yarns. The downstream weaving companies have therefore given up their domestic yarns and selected cheaper imported yarns. A large number of spinning enterprises, especially small and medium-sized micro-enterprises, have closed down their production, and some large companies have only managed to survive even though they rely on high-value-added products to survive.

The price of cotton in the twisted bar has caused the cotton spinning industry to be completely blocked.

The price difference between cotton at home and abroad is around 9900 yuan/ton in September. It is the season of picking new cotton. Hundreds of thousands of migrant workers went to Xinjiang to collect cotton. At the same time, the new cotton year (September to August of the following year) begins; on September 9, China Reserve Cotton Management Corporation (hereinafter referred to as “China Reserve Cotton”) officially launched the 2013 annual cotton collection and storage work.

According to the "2013 Interim Cotton Purchase and Storage Plan" issued jointly by the National Development and Reform Commission, the Ministry of Finance, and the Ministry of Agriculture, this year, the temporary purchase and storage prices of cotton remain unchanged at 20,400 yuan per ton in the previous year. If the start price of the reserve deposit is also maintained at 19,000 yuan/ton last year, in the new cotton year, domestic and foreign cotton will continue to maintain a high spread.

The report of the first half of the operation of the China Cotton Textile Industry Association stated that in the second quarter of this year, the difference between domestic and foreign cotton prices averaged around 4,900 yuan/ton.

On September 13, the price of the Chinese cotton price index “CCINDEX328” representing the domestic standard spot market was 19,137 yuan/ton; the price of the international cotton price index “Cotlook A(FE)/1% tariff (far east of the coast) was 14,220 yuan / ton, a difference of 4,917 yuan / ton.

The high spread results from the unique domestic cotton circulation system brought about by the temporary purchase and storage policies.

In 2010, domestic cotton prices had risen sharply, and in order to protect cotton farmers and stabilize cotton prices, in March 2011, the state implemented cotton temporary storage and storage systems in 13 major cotton producing provinces such as Xinjiang and Shandong, and textile enterprises need to be put into storage in the country. In order to save China's reserve cotton from the reserve cotton and various storage warehouses through auctions.

At the beginning of the implementation of the temporary collection and storage policy, it has indeed stopped the "roller coaster" from which the price of cotton has fluctuate.

However, since the second half of 2011, affected by the European debt crisis and other factors, international cotton prices have continued to fall, from about 19,000 yuan / ton to today's CIF price of 15,000 yuan / ton. However, the starting price of the State Reserve Cotton Remaining Storage has been around 19,000 yuan/ton, plus the handling fee, storage fee, transportation fee, and fund interest after the auction. The domestic cotton price for the past two years was mostly between 19,000 and 21,000 yuan/year. The interval between tons, the difference between domestic and foreign cotton prices 4,000 to 6,000 yuan / ton.

This directly hurts the competitiveness of cotton spinning companies: Raw material prices are so high that they naturally push up the price of cotton yarn, and they naturally lose orders. Some downstream weaving companies directly import India and Pakistan's middle and low end cotton yarn instead of domestic cotton yarn. The cost of customs clearance and transportation costs less than RMB 16,000 per ton, which is even more than RMB 2,000 per ton lower than domestic cotton.

China Resources Textile is a subsidiary of the central government China Resources Group. Di Hui, the company’s deputy general manager, told China Economic Weekly: “With such a high price of domestic cotton, it is not easy to receive orders and maintain a balance between production and sales. What profit can there be? At present, the company sometimes has low profit and sometimes has a slight loss. It is just like this.” One of the reasons that China Resources Textile insists on the non-stop production of cotton spinning business is that state-owned enterprises must consider more of their employees’ jobs and even if they lose, they cannot easily suspend production.

“This is like giving away the car and horse cannons when playing chess. It is obviously not in line with the international market and there is no way to compete.” Ma Xiaohui, general manager of Jiangsu Dasheng Group, the head of the cotton spinning company, said unconvincingly.

Quotas locked in imported cotton Domestic cotton prices are high, but spinning mills are not free to choose to import cotton, because there is also a cotton import quota system in parallel with the temporary purchase and storage policy.

In order to limit the impact of foreign cotton imports on the domestic cotton market, since 2004, China has adopted a cotton quota policy. If a cotton spinning company wants to get imported cotton, it must apply for a quota. The National Development and Reform Commission coordinated the relevant departments and distributed the imported cotton quotas to the enterprises free of charge based on the size of the cotton companies used and the amount of cotton imported each year. However, not every company can obtain quotas.

Chen Lanlan, general manager of Guangdong Qingyuan Detai Textile Industry Co., Ltd., told China Economic Weekly that some textile trading companies that are not engaged in production at all will be able to get a lot of quotas because of their large scale. Even some companies that engage in real estate and automobiles are Can get imported cotton quotas, reselling profit to small businesses.

Under the premise of the State Reserve Cotton Auction, the ratio of the current issuance of quotas is 3:1, that is, a quota of 1 ton of imported cotton can be obtained only if 3 tons of state-owned cotton is purchased for each auction. This ratio also makes textile companies painful.

"If foreign cotton is 'fine grain', domestic cotton is 'coarse grain'." Chen Yulan said that the quality of domestic cotton makes textile companies deeply indifferent. In addition to Xinjiang's cotton, the fiber length, fineness, and cleanliness of domestically produced cotton in other regions often do not meet the requirements for spinning high-count yarns. Enterprises that want to buy imported cotton have to “next” three times the domestic cotton.

Hubei Xiaomian Industrial Group Corporation is a well-known enterprise in the industry. A person in charge of the company told reporters: “I have to take 3 to 4 tons of domestic cotton for one month, recently taken cotton, and the color is yellow, and the colors of each bundle are inconsistent. After deciding, the opinions of a branch factory are particularly high, and it is difficult to control the quality of this branch. These cottons are not suitable for ordinary yarns.

The "happiness index" of cotton spinning companies that do not have to worry about quotas is relatively high: the textile leading company Rainbow Textile Group (hereinafter referred to as "Tianhong", 02678.HK) stated in its semi-annual report that the company's net profit in the first half of this year was higher than that in the same period of last year. Doubled to 447 million yuan, the total profit for 2012 increased by 7 times from the same period of last year to 486 million yuan.

This is because Rainbow has already put into operation in Vietnam, the factory can freely use imported cotton with good quality and low prices, relying solely on the cost savings of raw materials, Rainbow can make a steady and steady profit.

However, the vast majority of domestic textile companies do not have such strong strength to avoid risks overseas.

China's textile industry is the most competitive industry in the manufacturing industry. It first entered the international market and has the most complete industrial chain.

The current cotton circulation system has a huge impact on the industry chain. Upstream cotton spinning companies need quotas for importing cotton, but downstream weaving companies are free to import cotton yarn. Last year, weaving companies in China imported 1.53 million tons of cotton yarns from India and Pakistan. According to Wang Tiankai, president of the China Textile Industry Federation (hereinafter referred to as “China Textile Federation”), this year, cotton yarn imports will exceed 2 million tons, accounting for the industry’s annual cotton yarn. The amount of 1/5 to 1/4.

A large number of small and medium-sized cotton spinning companies shut down and died because of the Khmer price difference. According to Wang Tiankai's rough estimate, nearly 100,000 cotton spinning workers left their jobs in 2012. Wang Tiankai said: "If it is fair competition, how can our SMEs not do India, Pakistan? We hope to promote the cotton system reform earlier, truly through the market mechanism to form a fair competitive environment."

“Some people suggested that our company should adjust its structure, improve product quality, and carry out management innovation...but these are all conventional methods. With these methods, we can’t digest the spread of thousands of dollars if we try hard. If we are on the same starting line, At the same time, Chinese textile companies are fearless, but now if our spinning mills do export, they will certainly compete in any country in the world, said Zhu Beina, president of the China Cotton Textile Industry Association.

Not only was the spinning company's cotton holding the head of agriculture, but it was also connected with industry. The circulation system was not good, and not only the spinning companies were injured.

As early as last year, Wang Tiankai reported to the National Development and Reform Commission and the Ministry of Industry and Information Technology that the cotton circulation system will not change, and will have three direct consequences: spinning mills will use less cotton to increase the proportion of chemical fiber and other blended products; weaving mills will import large quantities of cotton yarn, India, Pakistan continues to enter the domestic market on a large scale; SMEs are shut down and migrant workers are unemployed.

The main purpose of storage and quotas is to protect the interests of cotton farmers. But cotton farmers did not feel the benefits.

Li Heling is a cotton grower of the 12th Agricultural Division of the Xinjiang Production and Construction Corps and planted 700 acres of cotton. She told the "China Economic Weekly" that from the perspective of price, cotton farmers are more willing to follow the market. The national purchase is to be fixed. Cotton growers will transport cotton in the past to hire cars and hire workers. When collecting and deducting miscellaneous fees, the level set for cotton will be relatively low, and the price will be greatly reduced. The company’s business people will go to the field to purchase. The level is also higher than the country. Li Heling said that according to the calculation of 400 kg per mu, 700 mu of cotton, the national collection and storage price may be lower than the market purchase price of 100,000 yuan, and sometimes even up to 200,000 yuan.

As a result, during the season of storage and storage each year, Xinjiang’s cotton was sold into madness. A month from the state's collection and storage, the Xinjiang Production and Construction Corps will launch a mobilization meeting and call on people to sell cotton to the country.

The person in charge of the China Cotton Textile Industry Association also stated that there are indeed various practices in the temporary storage and storage system that are not conducive to cotton farmers.

In addition, the temporary purchase and storage system also made the State Reserve Cotton produce a large amount of undigested inventory.

On March 29th, the National Development and Reform Commission announced that the 2012 annual cotton purchase and storage transaction had been completed, with a cumulative turnover of 6.342 million tons, including 3.933 million tons in Xinjiang and 2.009 million tons in other production areas.

The ** broker company Jinyuan ** released on the 12th of the Cotton Weekly report that by the end of the 2012 annual cotton auction on July 31, the State Reserve Cotton still has more than 10 million tons of inventory.

Chen Jiumei, director of China market for PCI fiber consulting company, believes that after these two cotton annual collections and storages, China’s cotton stocks have increased by 8 million tons, which has already exceeded the amount used. If the purchase and storage policies are unchanged, demand will continue to be inhibited. Next In the cotton year, the entire inventory will continue to increase.

Inventories also make the Agricultural Development Bank (“Agriculture Issue”), which is a “recovery storage and one-plow care enterprise,” nervous. On the one hand, the Agricultural Development Bank provides support for China’s cotton storage and related circulation enterprises. On the other hand, it is necessary to provide ** to the cotton spinning industry involving agriculture, and the relationship between the two is not correct, and it will also increase the risk of fund recovery of the Agricultural Development Bank.

Li Huatian, Director of the Second Department and the Third Branch of the Agricultural Bank's Head Office, introduced that at the beginning of the new cotton year, the Agricultural Development Bank will put in reserve funds for storage, and the high price of cotton will also bring pressure on the agricultural circulation. The spinning mill's poor operating conditions due to high cotton prices will also affect the repayment period.

Textile practitioners are not opposed to providing policy protection for cotton farmers. They believe that it is more appropriate to protect farmers with direct subsidies.

Zhu Beina said that protecting farmers should allow the money to go directly to the hands of farmers, and the state can give farmers corresponding subsidies in light of the specific conditions in different regions such as the northwest region and the Yangtze River basin.

This is the approach taken by India, the increasingly strong competitor of the Chinese cotton industry. According to Manichan Lavaswamy, chairman of the Indian Textile Export Promotion Council, India uses direct subsidies to encourage farmers to use organic and synthetic fertilizers to ensure that cotton production is more sustainable. Louis Dreyfus is the world’s largest cotton trader. According to Chen Tao, chairman of the Chinese company, the United States, the world’s largest cotton producer, is also adopting direct subsidies for cotton farmers.

China Textile Federation has already reflected this appeal to the State Council and the National Development and Reform Commission and has paid attention to it. According to Wang Tiankai, the National Development and Reform Commission has already formed an initial consultation draft for the reform of the cotton circulation system. However, the specific method of direct supplementation and the implementation time have not yet been determined. Gao Yong, vice president of China Textile Federation, said with concern: "This year's policy for purchasing and storage has been determined. Even if the country decides to adopt direct subsidies, it must be implemented as early as next year. During this period, what should cotton spinning companies do?

Dialogue with Wang Tiankai, President of the China National Textile and Apparel Council: Cotton should really go back to the market to allocate resources to China Economic Weekly: Which companies have the biggest impact on Khmer spreads at home and abroad?

Wang Tiankai: The difference is the first impact of SMEs, small and micro enterprises. First of all, it has less quotas. The actual benefits of cotton spinning companies depend largely on the amount of quotas they have. A ton of cotton has a price difference of 5,000 to 6,000 yuan. How effective is the production of cotton yarn? Second, in terms of technology reserves, large companies can suppress the price difference by adjusting the product structure even if the cotton price difference is large, but SMEs do not have this capability. Therefore, we still hope to promote the reform of the cotton circulation system and truly adopt a market mechanism to form a fair competitive environment.

"China Economic Weekly": If you abandon the temporary storage policy, will the interests of China's storage cotton and other circulation companies be affected?

Wang Tiankai: If the cancellation of storage, China Cotton can fully participate in the international market circulation, when the cotton comes in at a low price, sold at high prices, not only can ease the shortage of domestic cotton, but also to make money in the international market.

China Economic Weekly: Should the cotton import quota system also change?

Wang Tiankai: The distribution of quotas must be fair, equitable, and transparent. However, one-third of the current quotas are issued to large enterprises and even to distribution companies that do not engage in cotton production. They take reselling, and small and medium-sized production enterprises take it. Without quotas, this is unreasonable. However, the most urgent need to solve is to cancel purchasing and storage.

The country is already studying the reform of the cotton system, but the change in the system will have to wait until the next year. During this period of time, the domestic and foreign cotton spreads still exist. We hope to lower the quota ratio, for example, to 2:1, or to finance a little more. Properly lower the reserve price. In addition, the time for storage should not be too long. This is considered from the smooth running of the company. If the interval is too long, the company will have no cotton to use and will affect production.