Replace Import Tariffs with Cotton Subsidies
February 23, 2012 In 2010, China’s textile industry experienced its highest growth in nearly 30 years. Chinese textile and apparel sales reached $755 billion, an increase of 26.5% year over year. Profits totaled $40.4 billion, up 33.7%, and the 5.4% profit margin was the biggest in the industry’s history. and apparel exports increased 24% to $212 billion, representing 30% of global textile and apparel exports.
There have been major achievements in the textile industry, including:
• Transitioning to meet the growing domestic demand for textiles. The share of domestic textile and clothing consumption versus total sales increased from 67% in 2000 to 81% in 2010.
• The industry employs more than 22 million people, 70% of whom live in rural areas.
• Textile exports create a 70% trade surplus.
However, industry development has faced challenges caused by a variety of macroeconomic factors, in particular, inflation and appreciation of the RMB. Since 2005, the RMB has appreciated 40% against the U.S. dollar. There were five consecutive interest rate increases passed down from the central bank and the bank deposit reserve ratio has reached 21.5%. The cost of energy, raw materials and labor have continued to increase in recent years.
Environmental protection pressures are also increasing. The Chinese government will implement national energy-saving and environmental protection plans, which need to meet management and implementation indicators.
Entering a Critical Stage of Transformation
During the 12th Five-Year Plan, the textile industry will enter into a critical stage of transformation and industrial upgrading. CTNAC proposes to use the next decade to change from a large textile-producing country to a strong textile-producing country. The major strategic tasks include the utilization of technology, brand development, sustainable development, and training.
The Chinese cotton and textile industries face a number of challenges. Domestic cotton production cannot meet the demand of local textile companies and the gap is growing. It is increasingly important to protect initiatives for cotton planting.
The Chinese government has introduced a grain subsidization program but cotton does not receive the same support.
Cotton production in China is poorly mechanized and labor intensive. As a result, production has not significantly increased in recent years. Cotton farmers became discouraged this year as prices fell, which will reduce the level of production next year. That’s why it is important to develop an initiative for expanding the amount of land for cultivation, improve yields and meet the needs of consumers. In recent years, we have recommended that the government adopt a subsidy model for cotton similar to the one offered to grain farmers.
Currently, quotas have effectively controlled imports to address the gap between cotton supply and demand. In 2005, in an effort to protect domestic cotton producers, sliding tariffs of 5% to 40% were implemented and the dual control system of quotas and tariffs held the domestic price of cotton above that of the international market.
The efforts to protect the interests of cotton farmers have come at the expense of textile industry interests. The textile industry has faced a large burden and their cotton products are less competitive on the international market.
Requirements from the cotton textile industry to meet international cotton prices are growing, and there have been proposals to eliminate the sliding tariffs for imported cotton and offer subsidies to cotton farmers instead. This proposal would relieve the burden faced by textile manufacturers while simultaneously protecting the benefits of cotton farmers as well.
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