The cotton industry in China is currently facing significant challenges due to a combination of weather conditions, rising raw material costs, and increasing demand. This year, domestic cotton production has seen a slight decline, while demand continues to grow. At the same time, adverse weather in key cotton-producing countries such as India and the United States, along with protective policies implemented by these nations, has led to a sharp rise in international cotton prices.
As a result, textile mills are under immense pressure. Rising raw material costs and higher wages have squeezed profit margins, forcing some companies to confront losses. By September, many firms that were already operating on thin margins found themselves struggling even more, as input prices continued to climb. Some businesses are now forced to raise retail prices, which in turn affects consumer spending and market stability.
In China’s cotton market, the lack of effective hedging mechanisms has created an imbalanced structure, with excessive speculation and irrational short-term trading. This can lead to volatile price swings, undermining the effectiveness of hedging for existing businesses and creating uncertainty in the market.
For example, a local clothing vendor in Xidan noted that while some items are being sold at deep discounts, most clothing prices have increased by about 20%, with leather goods and sweaters seeing the biggest hikes. The reason? The surge in cotton prices. As of late last year, cotton prices have risen sharply, reaching over 20,000 yuan per ton—up 25% compared to the same period last year and 36% from the start of this year. This directly impacts the cost of cotton-based products, pushing up retail prices across the board.
Shandong, a traditional cotton-producing region, is particularly affected. Many textile companies had locked in orders at lower prices, but with current cotton prices, they now face potential losses. One company, Jinan Yuanshou Knitting Co., Ltd., reported that a 60–70% increase in cotton yarn prices has caused it to operate at a loss. “Back when I used to make one meter of white grey cloth, I earned a dime. Now, I lose a few cents,†said Jiang Luming, the company’s deputy general manager.
Despite current high profits in the cotton spinning industry, there is growing concern about the sustainability of these gains if cotton stocks run out and higher-priced cotton must be used. Industry experts warn that this could create discomfort downstream and threaten long-term stability.
China is the world’s largest cotton producer, consumer, and importer, yet it still lacks influence in setting global cotton prices. While the country has its own cotton varieties and trading platforms, the recent price surge was driven largely by the Intercontinental Exchange. This highlights the gap between China’s production scale and its ability to control pricing power.
According to Song Wei from the Chinese Academy of Social Sciences, U.S. financial speculation has played a major role in driving up global commodity prices, including cotton. Additionally, U.S. government subsidies to its cotton industry create an unfair advantage for American farmers, placing pressure on producers worldwide, including those in China.
Experts also point to the U.S. trading-based pricing system as a key factor in its dominance of the global cotton market. In contrast, Chinese cotton companies often lack access to credit support, limiting their ability to hedge against price fluctuations. In Western countries, banks typically require companies to use futures markets to manage risk before providing loans, helping to stabilize supply chains and reduce volatility.
In China, the imbalance between speculation and hedging continues to exacerbate price instability. With too much short-term trading and limited risk management tools, the market remains vulnerable to shocks. This creates a cycle where speculation leads to volatility, which in turn reduces confidence in hedging mechanisms.
Meanwhile, Chinese cotton farmers are increasingly turning away from cotton cultivation. Over the past two years, national cotton acreage has dropped by about 14 million mu. A key reason is the 2008 cotton price downturn, which led to reduced planting areas and lower output. In 2009, China produced 6.4 million tons of cotton, down 1.1 million tons from 2008—a nearly 15% drop.
Climate-related factors have further worsened supply-demand imbalances, especially in major producing regions like Xinjiang, where output fell by nearly 25% due to disasters. These issues, combined with low productivity and outdated farming methods, have made cotton less attractive to farmers, contributing to a decline in domestic production.
Cotton is more than just a crop—it's woven into daily life, from clothing to medical supplies. Yet, despite its ubiquity, the industry faces complex global challenges. From Mali to Uzbekistan to China, cotton connects people and cultures, but it is also shaped by economic policies, trade dynamics, and market forces.
To address the crisis, the Chinese government has taken steps to stabilize the market, including releasing stored cotton reserves and cracking down on speculative activities. These measures aim to ease supply shortages and curb price volatility.
Ultimately, the cotton story reflects broader economic and social shifts. As one worker put it, “We live for a better life.†This determination fuels China’s development, and cotton, though just one part of it, symbolizes the journey toward progress and resilience.
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