Cotton Origin Focus: China - Part 2
- Diego Miranda
- Oct 9
- 8 min read
Updated: Oct 14
Read Part one here: Cotton Origin Focus: China - Part 1
China Cotton Sector At-a-Glance
Production: ~31 million bales annually (average last 5 years).
Leading Region: Xinjiang Uyghur Autonomous Region (~90–93% of national output); minor production regions include Yellow-Huai (Hebei, Henan, Shandong) and Yangtze (Jiangsu, Hubei, Anhui) river areas.
Cotton Type: Primarily Upland cotton; Xinjiang produces significant volumes of premium Extra-Long Staple (ELS) cotton.
Farm Structure: Xinjiang dominated by large-scale mechanized farms (including state-run XPCC). Elsewhere cotton is produced mostly on small family farms (~0.5 hectares).
Harvesting Method: Xinjiang (~80–90% mechanized); elsewhere predominantly manual harvesting.
Introduction In the first part of Cotton Origin Focus: China, we saw how this Eastern nation was able to rise from a mid-sized producer into the global powerhouse of the cotton industry, on a path marked by both great successes and terrible mistakes. In this 2nd part, we will continue with the most recent 20 years of Chinese cotton history, and cover the key issues that will impact global cotton markets in the future.
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If you are involved in the cotton industry as a trader, speculator or merchant, this is the essential Chinese cotton history to understand the dynamics of modern cotton markets.
Outline
In this article, we will start by talking about China’s entrance into the WTO and how this led to the decline of Cotton in China. Then we will see how this led to a dramatic resurgence in Chinese cotton production led by the Xinjiang province. Finally, we will look at the future of cotton production and export from China and some of the key challenges that faced by China’s integration with the global cotton trading community.
WTO and the Decline of Production
Chinese Integration into the Global Market
As China left its completely centralized economic planning system behind, the country was able to insert itself into international commerce and global supply chains.
The accession to the World Trade Organization (WTO) in 2001 marked a pivotal moment, further integrating its cotton sector into the global trading system. To manage imports and protect domestic farmers, China implemented a tariff-rate quota (TRQ) regime for cotton. While this was aimed at preventing imports from dominating the market, the TRQ was consistently filled, often necessitating additional quotas to meet strong domestic demand.
The phasing out of international quotas in 2005, which had previously constrained under China's textile exports GATT/WTO’s Multifiber Arrangement (MFA), further boosted China's role as a leading textile manufacturer and exporter. This, in turn, fueled its demand for cotton, making it the leading producer, consumer, and importer of cotton in the first decade of the 21st century.
As the 2010s began, everything pointed toward even better times for China’s cotton sector; those expectations, however, were not meant to be.
The Stockpile Program In 2011, China began its cotton stockpiling program.
The purpose of the program was two-fold: to incentivize production and to protect its farmers from international fluctuations. Under the program, the government bought domestic cotton at a floor price (around 18,000 yuan/ton) that was well above international prices. Farmers benefited from guaranteed high prices, however the policy had two unintended side effects: China accumulated an immense cotton stockpile, and Chinese textile mills turned to cheaper imports.
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By 2013, China’s National Cotton Reserve had swollen to 44 million bales, roughly 50% of total global cotton stocks. The following year, the reserve was projected to surpass 50 million bales (nearly 60% of world stocks) – an unprecedented hoard that unnerved global markets. This “cotton mountain” was the result of the government purchasing more than half of the domestic crop for storage over three seasons.
While the government accumulated cotton, importers had to look for other means to fill their needs. With domestic cotton prices artificially high, Chinese mills maximized their use of import quotas to buy lower-priced foreign cotton. In 2012, China’s imports hit an unprecedented record of over 24 million bales as traders sold into China’s demand, knowing the government was propping up local prices.
Even then, the mills found themselves in a difficult situation; they were forced to look for other ways to supplement the lack of cotton since local prices were too expensive, and quotas and tariffs limited how much cotton they could import. This led to a sharp increase in the use of substitutes, such as cotton yarn (which faced no duties) and synthetics.
Overall, the Chinese spinning industry suffered heavily, losing competitiveness compared with its international peers and consuming less cotton. The measure was not efficient to incentivize production either; instead, the Chinese crop suffered a substantial hit, falling from 37 million bales in 2007 to 32 million in 2014.
Soon, it became clear the stockpiling policy was unsustainable; the government could not keep hoarding cotton forever while being unable to sell it given the artificial prices above the market. Starting in late 2013, Beijing reversed course: it halted stockpiling, began auctioning off reserve cotton, and in 2014 introduced a new subsidy program to replace the price support.
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The new policy, first trialed in Xinjiang, paid farmers a target-price subsidy (direct payments) so that domestic cotton prices could align more closely with world prices. This reform aimed to reduce the costly stockpile and reintroduce market forces into the sector.
Great Production Recovery
The Rise of Xinjiang The location of the subsidies in Xinjiang, dramatically changed the cotton production landscape of China.
Under this scheme, growers in the region alone receive a direct payment if market prices fall below a target, in order to ensure profitability for the farmer. This policy shift acknowledged Xinjiang as the core production base and aimed to let market forces set prices while still protecting farmers’ income.
The effect was clear: Xinjiang maintained roughly 2.5 million hectares planted and even achieved record output in some years. The region’s large, mechanized farms thrived under the new subsidy regime, leading its share of national cotton output to surge from about 40% to over 85–90% within a decade. In other words, today almost nine out of every ten bales of Chinese cotton come from Xinjiang’s desert oases and irrigated farms on the old Silk Road routes.
Meanwhile, cotton growers in other provinces lost most government support, hastening the decline of cotton areas outside Xinjiang. Many farmers in provinces like Shandong, Hebei, and Jiangsu switched to grains or other crops with better government incentives. As a result, cotton acreage fell by roughly half from its peak, from nearly 6 million hectares in 2008 to under 3 million by 2016.
Cotton Farmer and Mill Resurgence
By 2020, China had largely unwound its huge cotton reserve by auctioning off old stocks in state auctions. With stocks normalized and the subsidy policy in place, China’s domestic cotton prices fell back closer to world levels after 2015, leading to a recovery in mill use and the sector’s competitiveness. Chinese cotton consumption, which had fallen to just 34 million bales in 2014/15, surpassed 39 million bales three years later and once again in 2020/21.
That said, the full glory of China’s cotton past has still not been recovered. The decision to focus production almost exclusively in Xinjiang led output to remain around 28 million bales, which, though it continues to represent the biggest global crop, is considerably below the 37 million bale peak in 2007.
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Most of those losses come from the smaller use of land, which remains around 3 million hectares. Despite the considerable increase in yields, which have for the first time surpassed 10 bales/ha, it was not enough to compensate for the lower acreage, leading total production to decline.
Challenges and Opportunities for the Future
The Uyghur Problem
The increasing reliance on Xinjiang for cotton production has brought the region into the international spotlight, particularly concerning allegations of forced labor. These accusations have led to international import bans that have disrupted the global cotton market.
The Chinese government is accused of banning religious practices of the Uyghurs, a Turkic-origin minority group, mostly Muslims, and forcing them to work in the cotton fields of Xinjiang. While Beijing strongly denies these accusations, calling them politically motivated and emphasizing poverty alleviation and employment programs, the global marketplace has grown increasingly wary of sourcing cotton from the region.
Due to the allegations, the U.S. Customs and Border Protection (CBP) issued Withhold Release Orders (WROs) in 2020–21, banning U.S. imports of cotton and cotton products from entities in Xinjiang suspected of using forced labor. In January 2022, the Uyghur Forced Labor Prevention Act further broadened this ban to include all cotton produced in Xinjiang and products manufactured from it.
Similar concerns have influenced companies and governments across Europe and other regions, where fashion brands, retailers, and importers have been pressured to sever ties with suppliers linked to Xinjiang.
As public pressure against the region’s cotton increases and regulations tighten, it becomes more difficult for Xinjiang mills to supply Western companies. Though its share of Chinese cotton production continues to rise, paradoxically, it might see its exports fall, becoming mainly a producer for China’s internal market.
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Future of Chinese Cotton
Recent Trends China’s cotton sector has seen significant shifts over the past five years, showing contrasting dynamics. Although production showed a partial recovery, surpassing 30 million bales once more, all this boost came from higher productivity, while acreage has remained stagnant at 3 million hectares, less than half of what was seen in the 2010s. As a result, the Chinese crop was unable to reach its previous record of 37 million bales, even though yields have almost doubled since that period.
The improvement in production with less planted area is a victory for the Chinese economy since it allowed a considerable amount of land to be used for other purposes at a relatively low cost to overall cotton production.
However, for the cotton sector, China’s Xinjiang-centered policies pose a serious risk to production growth. Any continued production increases will need to come from yield improvements as the planted area has been maximized within Xinjiang.
All that said, the Chinese government seems content with the country’s current crop and expects the global markets to provide any extra cotton needed. One of the most notable updates in China’s cotton policies has been the changes in the import regime: the WTO-bound quota, currently 4.1 million bales at low duty, remains the baseline, but the government periodically issues additional “sliding-scale” quotas when domestic and international price spreads justify it, creating waves of import surges.
Complementing import quotas, China relies heavily on state reserves to stabilize the market for producers and local textile operations.
Auctions of reserve cotton, often including significant shares of imported lint, act as a key balancing tool, releasing fiber when mills face tight quota conditions and replenishing stocks through imports when needed. Currently, Chinese reserves are estimated at approximately 13.8 million bales, which still represents an impressive number, though far below early 2010s levels.
Conclusion
Contrary to predictions of unfettered growth in production and consumption, China’s cotton history in the 21st century has been marked by many challenges and considerable setbacks. Despite its ambitious plans, policy mistakes have caused the sector to suffer heavily, forcing it to reorganize in terms of production, consumption, logistics, and even geography.
Going forward, Beijing’s policies on cotton subsidies, import quotas and reserve auctions will play an outsized role in the global cotton market.
However, even with the challenges faced by China, they have managed to remain the center of the global cotton industry, representing both the largest producer and consumer. Its impact remains so great and so entrenched, that understanding the Chinese market will continue to be the most important aspect for anyone who wishes to trade or invest in the cotton market for the foreseeable future.
Read Part one here: Cotton Origin Focus: China - Part 1
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