China's Cotton Supply and Demand: Issues and Impact on the World Market

Overview

USDA has developed a new approach for estimating cotton consumption in China based on textile import and export data, supplementing the traditional methodology that uses yarn production data from China's National Bureau of Statistics. This analysis suggests USDA's historical estimates of China's cotton consumption are reasonable and USDA's August 2007 forecast may be conservative. These insights into the amount of cotton consumed by China's textile mills, combined with data on China's cotton exports and imports, suggest there may be problems with the official estimates of China's cotton production. Uncertainties regarding the level of production and consumption of cotton in China mean that the potential remains for unexpected changes in China's cotton import demand that could destabilize world commodity markets despite increased global communication. These unexpected changes highlight China's impact on world cotton markets and the lack of transparency in China's intervention in its domestic cotton markets and official cotton stock accumulation.