High cost forces China's yarn makers to set up overseas
With support for farmers skewing the market against spinners, many are setting up overseas
Mainland yarn makers, crippled by artificially high prices for cotton at home, are shifting production overseas to secure cheaper raw materials, even going as far afield as the United States.
In what promises to be a major shake-up of the mainland's cotton milling industry, the world's largest, firms such as Hong Kong-listed Texhong Textile and Shanghai-listed Bros Eastern, are leading the charge abroad.
The trend looks set to boost demand in international cotton markets, bolstering prices that climbed 13 per cent last year when US farmers planted their smallest crop in four years amid worries over record global inventory.
Even South Korea and the US are more competitive than China
The mainland holds more than half the world's cotton stocks after three years of state-sponsored hoarding to support farmers. That has sent local prices for raw fibre soaring, hurting mills that are also subject to a strict quota system for cheaper imports.
"The government has over the past few years supported the farmers and basically ignored the spinners," said Dennis Lam, an analyst at DBS Vickers. "Across the board, it's been very tough, there's an exodus of capacity."
Vietnam has emerged as the favourite destination because of its free access to global cotton markets and a border with China, as well as an agreement between Hanoi and Beijing on duty-free yarn exports.
About 15 Chinese cotton mills had set up in Vietnam in the past 18 months, said Alex Hsu, a general manager at Taiwan cotton trader Formosa Cotton, a supplier to yarn makers in the region including mainland China and Vietnam.