Estimated Effects of Recent Chinese Policy Changes on the U.S. and China Cotton Markets

China recently announced that it will not allow over-quota imports in 2015/16 beyond the 894,000 tons quota, which is the amount required to offer at low duties under commitments with the World Trade Organization. This announcement came after the government introduced a trial subsidy program for cotton farmers in Xinjiang in 2014/15, to begin replacing the stockpiling policy that had been implemented for the past three years. Considering that China is the world's largest cotton grower (although India is expected to surpass it this year), consumer, and importer, any decisions involving cotton could have a major impact on the global cotton market. The purpose of this analysis was to estimate the effects of recent Chinese policy changes on current and future cotton markets using the Global Fibers Model at the International Center for Agricultural Competitiveness at Texas Tech University. First, the model was run under the current situation (or baseline). After that, four scenarios were simulated with all other conditions remained the same. These include: 1) China initiated a trial subsidy policy in Xinjiang in 2014/15 with a target price of 19,800 yuan per ton; 2) a combination of trial subsidy program plus an annual 5 percent decrease in China cotton ending stock; 3) Chinese restrictions on imports in 2015/16 to 894,000 tons of cotton; and 4) a situation including all policy changes above. The projected outcomes of all four scenarios above were then compared with the baseline scenario to determine the economic impacts on US and China cotton markets. The impacts of policy changes on cotton production, consumption and trade for the U.S. and China were estimated by comparing baseline projections to their respective quantities for each individual scenario.