Cotton Industry In Transition: China Bets Big On Xinjiang

China’s cotton industry, a cornerstone of the global textile supply chain, is navigating a period of transformation marked by high domestic yields, shifting trade dynamics and policy-driven structural changes. According to the latest USDA Cotton and Products Annual Report, the 2025-26 marketing year (MY) will witness moderate declines in production, subdued imports and strong domestic consumption amid tariff tensions with the United States.

China’s cotton production for MY 2025-26 is forecast at 6.35 million metric tonnes (MMT)—a 5% decrease from the previous year, attributed to the return of average weather conditions and stable planted area of 2.93 million hectares (MHa). The Xinjiang region remains the epicenter of China’s cotton output, accounting for over 92% of national production in MY 2024-25.

The government’s continued target price-based subsidy of 18,600 yuan/MT ($2,660/MT) for Xinjiang farmers ensures the region’s profitability and high mechanization, with planting and harvesting mechanization reaching 100% and 90%, respectively. However, inland regions face declining production due to lower subsidies, poor price realizations and higher costs, driving down planted area and quality.

Domestic cotton consumption is projected to rise slightly to 8.15 MMT in MY 2025-26, up from an estimated 8.05 MMT in MY 2024-25. This uptick aligns with China’s fiscal and industrial policies that aim to stimulate consumption and reposition the textile sector. Although domestic demand shows signs of recovery, industry reports indicate an increasing share of synthetic fibres due to better pricing and performance, which limits growth in cotton’s market share.

China’s textile and apparel exports grew 2.8% year-on-year in 2024, supported by strong performance in Q4. Yet, trade tensions and U.S. tariffs threaten export momentum, particularly as the U.S. remains one of China’s top markets.

Cotton imports are forecast at 1.55 MMT for MY 2025-26, a slight recovery from 1.4 MMT in MY 2024-25, but still sharply down from 3.26 MMT in MY 2023-24. This steep drop is due to ample domestic supply and retaliatory tariffs imposed on U.S. cotton.

The Chinese government imposed a cumulative 140% tariff on U.S. cotton, effectively halting U.S. shipments. As a result, Brazil and Australia have emerged as China’s top cotton suppliers, with Australia gaining favour due to improved fibre quality and competitive pricing.

Subsidies and Structural Shifts Favour Xinjiang
The PRC’s cotton subsidy framework remains heavily skewed in favour of Xinjiang, ensuring its continued dominance. The government is also subsidizing the relocation of the textile industry to Xinjiang, aiming to process 45% of its cotton locally by 2028 (up from 40% in 2024). The regional government is building infrastructure like the China Cotton and Cotton Yarn Trading Centre and promoting a “Xinjiang Cotton” brand certification system.

In contrast, subsidies for other provinces are limited, capped at 2,000 yuan/MT ($280/MT), with varying implementation across provinces. This discrepancy continues to undermine inland competitiveness and discourages planting.

Urbanization, rising per capita clothing expenditures and government-backed stimulus plans are expected to mildly boost domestic textile demand. However, systemic economic challenges, a cautious consumer base, and a sluggish real estate sector could temper the outlook. Textile retail sales increased modestly by 0.3% in 2024, while online wearable goods rose 1.5%, signaling slow but steady recovery.

China’s textile and apparel exports totaled $301.1 billion in 2024, with textiles contributing $142 billion and apparel $159.1 billion. Despite modest growth, escalating U.S. tariffs, including the revocation of the $800 de minimis exemption for direct shipments, are pushing Chinese manufacturers to explore alternate markets in Southeast Asia, Central Asia and Eastern Europe.

Larger companies may shift production abroad or leverage cross-border e-commerce, while smaller firms face survival challenges. Still, cross-border e-commerce grew 10.8% in 2024, indicating one avenue of resilience.

Yarn imports fell 24% in the first seven months of MY 24-25, and are forecast at 1.5 MMT for the full year. Vietnam remains the largest supplier, while exports surged 40% due to lower domestic cotton prices. Synthetic fibres continue gaining market share, with cotton now comprising only 34% of yarn inputs. Polyester and viscose maintain price advantages over cotton, further threatening cotton’s yarn footprint.

China’s cotton sector is undergoing strategic realignment. Xinjiang remains central to production and policy support, while inland regions fade into the background. Trade tensions and high tariffs—especially on U.S. cotton—have accelerated shifts in sourcing and exports. Synthetic fibres, policy-led processing expansion in Xinjiang, and cautious domestic consumption will define the path of Chinese cotton in MY 2025/26.

As China intensifies its push toward self-sufficiency and vertical integration within its textile value chain, global suppliers and buyers must recalibrate strategies in the face of evolving trade landscapes and policy priorities.