US LEGISLATION BANNING the import of products made in Xinjiang unless the importer can prove the product was not created with forced labour went into effect today.
The Uyghur Forced Labour Prevention Act was passed last December and presumes that goods from Xinjiang are made with forced labour. That flips on its head the burden of proof required under existing US bans on importing products made with forced labour.
The act has been roundly condemned by Beijing.
Given the near impossibility of US importers verifying their Xinjiang supply chains on the ground as independent auditors are being denied access, the law will become as good as a blanket ban. How it is implemented, particularly the rigour with which US authorities pursue the diffusion of Xinjiang products throughout supply chains in the rest of China and the region, will determine how dampening the blanket is on trade.
Xinjiang produces more than 90% of China’s cotton, which is used by the textile and apparel industries across the country. Thus the impact of the law will be widespread in those sectors.
According to the South China Morning Post, stocks of unsold cotton are piling up at Xinjiang mills as US importers get their supply chains into compliance. With the next harvest less than three months away, half the cotton harvested last autumn has yet to be sold.
Xinjiang is also a grower of tomatoes for export and a producer of solar-grade polysilicon and electronics components.
The act will further harm China-US relations, regardless of any cosmetic changes the Biden administration may make to Trump-era tariffs on Chinese imports of consumer goods, semi-manufactures and raw materials.
CHINA’S COTTON INDUSTRY has run head-first into the law of unintended consequences. In 2012, the world’s largest cotton importer bought millions of tones of cotton fibre from local farmers to stockpile in an effort to drive up rural incomes, particularly in Xinjiang. Domestic cotton prices hit 40% above global market prices. China’s textile mills, unable to buy freely on world markets because of import quotas, cried foul — or at least those that had not gone out of business because they were no longer price competitive. Stocks reached a peak of 10.5m tones, accounting for more than half world inventories and one and two third times 2013’s total crop — 6.3m tonnes, down 7.7% from the previous year, according to official data published this week.
After unloading some of the cotton at a loss over the course of last year and months of head scratching over what to do with all the rest, authorities have now decided to scrap the scheme in favor of direct subsidies to cotton farmers next year starting with a pilot scheme in Xinjiang. Details of the size and scale of the subsidies remain unclear, however. The stockpiling scheme for soy will also cease, but those for wheat, rice, corn, rapeseed and sugar, which have not experienced cotton’s problems, will continue.
Li Qiang, managing director at Shanghai JC Intelligence, puts some numbers on our observation that the recent flooding would hit the forthcoming harvests hard. With official figures saying that 400,000 hectares of farmland across the country have been destroyed, Li tells Bloomberg that he expects rice output to be down 5% and cotton by 5%-10%. The summer grain harvest fell this year for the first time in the past seven years. But the autumn grain harvest is more important as it accounts for more than three-quarters of annual production in normal years. The price of rice has already risen 15% on the Chicago futures markets since June 30. Cotton has been climbing for the past year, and is now up 26% in the New York market over this time last year. As Bloomberg notes, that will make Beijing’s 3% inflation target harder to meet. And it will require judicious releases from the government’s grain stockpiles to stabilize prices.