China’s domestic cotton output this year is projected to reach 6.5 million tonnes,, down by 500,000 tonnes from the previous year, while demand will be around 8.5 million tonnes, resulting in a supply gap of 2 million tonnes.

To control import of cotton yarn, China has decided not to increase its cotton import quota next year beyond the 894,000-tonne quota it promised when joining the World Trade Organization and also to guide domestic textile enterprises to use more homegrown cotton.

The decision making in after the government removed its long-held temporary cotton purchasing policy and introduced a target price system for homegrown cotton this year, Liu Xiaonan, an economic and trade official with the National Development and Reform Commission (NDRC), said.

Under the target price system, the government will subsidize farmers to ensure their earnings when market prices drop below a preset target price, which was set by the NDRC at 19,800 yuan (3,220 U.S. dollars) per tonne in April.

Currently, the domestic price of ginned cotton stands at about 14,000 yuan per tonne, compared with about 11,800 per tonne on the benchmark U.S. futures market.

According to Liu, the price difference on the domestic and international markets is likely to narrow to a "reasonable range," which would help reduce imports of cotton yarn.