The “Protocol between the Government of the People’s Republic of China and the Government of the Islamic Republic of Pakistan on Amending the Free Trade Agreement” (hereinafter referred to as the “Protocol”) officially came into effect on December 1, 2019. The proportion of tax items on mutually implemented zero-tariff products between China and Pakistan will gradually increase from the previous 35% to 75%. Pakistan’s cotton, cotton yarn and gray fabric exports to China have finally achieved “zero tariffs” (enjoying “the same” treatment as Vietnam’s cotton yarn imports).
Some international traders, investment institutions, and domestic weaving companies generally believe that Pakistani cotton yarn will enter the Chinese market in 2020 and will seize the market share of cotton yarn produced in Vietnam, India, Indonesia, Central Asia and other places. Some Indian yarn mills and exporters also sadly said that “zero tariffs” will allow China to import Pakistani cotton yarn to quickly surpass Indian yarn and challenge the dominance of Vietnamese yarn. Indian cotton, cotton yarn, and gray fabrics are likely to be forced to gradually Exit the Chinese market.
So if the tariffs are lifted, will Pakistani cotton yarn flood into the Chinese market? The author’s opinion is that it has a stimulating and promoting effect, but it is unrealistic to assert that Pakistani yarn imports will increase violently, and Indian yarn mills are even more “unfounded”. The reasons are summarized as follows (Pakistani yarn mills are generally small in scale and have weak delivery capabilities. The stability of yarn quality is not high and will not be discussed for now):
First, in 2019/20, Pakistani yarn mills need to import a large amount of US cotton, Brazilian cotton, West African cotton, and Central Asian cotton at high prices. Etc., coupled with rising labor costs, result in cotton yarn prices becoming less competitive. In 2019/20, the total output and quality of Pakistan’s cotton declined sharply. Coupled with the tense geopolitical relationship with India (the quantity of imported Indian cotton dropped sharply), the dividends of low raw material costs for domestic yarn mills in Pakistan disappeared;
Second, Pakistani yarn mills and cotton yarn import companies should each get a “piece of the pie” from the benefits of “tariff elimination”, but Pakistani yarn mills and exporters seem unwilling to give up the profits to buyers. According to the survey, since December, as Chinese demand has increased driven by the China-Pakistan Free Trade Agreement, the export quotation of Pakistan yarn has increased by 2%-3% as a whole, among which 30S and 32S carded yarn have increased by US$0.08/kg, respectively. 0.09 US dollars/kg; combed 20S-40S yarn increased by 0.10-0.12 US dollars/kg. Chinese weaving factories and traders report that it is difficult to accept;
Third, the trend of RMB depreciation in 2020 is becoming more and more obvious, and the cost of imported cotton yarn is rising. Some institutions analyze that considering the completion of the full-year economic goals and the 2020 goals, the RMB exchange rate will be supported by domestic policies, so there is no possibility of significant depreciation of the RMB exchange rate in December. However, considering that Trump is currently facing impeachment and For the president to choose, he needs to gain some popularity and votes from the chaotic situation; coupled with the expansion of the U.S. fiscal deficit, it needs to rely on external tax increases to offset internal pressure. Therefore, there is a high probability that the Federal Reserve will continue to cut interest rates in 2020 to put pressure on the RMB. . </p
