Suspension of China-Australian Economic Dialogue may impact much on Australian cotton exports

China's top economic planner, the National Development and Reform Commission, issued a rare statement on the first day returning from May Day holiday, announcing the suspension of the China-Australia Strategic Economic Dialogue, a key intergovernmental dialogue between the two major Pacific economies. This move may result into long-term heavy block of Australian cotton exports, while its influence on China is supposed to be limited.

1. Australian cotton exports rely heavily on the Chinese market

According to the Australian Department of Agriculture and Water Resources, after the Australian cotton production in 2019/20 hit a record low of 134,000 tons in recent years, its 2020/21 cotton production may recover to 562,000 tons due to improved rainfall and normal weather, and the cotton production in the next five years may remain at 350,000-760,000 tons. The export volumes of cotton may also rise from a low level to 350,000-620,000 tons. Its export dependency may rise from 46.3% in 2020/21 season to be above 100%. Later, with the recovery of cotton production, the export dependence of cotton will also increase obviously.

According to the export destinations of Australian cotton, China has become the largest export destination in recent years. In 2019/20 season, the proportion of export value has rebounded to about 63.5%.

After the statement on the indefinite suspension of all activities under the China-Australia Strategic Economic Dialogue, China may stop importing Australian cotton for a long time. Since China is the main export destination of Australian cotton, to make up for the loss by exporting to other countries may be hard to realize in short term, and the influence on Australian cotton exports may be large.

In fact, since the Chinese spinning mills receive the notice that they are not allowed to purchase and clear Australian cotton in Oct 2020, the import volumes of Australian cotton of China have reduced obviously.

Since May 2020, the monthly imports of Australian cotton has continued to hit a record low in the same period of the previous years, partly due to the downgrade of end-user consumption, partly due to the deterioration of Sino-Australian relations. The statement this time may cause China to no longer import Australian cotton in the future.

2. The influences on China are relatively small

Since Oct, 2020, among the cotton import structure of China, the proportion of Australian cotton has reduced from 4.9-7.4% to 0-0.6%. Instead, the proportion of Brazilian cotton increased from 11.1% to 26.4%, and the proportion of Indian cotton increased from 13.5% to 16.9%. As Australian cotton accounts for a relatively small proportion of China’s cotton imports, after the deterioration of China-Australia relations, China can easily choose other cotton to replace Australian cotton, which has little impact on China’s cotton imports.

In summary, China may stop importing Australian cotton for long term after the NDRC announces to indefinitely suspend all activities under the framework of the China-Australia Strategic Economic Dialogue. As China is the major export destination of Australian cotton, this move may have great impact on Australian cotton exports, while as Australian cotton only takes a small proportion in China's cotton imports, the impact on China cotton imports is relatively small. However, part of Chinese companies needs high-grade Australian cotton as feedstock, so this part of companies may stockpile Australian cotton in short, and cleared Australian cotton may lure much attention.