Apparel / Textiles & Accessories

The huge public opinion wave caused by the "Xinjiang Cotton" incident has passed for some time, but its effects are still continuing. On the one hand, we resolutely oppose any stigmatization of Xinjiang cotton. On the other hand, the health and safety development of Xinjiang cotton and its related industrial chain is also of more concern. Now, let us take an in-depth look at the industry perspective: what is the situation of cotton production in Xinjiang? What does it mean to be BCI certified? What impact will BCI's boycott of Xinjiang cotton have on my country's cotton industry? Will Xinjiang cotton orders be affected accordingly? What measures did yarn companies take to deal with?

Xinjiang's long-staple cotton is small in quantity, high in quality and in short supply

As the world's largest cotton consumer and the second largest cotton producer, my country's cotton production in 2020/2021 is about 5.95 million tons, with a total demand of about 7.8 million tons and an annual gap of about 1.85 million tons. Among them, the output of Xinjiang cotton is 5.2 million tons, accounting for about 87% of domestic production and about 67% of domestic consumption. For 26 consecutive years, Xinjiang has ranked first in the country in terms of total cotton output, per unit yield, planting area, and commodity allocation. "The world's cotton looks at China, and China's cotton looks at Xinjiang" situation has taken shape.

And Xinjiang long-staple cotton is the world's top, because of its small quantity and high quality, it is very precious. It is understood that under the same conditions, Xinjiang long-staple cotton has a growth cycle of 10-15 days longer than that of upland cotton. It requires more heat, so it is of higher quality and is therefore known as "the best of cotton" and "white gold". Because its fiber is flexible and long, but its fineness and strength are much higher than that of ordinary cotton, it is more flexible, especially suitable for spinning high-end products with high yarn count.

In 2015, Esquel Group funded the world’s first long-staple cotton gene sequencing research project in collaboration with a number of universities and scientific research institutions. Through unremitting exploration and practice of cotton seeds and technology, it has contributed to the collection of global high-quality long-staple cotton’s excellent genes. The birth of the all-in-one top Xinjiang long-staple cotton.

Chen Haiying, chief representative of Esquel Group's Beijing representative office, said that companies have been maintaining the image of Xinjiang long-staple cotton and shouting for long-staple cotton. "Xinjiang cotton is really good. We want everyone to know that it is not imported fabrics. Xinjiang cotton is the best." Chen Haiying said that Esquel Group has been investing emotion and funds to support Xinjiang long-staple cotton. In the future, Esquel Group will continue to consolidate the existing cotton research in Xinjiang, increase investment in Xinjiang, and carry forward this high-quality natural fiber in China.

Cao Huiqing, chairman of the Cotton Farmers Branch of the China Cotton Association, said that in recent years, Xinjiang's cotton output has exceeded 5 million tons in successive years, and the planting area has reached 38 million to 40 million mu. Most of Xinjiang cotton is supplied to large domestic textile companies. In recent years, many inland textile companies have moved to Xinjiang, and the amount of cotton used by local textile companies in Xinjiang has increased dramatically. At present, the country's annual cotton demand is about 8 million tons, and the domestic cotton production is about 6.5 million tons. There is still a gap, and it is necessary to import cotton from India, Australia and other countries.

In Xinjiang, the degree of machine planting and harvesting of cotton fields is getting higher and higher, and the cost is also lower. Cao Huiqing introduced that Xinjiang now promotes modularized cotton planting and socialized services. One phone call can call the cotton picker to achieve door-to-door service. Machine mining costs 150 yuan per acre, an average of 50 cents per kilogram. "Now there is no problem of'decent work' as pointed out by BCI. The cotton-producing areas in northern Xinjiang have achieved 100% machine picking, and the machine picking rate in southern Xinjiang has reached 70%," said Cao Huiqing.

BCI certification intends to control the cotton supply chain

In fact, the boycott of Xinjiang cotton by European and American countries can be traced back to around March 2020. At that time, many American brands declared through their official websites that they decided not to cooperate with suppliers purchasing Xinjiang cotton due to the so-called "forced labor" and "discrimination against ethnic minorities" in Xinjiang.

The main basis for brands to make the above decision is a report issued by the anti-China agency Australian Institute of Strategic Studies (ASPI) in March 2020. According to the report, 83 well-known brands were found to be using cotton products supplied by Huafu Fashion and Esquel Group, accusing millions of people of forced labor.

This has also become the list of Chinese textile companies including Xinjiang Akzo Huafu Mélange Co., Ltd., a subsidiary of Fu Fashion Co., Ltd., and Changji Esquel Textile, a subsidiary of Hong Kong Esquel Group, by the U.S. Department of Commerce in July 2020. "in accordance with".

In September 2020, the U.S. House of Representatives passed the so-called "Xinjiang-related Act", prohibiting many Chinese cotton spinning enterprises from exporting cotton raw materials and products to the United States. This directly led to the decision of BCI, which provides alliance certification services for global cotton industry chain enterprises, to "boycott Xinjiang cotton."

BCI has always regarded itself as a "high standard cotton" and is committed to promoting standard cotton planting and promotion activities worldwide. However, in the "Boycott of Xinjiang Cotton" incident, the organization arbitrarily stopped issuing cotton certification certificates to Xinjiang without checking forgery, which is confusing.

Cao Huiqing said that a few years ago, he conducted a survey on the BCI certification of Xinjiang cotton enterprises. "Actually, the 44 BCI standards are very low. This non-cotton company has formulated a standard for cotton certification and OEM in our country. As it grows larger, it will have the right to speak and set prices. The quality, price and quantity of Chinese cotton will threaten the safety of China's cotton industry. Because cotton is a strategic material of the country and the quantity is huge, this has also attracted the attention of relevant parties." Cao Huiqing said.

Cao Huiqing questioned that perhaps BCI is not to certify the quality of cotton, but to control cotton resources through OEM. "BCI is a Swiss company that does not grow a kilogram of cotton, but it has established a cotton standard. Why should a foreign company dominate the cotton standard? Why can't we start an industrial alliance from the head company? What kind of cotton, what kind of cotton do we grow?” Cao Huiqing said. In fact, China’s cotton companies, the Cotton Association, and the Textile Association are also making efforts in this regard, hoping to establish a brand that will produce, process, circulate, and distribute cotton. Trade, textiles, and garments are linked together to solve pain points for enterprises.

On November 28, 2016, the Cotton Research Institute of the Chinese Academy of Agricultural Sciences took the lead in the establishment of the National Cotton Industry Alliance of 208 enterprises and institutions in my country's cotton industry chain, as well as local governments and agricultural authorities in the main cotton-producing areas. The National Cotton Industry Alliance aims to start from the demand side, with high-quality cotton as the starting point, according to what the demand side needs, the producer will produce what the seed company provides, and the scientific research unit will develop the basic idea of the cotton industry chain. Layout to promote the integrated development of "technical side + production side + demand side".

The members of the National Cotton Union said that relying on the technology of China National Cotton Institute as the backing of planting, this year the National Cotton Union’s supply chain has achieved 90 days for the B-end brand to complete the collection of fabrics from cotton and directly enter the brand's ready-to-wear assembly line. The ginning was harvested in November, and in March of the following year, the little babies across the country have already put on 80 pieces of soft underwear. "We have confirmed the supply of Chinese cotton products. Faced with the boycott of Xinjiang cotton by European and American brands, we should have confidence in national cotton, Xinjiang cotton, and China's professional textile supply chain, and do our job with peace of mind. Fully prepare to meet the long-lasting challenges from the international community in the future." The relevant person in charge said.

Prove the innocence and self-help brand

What impact will BCI’s boycott of Xinjiang cotton have on Xinjiang’s cotton industry? Does Xinjiang’s cotton need to worry about its sales in the future?

In this regard, Cao Huiqing said that Xinjiang Cotton has an excellent reputation among cotton textile enterprises across the country, with outstanding performance in indicators such as color, strength, length and horse value. “If H&M, Nike, Adidas and other companies continue to terminate their cooperation, Xinjiang Cotton will seek new opportunities. In fact, this market is very large. Textile mills will always face raw material problems. Whether they have BCI certification or not, they will not cause a backlog of Xinjiang cotton. Xinjiang cotton will not worry about no sales."

The reporter found that for cotton processing enterprises that mainly supply domestic orders, the relevant "boycott" has limited substantial impact.

Guannong Co., Ltd., a listed company engaged in cotton production and marketing, is largely because the company's cotton product production standards adopt national standards, and sales cover the domestic market and do not involve exports. Xinjiang Lihua Group, which is engaged in cotton planting, purchasing and processing, and textile business in Xinjiang, also said that the cotton products produced by the company are in short supply in the domestic market and have not been exported. The “boycott” that has caused heated discussion has not produced its business. Too much influence.

But for cotton spinning enterprises involved in export trade business, they are not so lucky. The boycott of Xinjiang cotton by European and American brands will have an impact on their production and operation.

According to industry insiders, the impact of terminal brand customers’ boycott of Xinjiang cotton is very far-reaching and involves a wide range of issues. A downstream supplier of an American fashion brand had to replace Xinjiang long-staple cotton with American imported cotton when purchasing raw materials because the brand’s parent company boycotted Xinjiang cotton.

According to people familiar with the matter, due to the Xinjiang cotton quilt boycott, the share of Esquel Group's OEM business revenue is shrinking, and is expected to shrink to about 30% in the next five years. In 2020, the group's OEM business revenue accounted for still around 70%.

However, the Esquel Group did not sit still, but actively launched a series of "self-help". While submitting evidence to the United States that its subsidiaries did not force workers to work, it also disclosed the results of an independent audit conducted by an independent third-party auditing agency in its three cotton mills in Xinjiang: with a full score of 100, all three Esquel cotton mills scored in the same category. Score 85 or above, and there is no forced labor.

In addition, one of the more important initiatives of the Esquel Group is to establish its own brand. In recent years, the group is actively promoting the development of independent retail brands "Pai" and "Shirushi". Both brands focus on high-end high-quality Xinjiang cotton fabrics. It is understood that the proportion of the group's own brand business in total revenue is planned to reach 30% within five years.

Transfer the supply chain to avoid foreign trade risks

According to the BCI official website, as of the end of 2020, the number of BCI members has exceeded 2,000. The members are mainly retail brands, cotton merchants, yarn factories, grower organizations, etc. Many Chinese cotton spinning enterprises, including those in Xinjiang, were also members of the plan.

However, these Chinese companies joining BCI are mostly upstream or mid-end companies in the industry chain. The reason why they joined BCI is mainly to hope that through the supply chain alliance formed by the organization, they can occupy a more favorable competitive position in the export trade market. The member companies downstream of the industry chain are almost all European and American companies. Once European and American companies really boycott Xinjiang cotton, cotton spinning companies involved in export trade are bound to be impacted.

In order to cope with the uncertain risks from the international market, the common choice of textile companies is to transfer the supply chain. As early as a few years ago, my country’s large textile and apparel companies began to build factories in Southeast Asia, where manufacturing costs are lower, or in places farther away, such as Mexico, to lay out global supply chain networks to accommodate European and American companies seeking lower-priced supply chains. The demands of partners. Both Huafu Fashion and Esquel Group have taken such actions.

Huafu started to set up a subsidiary in Vietnam as early as 2013 to invest in building factories. Soon after being included in the "Entity List" by the United States, Huafu Fashion increased its investment in Vietnam and announced the construction of a new type of yarn project of 500,000 spindles, thus forming two production bases in Xinjiang and Vietnam. The Xinjiang plant selected Xinjiang cotton. As a raw material, it serves Chinese companies; while the factory in Vietnam will use locally sourced cotton to mainly serve overseas customers.

The Esquel Group also has production bases in Sri Lanka and Vietnam, and sales offices around the world.

According to industry insiders, it is also a way for the affected yarn companies to switch to domestic sales to accept orders from downstream Chinese brands. However, for large companies that accept global orders, it will take time to fully fill the loss of overseas orders through the increase in domestic orders.

"For them, domestic orders are still too small." Industry insiders believe. However, it is worth noting that the price of high-end and high-quality Xinjiang cotton may become more favorable due to "boycott", which will benefit mid- and downstream enterprises. On the one hand, because of the boycott, Xinjiang's cotton exports have decreased, and the amount of cotton retained in the domestic market will increase to a certain extent, which will have a certain impact on the balance of supply and demand, resulting in slightly lower prices. On the other hand, cotton that is exported for domestic sales does not need to be "gilded."

According to statistics, the price per ton of BCI-certified cotton can be tens to hundreds of yuan higher than that of ordinary cotton. "And when companies in all links of the industry chain begin to accept domestic orders, then we no longer need to pay for the premium generated by the aforementioned certification." Industry insiders analyzed.