ABSTRACT
China, the world's largest producer and consumer of cotton, currently has an estimated 8 million bale cotton surplus. Most likely China will both export and consume this cotton gradually over a period of years. Exports will be limited by China's reluctance to increase export subsidies based on both the need to control a large and rapidly rising budget deficit and on China's need to demonstrate willingness and preparedness to reduce export subsidies to become a GATT member. Faced with surplus cotton, the central government apparently has opted to first solve the short-term problems of budget drain and cash flow that accompany high cotton stocks, thus raising cotton consumption as well as exports. In the long-run, China will continue to strive to maximize foreign exchange earnings. To do so, it likely will need both cotton and textile exports to remain competitive. Although current marketing reforms in China have the potential to alter China's future trade patterns, rapid reform also could seriously disrupt China's textile exports and foreign exchange earnings, something the government is unlikely to do.
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