Required Report - public distribution

**Date:** 5/1/2006

**GAIN Report Number:** CH6021

CH6021

**China, Peoples Republic of**

**Cotton and Products**

**Annual**

**2006**

**Approved by:**

![](media/image1.wmf)Maurice W. House

U.S. Embassy, Beijing

**Prepared by:**

Jim Butterworth & Wu Xinping

**Report Highlights:**

China\'s cotton imports for MY06/07 are forecast to surge to 4.1 MMT
(18.8 million bales) and production is forecast at 6.05 MMT (27.8
million bales). The United States is expected to remain the main source
of cotton imports, although market share is expected to decline for
MY05/06. The high imports are driven by both increased exports of and
domestic demand for textile and apparel products. Stocks continue to be
very tight.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Production 3](#production)

[Consumption 6](#consumption)

[Trade 8](#trade)

[Stocks 9](#stocks)

[Policy 10](#policy)

[Marketing 12](#marketing)

[Tables 13](#tables)

[Production, Supply and Demand (PSD)
13](#production-supply-and-demand-psd)

[Table 1. PSD in Metric Tons 13](#table-1.-psd-in-metric-tons)

[Table 2. PSD in Bales 14](#table-2.-psd-in-bales)

[Trade Tables 15](#trade-tables)

[Table 3. China's Monthly Cotton Imports
15](#table-3.-chinas-monthly-cotton-imports)

[Table 4. China's Quarterly Cotton Imports by Country of Origin
16](#table-4.-chinas-quarterly-cotton-imports-by-country-of-origin)

[Table 5. China\'s Monthly Cotton Exports
17](#table-5.-chinas-monthly-cotton-exports)

[Table 6. China\'s Quarterly Cotton Exports by Destination
18](#table-6.-chinas-quarterly-cotton-exports-by-destination)

[Table 7. China's Monthly Cotton Yarn and Thread Imports
19](#table-7.-chinas-monthly-cotton-yarn-and-thread-imports)

[Table 8. China's Quarterly Cotton Yarn and Thread Imports by Country of
Origin
20](#table-8.-chinas-quarterly-cotton-yarn-and-thread-imports-by-country-of-origin)

[Table 9. China's Monthly Cotton Yarn & Thread Exports
21](#table-9.-chinas-monthly-cotton-yarn-thread-exports)

[Table 10. China's Quarterly Cotton Yarn and Threads Exports by
Destination
22](#table-10.-chinas-quarterly-cotton-yarn-and-threads-exports-by-destination)

[Table 11. China's Monthly Cotton Fabric Imports
23](#table-11.-chinas-monthly-cotton-fabric-imports)

[Table 12. China's Quarterly Cotton Fabric Imports by Country of Origin
24](#table-12.-chinas-quarterly-cotton-fabric-imports-by-country-of-origin)

[Table 13. China's Monthly Cotton Fabric Exports
25](#table-13.-chinas-monthly-cotton-fabric-exports)

[Table 14. China's Quarterly Cotton Fabric Exports by Destination
26](#table-14.-chinas-quarterly-cotton-fabric-exports-by-destination)

[Table 16. Cotton Tariffs as of January 1, 2006
28](#table-16.-cotton-tariffs-as-of-january-1-2006)

[Table 17. Cotton Tariff Rate Quotas
29](#table-17.-cotton-tariff-rate-quotas)

# Executive Summary

Total imports for MY06/07 are forecast to reach a record of 4.1 MMT.
This forecast is based on strong demand from China's burgeoning textile
industry, which is expected to consume 10.2 MMT of cotton in MY06/07,
although domestic production is expected to increase to 6.05 MMT. The
gap will be filled by imports, primarily from the United States.
Production for MY06/07 is forecast to increase to 6.05 MMT from the
decreased production of 5.7 MMT for MY05/06 due to a 7 percent increase
of planted area and the same expected high yields as the year before.
The increased cotton prices since the harvest of the 2005 crop and
better profits received by cotton farmers attributed to the area
expansion for 2006. China's expanding textile industry is driven both by
exports and increased domestic consumption. Textile and apparel exports
for MY06/07 are expected to continue growing due in part to the removal
of textile quotas on January 1, 2005. Strong domestic demand for
textiles and apparel, which is driven by Chinese consumers' increased
disposable incomes, also is increasing demand for cotton. Consignment
trade provides between 200,000 to 400,000 MT of cotton in China's bonded
warehouses. The stocks-to-use ratio remains below 20 percent. The newly
published China Cotton Association Cotton Trade Rules (CCA Cotton Trade
Rules) are to replace the "China Textile Trade Rules", and are expected
to facilitate cotton trade.

# 

# 

# Production

Overview - China's cotton production for MY06/07 is forecast at 6.05
MMT, up by 6.1 percent from the estimated 5.7 MMT for MY05/06. This is
in response to relatively high cotton prices since the harvest of the
2005 crop, and better profits received by cotton farmers. As a result,
cotton planted area is forecast to rise to 5.4 MHA or 6.7 percent higher
than the 5.06 MHA for MY05/06. Yields for MY06/07 are forecast at an
identical level of 1.12 MT per hectare in MY05/06, which is higher than
the recent historical average.

Planted area -- On March 8, 2006, the State Cotton Marketing Monitoring
Network (SCMN) released the results of its cotton planting intention
survey conducted in February. The survey covered 3519 househoulds/farms
located in 84 counties/cities in 16 cotton-producing provinces. The
results showed farmers intended to plant 4.68 percent more area to
cotton than previous year. Total intended planting area is to reach 5.3
million hectares (MHA) for MY06/07.

Table 1: SCMN 2006 Cotton planting Intention Survey Results (by
percentage over MY05/06)

  -------- ------- ------- -------- -------- -------- --------- ------- ------- ------- ----------- ------- -------
  Yellow                                              Yangtze                           Northwest           
  River                                               River                                                 

  AVG      HN      SD      HeB      SX       ShX      AVG       JS      HuB     AH      AVG         XJ      GS

  +7.39    +0.32   +10.1   +10.09   +11.26   +16.04   +3.11     -0.86   +7.32   +1.77   +1.28       +1.05   +4.59
  -------- ------- ------- -------- -------- -------- --------- ------- ------- ------- ----------- ------- -------

Note: AVG-average; HN-Henan; SD-Shandong; HeB-Hebei; SX-Shann'xi: ShX-
Shan Xi; AH-Anhui; JS-Jiangsu; HuB- Hubei; XJ- Xinjiang; GS- Gansu;

As Table 1 shows, the highest growth is expected in the Yellow River
region, particularly in Shandong and Henan provinces. It is also worth
noting that cotton area is also expected to increase in the small
producing provinces such as Shann'xi and Shanxi, although the combined
production for the two provinces was 200,000 MT for MY04/05.

In February 2006, the Cotton Farmers Branch of China Cotton Association
(CCA) released its cotton planting intention survey results. They
forecast a 9.4 percent area increase (5.6 MHA) for MY06/07. An earlier
survey conducted in December 2005 by MOA's Survey Office on Fixed Rural
Households concluded that MY06/07's cotton area is expected to increase
by 14.9 percent.

On March 27, 2006, China's Ministry of Agriculture (MOA) noted the
growing supply/demand gap for MY05/06 and MY06/07, and issued an
administrative circular that encouraged farmers to "increase cotton
area, adopt new technology to achieve high yield and better fiber
quality, and improve productivity and efficiency". The circular also
stressed the importance of "cotton industry safety" for China. However,
cotton farmers in general, particularly those in the Yellow River and
the Yangtze River regions, make their planting decision based on the
returns received from the previous crop. A MOA official estimated cotton
area for MY06/07 would exceed 80 million Mu (5.33 MHA).

The forecast increase of cotton area is mainly driven by the increased
cotton price and profit received for the 2005 crop. According to the
China Cotton Research Institute (CRI), price for seed cotton and output
value per unit in 2005 increased by 28.4 percent and 23 percent,
respectively, over 2004. Despite increased production costs and
decreased yield in some regions, the nationwide average per unit returns
for 2005 increased by 33.8 percent over the year before. The highest
growth recorded was in the Yellow River region, up by 130.9 percent,
followed by the Northwest region up by 32.9 percent, and the lowest in
the Yangtze River region up by 3.2 percent.

Additionally, the CRI report showed that the price ratio between cotton
and grain increased in favor of cotton in both the Yellow River and the
Yangtze River regions. The cotton to grain price ratio for 2005
increased to 9.3 to 1 for wheat from the 6.5 to 1 in the previous year,
and 12.6 to 1 for corn from 9.1 to 1 the year before.

The CCA survey also showed 80 percent of the interviewed farmers decide
cotton area for the next season based on the price for the current crop,
while only 5 percent replied that they would pay attention to the market
demands.

China's cotton area fluctuated dramatically in past years as a result of
price swings both in the domestic and global markets. As compared to the
price in the last months of 2005, the current cotton price remains
steady to declining in the domestic market. This may reduce the final
planting area of some farmers to some extent. Based on information of
various sources, however, Post forecasts that China's cotton area is
likely to reach 5.4 MHA in 2006.

Chart 1: China's Cotton Area and production from 2001 to 2006\*

![](media/image2.wmf)

Note: 2006 data forecast by Post

Yields -- Post used a yield of 1120 Kg/HA to calculate its MY06/07
production forecast. This yield is lower than the 1126 Kg/HA recorded in
2005, but higher than the recent five-year average yield of 1094 Kg/HA.
Chart 2 shows the yield trend in past five years.

Chart 2: China Average Cotton Yields from 2001 to 2006\* (Kg/Ha)

![](media/image3.wmf)

Note: 2006 data forecast by Post

Some industry insiders said the relatively high and stable yields in the
past two years were chiefly attributable to ideal growing conditions.
The contribution of improved varieties plus advanced agronomy practice,
however, should not be under estimated.

An important yield booster is the planting of transgenic Bt cotton
varieties. Farmers are expected to continue planting more area to
transgenic Bt cotton varieties in 2006. The area planted to Bt cotton in
2005 is estimated at 3 MHA, and is forecast to reach 3.3 MHA in 2006.
According to a CRI expert, the coverage of Bt cotton varieties is almost
100 percent in Shandong, Henan, Hebei and Anhui provinces. Domestic Bt
cotton varieties are said to have taken about 70 percent of the market
share. In Xinjiang, industry sources reported that Bt cotton varieties
are not widely planted because bollworms are less of a problem there
than in other areas, so farmers prefer seeds of the cheaper conventional
varieties.

CRI is using transgenic technology to breed new varieties with disease
resistance and better fiber quality, but no detailed results are
available yet and no varieties have been commercialized. In September
2005, several official media sources reported that a major
cotton-breeding breakthrough had made China the first country in the
world to commercialize a cotton strain that can resist bollworms and
increase output by 25 per cent. Although the impact of this technology
advancement remains unknown, the widely adopted Bt varieties will
continue to contribute to a stable yield.

Agronomy practices continued to improve in 2005 and are expected to
continue improving in the coming year. The practice of transplanting
seedlings and the use of plastic sheeting increased last year and are
expected to increase in the coming year too. Cotton harvesting in
Xinjiang is expected to improve gradually. In 2005, Xinjing faced a
serious shortage of labors in the harvesting season, which pushed up the
labor cost accordingly. Industry source reported Xinjiang bought over
200 cotton harvesters in 2005, mainly from the United States. This will
help facilitate harvesting in a timely manner and improve cotton
quality.

In addition to the above factor, farmers are likely to increase inputs
on crops that generated higher profits in the previous season.

MOA experts have predicted that cotton bollworm and aphids are likely to
be worse than average in 2006. Also, April's shortfall of rain in North
China is likely to keep yields in check in that area. These exceptions
notwithstanding, all other major factors are expected to contribute to
good yields in 2006.

# Consumption

China's cotton consumption for MY06/07 is forecast at 10.2 MMT, 8
percent more than the revised estimate of 9.45 MMT for MY05/06. This
increase is driven by the high growth of domestic textile consumption as
a result of consumers' greater disposable income and the high export
growth of textile products resulting from the removal of quotas since
the beginning of 2005.

China's textile industry has developed rapidly over the past decade and
most industry insiders expect it to continue growing in the first few
years of the post-quota era. According to China's National Development
and Reform Commission (NDRC), following the 30 percent growth of fixed
asset investment in the textile industry in 2004, the net investment in
2005 reached US\$19.4 billion, up by 35.5 percent over 2004. Industry
sources reported that the planned investment was estimated at US\$46
billion, up by 38.8 percent over 2004. There were 6738 textile projects
under construction in 2005, up by 1436 over the previous year. There
were 4775 textile projects, which started construction in 2005 \-- 1202
more than in 2004. According to NDRC, the majority of the investment (73
percent) continued to concentrate in the east coastal provinces. The
industry also started to shift towards the central regions. Investment
in three northeastern provinces reached US\$923 million, up by 68.8
percent, and US\$3.1 billion in the central six provinces, up by 44.9
percent. Private investment increased by 45.7 percent and accounted for
70.7 percent of the total investment. Foreign investment growth declined
to 25.5 percent, as compared to domestic growth of 39.3 percent.
Industry sources estimated that total spindles amounted to 80 million as
of the end of 2005.

The increased investment has paid dividends in the form of a 26 percent
increase in output value and a 36 percent increase in profits over 2004.
Approximately 20 million people, of which 70 percent came from rural
regions, are directly involved in the textile sector, up by 1 million
over that in 2004. In addition, another 100 million are indirectly
involved. The consolidation of small mills is expected to continue in
the post-quota era.

Based on NDRC, China's textile and apparel exports for 2005 were
US\$117.5 billion, up by 20.7 percent over 2004. Industry sources said
the trade surplus for the textile sector in 2005 stood at US\$100.4
billion, accounting for 98.5 percent of the nation's total trade
surplus. Exports for the first two months of 2006 continued growing.
(See chart 3). The impact of the elimination of quotas on January 1,
2005, was readily apparent, although it was offset partly by the
safeguards imposed by EU and the United States. Industry sources
indicated the strong export growth in 2005 are still driven by increased
exports to the United States and EU, which grew by 66.1 percent and 55.3
percent, respectively, over 2004, and contributed 72 percent of the
total growth. NDRC forecast China's textile and apparel exports to grow
by 15 percent, and the sector output value to grow by 20 percent for
2006. Industry sources expect exports to other regions (outside the
United States and EU) will also grew steadily in 2006, although export
growth to the United States and EU may be constrained by new trade
frictions.

Chart 3: China's Textile & Apparel Monthly Exports from 2003-2006(in
million US dollars)

![](media/image4.wmf)

Domestic consumption of textiles and apparel continues to be driven by
increased disposal income and population growth. According to industry
sources, the per capita consumption of fiber reached 14 Kg in 2005. NDRC
forecast this would reach 18 Kg in 2010. Based on international
experience, China's fiber consumption is expected to continue growing as
it has since China's per capita GDP surpassed US\$1,000. The 26 percent
growth of output value for the sector as compared to the 20.6 percent
for the export value in 2005 showed the domestic consumption continued
to be the major driving force for development of the industry.

High growth in yarn production is expected in MY06/07 because of the
growing textile industry. According to China's National Statistics
Bureau (NSB), yarn production for 2005 stood at 14.4 MMT, up by 11.6
percent over the adjusted 12.9 MMT for 2004. The 2004 yarn production
was adjusted upward significantly (up by 1.7 MMT) as compared to the
11.2 MMT published in the 2005 Statistics Yearbook) by NSB based on the
National Economic Census conducted in 2005. The reason reportedly was a
lack of reporting by some small mills and some new mills that recently
began operating. Based on industry sources, Post opines that the yarn
production might have been understated in past years due to the
complexity of the statistics, and the adjusted data for 2004 and 2005
may represent the real yarn production situation. According to NDRC's
forecast of 10 percent growth, total yarn production for 2006 will
exceed 15.5 MMT.

It is worth mentioning that to convert the yarn production to cotton use
remains challenging for all relevant agencies. The numerous mills keep
changing cotton share in yarn production according to market demands. A
one-percentage change of cotton share will change cotton consumption by
thousands of metric tons. As for the net waste (trash not suitable for
spinning), some mills told Post this ranges from 3 to 5 percent, instead
of the usual 6 percent used by many industry sources.

Chart 4: China's Yarn Production in 2001-2006 (in 10,000 MT)

![](media/image5.wmf)

Note: 2006 data forecast by Post; 2004 data is NSB's adjusted

Cotton is likely to gain more share in yarn production because of the
surge in crude oil prices. According to NDRC, 2005 man-made fiber
production growth declined to 14.8 percent, as compared to the 20.6
percent growth in 2004. The sector's profit dropped by 20.6 percent over
the previous year. Historically, the cotton price is approximately 20
percent higher than the price of polyester fibers. In 2005, however, the
price of polyester was close to that of cotton. As the international
crude oil price keeps rising, the price gap between polyester and cotton
is unlikely to return to 20 percent in 2006. Industry experts expect
that the share of man-made fiber in yarn production will decline
slightly in 2006.

Industry insiders said that one factor that might reduce China's cotton
consumption is the appreciation of China's currency because China's
textile exports earn only a 3 percent margin. Any further appreciation
of China's currency will put much pressure on textile exports. Post,
however, expects that the impact on the total cotton consumption will be
limited.

# Trade

Imports for MY06/07 are forecast at 4.1 MMT. This is only 2.5 percent
higher than the estimated 4 MMT imports for MY05/06, which grew
significantly over the previous year. This huge increase for MY05/06 has
been driven by the combination of high consumption growth as a result of
China's rapidly expanding textile industry and reduced domestic
production due to 11 percent less area planted to cotton. Imports for
MY06/07 are forecast to remain high at 4.1 MMT, chiefly due to the
continued growth of yarn production.

As reported in GAIN CH5032, the 1.4 MMT imports for MY04/05 were much
lower than what the industry sources expected. This is partly due to the
large domestic crop and the resultant low cotton price. Also, traders
and mills took a "hand-to-mouth" approach to managing stocks to avoid
the losses they experienced the previous season when they overbought at
high prices. Industry sources discovered that the total cotton supply
simply did not match the increased yarn production for 2004 and 2005
(see chart 4), and opined that either China had more stocks than experts
think or the NSB production number for 2004 was understated. The under
estimation could be the result of the complexity of statistics on
unprecedented area expansion plus a good harvest, and the central
government's priority was grain production. Based on all sources and
analysis, Post added 300,000 MT to 2004's production. Despite this, the
ending stocks for MY04/05 were still very low. Based on a low carry-in
stocks and a lower domestic production for MY05/06, together with the
strong growth of yarn production, it is not surprising that imports for
MY05/06 will increase to an estimated 4 MMT, up 186 percent over the
previous year. The high imports, however, are unlikely to increase the
ending stocks for MY05/06. Despite an anticipated high domestic
production for MY06/07, Post forecasts MY06/07 imports to reach 4.1 MMT
based on the expected strong consumption growth (as mentioned above)
together with low carry-in stocks.

Increased consignment trade since 2004 alleviated the impact of low
stocks on China's cotton situation. To cater to the "hand to month"
purchasing pattern adopted by many medium and small-scale mills, many
international merchants began to ship cotton to China's Bonded
Warehouses. Interviewed mills showed great interest in buying cotton
from the bonded warehouse due to its shortened delivery time,
flexibility and convenient quality check. Industry sources estimated the
normal stocks in bonded warehouse ranges from 200,000 MT to 400,000 MT.
This might partly explain why the estimated China's cotton stocks
remained low in the past two years, while the industry kept operating
smoothly. Although the current consignment trade boom is partly due to
the scheduled elimination of the US "Step-2" program as some industry
sources believe, Post expects it is likely to continue because it fits
the demand of numerous Chinese mills. Imports for "Processing with Input
Material" also increased in MY05/06, and imports for "Processing with
Given Material" remained small.

Origins of imports for 2005 are similar to those in 2004, with the
United States as the largest supplier (46 percent), followed by
Uzbekistan a distant second (11.8 percent). Although the net imports
from the United States for 2005 increased by 149,800 MT over the 1.05
MMT for 2004, its market share dropped to 46 percent from previous
year's 55 percent. Along with the larger total imports in 2005, origins
of imports are more diversified. They come from 40 countries. Australia
became the third largest supplier, with over 200,000 MT in 2005. Imports
from India also surged to 124,000 MT in 2005, from less than 10,000 MT
in 2004. Industry insiders reported that Indian cotton is competitively
priced.

Industry sources indicated that along with the rapid import growth in
2005, the overall downgrade rate declined slightly to 15.9 percent as
compared to the 16.9 percent for 2004.

Exports continued to fall in 2005 \-- to about 5,000 MT from 9,283 MT in
2003. They are expected to remain insignificant in 2006.

Cotton yarn and thread trade for 2005 increased, up by 10 percent for
imports, 8 percent for exports, respectively. Exports of cotton fabric
for 2005 increased by 14 percent, while imports decreased by 2 percent.

The CCA Cotton Trade Rules (applied to cotton imports only) were
published in April 2006. These new rules will replace "China Textile
Trade Rules" and be adopted gradually. According to CCA, the new rules,
based on the 1989-revised version of "China Textile Trade Rules", are
finalized through more than one-year of detailed consultations and
negotiations with the U.S. industry leaders. The new rules highlight
contract and quality fulfillment and liability. The CCA Rules are aimed
to regulate the trade order, establish a credibility system and protect
the interests of all parties. A series of training programs will be held
to educate the Chinese industry leaders about the new rules. A
"black-list" system is to be established to encourage self-regulation
and strengthen the principle of contract sanctity.

# 

# 

# Stocks

Stocks remain very difficult to estimate. China still regards data on
cotton stocks as state secrets that are not released to the public.
Additionally, based on various sources, Post believes there were no
reliable stocks data since the liberalization of cotton marketing in
1999, particularly in recent years, when the whole cotton industry
expanded rapidly. The numerous players of diversified ownership in the
industry chain, including gins, merchants and mills makes collecting
reliable production statistics extremely difficult. As mentioned above,
Post estimated very low stocks for MY04/05 and MY05/06. Stocks for
MY06/07 are forecast to be similar as MY05/06. It is worth noting that
the regular inventory in China's bonded warehouses by the consignment
trade may be regarded as China's stocks. As estimated by industry
insiders, the normal quantity in the bonded warehouses ranges from
200,000 to 400,000 MT. Even so, the stock to use ratio is below 20
percent.

# 

# Policy

Reform of China's cotton classification system continued in 2005 but
faced new challenges. In general, the objective of proposed reform is to
integrate China's classification regime with international standards.
(For detailed information on the reform program, see GAIN reports
CH4013, CH4039 and CH5032). According to NDRC, the fourteen gins that
participated in the trial implementation phase of the reform processed
130,000 bales and the new equipment worked smoothly; the eight
classifying institutes conducted laboratory tests on all 130,000 bales,
and the HVI equipment operated well. Another 322 gins completed
equipment renovation, and additionally 59 more HVI laboratories were
built in 2005. The GOC appropriated about US\$9.76 million to subsidize
the cost of low-interest loans for gins upgraded their equipment in 2005
to meet the new standards. The classified bales are approved to enter in
the futures market in Zhenghzou Commodity Exchange (ZCE) and National
Cotton Exchange's (CNCE) electronically trade market.

According to NDRC, in 2006, the reform priority will focus on tracking
on the implemented policy/regulations, and restructuring the cotton
processing industry through expanding the reform coverage. Based on
industry sources, the on-going reform faced new challenges. Many gins
cannot afford the cost of new equipment, and some industry insiders are
worried that the small-scale new gins would use equipment abandoned by
larger mills that upgraded their equipment to meet the new standards,
thus the number of gins would not fall. Some industry experts even
questioned the need for the expensive reform. They stated that domestic
merchants and mills accept the current classification regime, so why
should they change? Moreover, China is and will be a net importer of
cotton in the foreseeable future. Based on all sources, Post believes
that the reform will continue and facilitate the development of China's
cotton industry. However, it may take longer time than scheduled to
complete.

As for the delayed enforcement of an amendment to China's upland cotton
standard, GB-1103-1999 (See GAIN CH4013 for details), CCA reported that
the State Cotton Standard Drafting Group had its third and fourth
meetings on February 27, and April 18, 2006, respectively. The final
version, which was formulated in the fourth meeting, incorporated
technical specifications for HVI testing and some suggestions received
after the third meeting. It will be submitted to the relevant agency and
then be notified to World Trade Organization (WTO), and is expected to
take effect on September 01, 2007. According to industry sources, the
proposed two additional indicators, namely "neps and short fiber
content," are not included in the revised draft. Many industry sources
are of the opinion that these standards are unlikely to affect trade in
the foreseeable future because China needs increasing quantities of
cotton in the post-quota era. Also, devising a reliable method to
measure these two parameters would need to be resolved before China
could effectively implement the standard. Most Western technical experts
opined that that would be very difficult. It should be noted, however,
that some textile industry insiders have complained that the high short
fiber content reduced the quality of their products.

Production policy remains unchanged. MOA encourages steady cotton
production based on its Regional Plan for Agricultural Products
announced in February 2003. MOA's ability to really affect farmers'
planting decisions, however, is limited because farmers "plant their
pocketbook;" they pay little heed to MOA's pronouncements and policy
objectives unless they are compensated. On March 27, 2006, MOA issued an
administrative circular, which encouraged adequate expansion of cotton
planting area and increase of yield and productivity to attain high
cotton production to meet the growing textile demand. In the long term,
MOA opines that China is able to increase cotton area to about 5.6 MHA.
MOA expects it is likely to add 200,000 Ha in the Northwest, if the
irrigation system improves. In the Yellow River and the Yangtze River
regions, cotton area is often affected by cotton price and returns, but
is likely to exceed 4 MHA as recorded in 2004. MOA also forecast yield
increase to 1200Kg/HA by 2010 through technology advancement. In the
11^th^ Five-year Plan period (2006-2010), the GOC will provide
assistance to Xinjiang cotton production through establishment of
production bases and seed projects. No details, however, were released
in this regard.

Additional TRQ for raw cotton imports is subject to a tariff rate
ranging from 5 percent to 40 percent and the WTO committed TRQ remains.
China's WTO commitment did NOT mandate elimination of cotton TRQ in
January 2005. The 2006 quantity remains the same \-- 894,000 MT, which
was distributed before the end of 2005. The allocation policy remains
unchanged. In order to meet the increased cotton demand, in February
2006, NDRC added 1.5 MMT of cotton TRQ over and above its WTO mandated
TRQ of 894,000 MT. Although NDRC did not publish the names of the
enterprises that received TRQ, industry sources reported that more than
1000 enterprises received TRQ in 2006, as compared to the 700 in 2005.
Anecdotal news said another 200,000 MT of TRQ was allocated to the
members of the April 2006 China's trade mission to the United States.
Industry sources reported that, as the domestic cotton price is higher
than cotton in international market, TRQ is increasingly traded at about
US\$200/MT (WTO committed TRQ) to US\$100/MT (additional TRQ).

In an industry conference held in April 2006, NDRC forecast China's per
capita fiber consumption to increase to 18 Kg by 2010 from the current
14 Kg. Despite this increased demand for cotton, NDRC stressed that the
TRQ regime will remain in place into the foreseeable future. The
allocation of TRQ will have to take into account the interests of both
the farmers and the textile industry. TRQ management will be
strengthened and continues to favor efficient and medium to large-scale
mills. Based on various sources, Post expects that more TRQ for 2006, if
any, is unlikely to be distributed before the harvest of 2006 crop.
China's current willingness to expand the TRQ beyond its WTO commitments
should continue into the near future because the textile industry needs
the cotton and it cannot all be produced domestically.

The variable tariff rate imposed May 1, 2005, on imports under added TRQ
is to set a floor price for domestic cotton to protect farmers'
interest. According to industry sources, if the imported cotton price
equals to or exceeds the target price of RMB10,029/MT (US\$1213.4/MT),
the tariff rate is five percent. If the imported price is below this,
the rate increases anywhere from 5 to 40 percent based on a complex
formula. This target price was adjusted upward to RMB10,746/MT
(US\$1335/MT) in 2006. The variable tariff regime is quite controversial
among different sectors. Basically, the agriculture sector supports it
and the textile sector has reservations. In response to these arguments,
in April 2006, NDRC promised further study on the issue, but stated that
the tariff rate should be stable. In general, Post expects that the
variable tariff regime will remain in place in the foreseeable future.

The Agriculture Development Bank of China (ADBC) continued to provide
targeted loans with favorable terms for purchasing cotton in 2005. ADBC
had earmarked a record US\$5.15 billion for this program, up by 43
percent over the year before. The increased loans are partly because the
merchants rushed to purchase cotton as production declined. Industry
insiders, however, expressed concerns about the merchant's ability to
repay the loans because the purchased high-priced cotton was not all
sold yet.

# Marketing

*Overview:* The marketing of domestic cotton continues to be difficult
in China and it shows little sign of improving in the foreseeable
future. There are approximately 12,000 gins with a total ginning
capacity estimated of 40 MMT per year, which is equivalent to 5 to 7
times of domestic production. This lack of consolidation in the industry
leads to inefficiencies and uneven cotton quality. As usual, in October
2005, NDRC issued a circular in an effort to maintain orderly cotton
marketing. The circular ordered a crack down on those small operations
that have outdated equipment to make it more difficult for them to
purchase cotton. It also warned that the high prices merchants were
paying for cotton were causing market instability. Industry sources
reported that the impact of the circular on the market has been very
limited. In early months of 2005 some merchants repeated the mistakes
they made in 2003 -- they rushed to purchase high priced cotton, only to
watch the international price and their profits fall by the end of the
year. According to CCA, as of the end of February 2006, total cotton
purchased was 5.25 MMT, accounting for 92 percent of the total.

Transporting cotton out of Xinjiang continues to be a problem that shows
little sign of improving. Xinjiang officials complained again that the
shortage of railcars constrained the marketing of Xinjiang cotton during
the current marketing year. According to the Xinjiang Development and
Reform Commission, as of mid December 2005, about 360,000 MT cotton was
shipped out of Xinjiang, 8.5 percent higher than the corresponding time
in the previous year. Another media source reported, as of April 2006,
about 700,000 MT of cotton were yet to be shipped out.

*Market liberalization* -- Since January 1, 2005, marketing of cotton
within China was opened up to international traders and investors. This
is based on China's WTO commitments, which specified that foreign
traders can import and market cotton directly in China, and can be
involved in the marketing of domestic cotton. According to industry
sources, the GOC already approved some international traders to engage
in domestic cotton trade. The traders, however, are taking a very
cautious approach to entering domestic cotton marketing; many are taking
a "wait and see" approach.

*Marketing Assistance* - U.S. cotton exporters interested in exporting
cotton to China and want marketing advice and assistance may contact
USDA/FAS's Agricultural Trade Offices (ATO) in Beijing, Shanghai, and
Guangzhou. They can be contacted via email at <ATOShanghai@usda.gov>,
<ATOBeijing@usda.gov>, and <ATOGuangzhou@usda.gov> respectively. Also,
Cotton Council International (CCI) is actively involved in promoting
U.S. cotton in China and throughout Asia. CCI serves China from its
office in Hong Kong. They can be reached via email at
<cci-hongkong@cotton.org>. Both CCI and the ATO's organize events
designed to bring U.S. cotton exporters together with Chinese buyers.

# Tables

## Production, Supply and Demand (PSD)

### Table 1. PSD in Metric Tons

+----------------+-------+-------+--------+--------+---------+--------+
| **PSD Table**  |       |       |        |        |         |        |
+----------------+-------+-------+--------+--------+---------+--------+
| **Country**    | **C   |       |        |        |         |        |
|                | hina, |       |        |        |         |        |
|                | Pe    |       |        |        |         |        |
|                | oples |       |        |        |         |        |
|                | Rep   |       |        |        |         |        |
|                | ublic |       |        |        |         |        |
|                | of**  |       |        |        |         |        |
+----------------+-------+-------+--------+--------+---------+--------+
| ##             | **Cot |       |        |        | (HECTAR |        |
| #### Commodity | ton** |       |        |        | ES)(MT) |        |
+----------------+-------+-------+--------+--------+---------+--------+
|                | 2004  | Re    | 2005   | Es     | 2006    | Fo     |
|                |       | vised |        | timate |         | recast |
+----------------+-------+-------+--------+--------+---------+--------+
|                | USDA  | Post  | USDA   | Post   | USDA    | Post   |
|                | Off   | Estim | Of     | Est    | O       | Est    |
|                | icial | ate\[ | ficial | imate\ | fficial | imate\ |
|                | \[    | New\] | \      | [New\] | \[Old\] | [New\] |
|                | Old\] |       | [Old\] |        |         |        |
+----------------+-------+-------+--------+--------+---------+--------+
| **Market Year  |       | 08    |        | 0      |         | 0      |
| Begin**        |       | /2004 |        | 8/2005 |         | 8/2006 |
+----------------+-------+-------+--------+--------+---------+--------+
| Area Planted   | 0     | 59    | 0      | 5      | 0       | 5      |
|                |       | 64000 |        | 060000 |         | 364000 |
+----------------+-------+-------+--------+--------+---------+--------+
| Area Harvested | 56    | 59    | 5      | 5      | 0       | 5      |
|                | 90000 | 64000 | 060000 | 060000 |         | 364000 |
+----------------+-------+-------+--------+--------+---------+--------+
| Beginning      | 32    | 15    | 2      | 1      | 2893150 | 1      |
| Stocks         | 56754 | 04758 | 844162 | 261624 |         | 506624 |
+----------------+-------+-------+--------+--------+---------+--------+
| Production     | 63    | 66    | 5      | 5      | 6422933 | 6      |
|                | 14070 | 20000 | 704436 | 700000 |         | 050000 |
+----------------+-------+-------+--------+--------+---------+--------+
| Imports        | 13    | 13    | 3      | 4      | 4027941 | 4      |
|                | 90184 | 93551 | 973510 | 000000 |         | 100000 |
+----------------+-------+-------+--------+--------+---------+--------+
| MY Imp. from   | 0     | 0     | 0      | 0      | 0       | 0      |
| U.S.           |       |       |        |        |         |        |
+----------------+-------+-------+--------+--------+---------+--------+
| ######         | 109   | 95    | 12     | 10     | 1       | 11     |
| # TOTAL SUPPLY | 61008 | 18309 | 522108 | 961624 | 3344024 | 656624 |
+----------------+-------+-------+--------+--------+---------+--------+
| Exports        | 6532  | 6685  | 5443   | 5000   | 5443    | 3000   |
+----------------+-------+-------+--------+--------+---------+--------+
| USE Dom.       | 83    | 82    | 9      | 9      | 1       | 10     |
| Consumption    | 82472 | 50000 | 906558 | 450000 | 0777465 | 200000 |
+----------------+-------+-------+--------+--------+---------+--------+
| Loss Dom.      | -2    | 0     | -      | 0      | -326590 | 0      |
| Consumption    | 72158 |       | 283045 |        |         |        |
+----------------+-------+-------+--------+--------+---------+--------+
| TOTAL Dom.     | 81    | 82    | 9      | 9      | 1       | 10     |
| Consumption    | 10314 | 50000 | 623513 | 450000 | 0450875 | 200000 |
+----------------+-------+-------+--------+--------+---------+--------+
| Ending Stocks  | 28    | 12    | 2      | 1      | 2887707 | 1      |
|                | 44162 | 61624 | 893150 | 506624 |         | 453624 |
+----------------+-------+-------+--------+--------+---------+--------+
| ####### TOTA   | 109   | 95    | 12     | 10     | 1       | 11     |
| L DISTRIBUTION | 61008 | 18309 | 522106 | 961624 | 3344025 | 656624 |
+----------------+-------+-------+--------+--------+---------+--------+

### Table 2. PSD in Bales

+-----------------+-------+-------+-------+--------+--------+--------+
| **PSD Table**   |       |       |       |        |        |        |
+-----------------+-------+-------+-------+--------+--------+--------+
| ######## Count  | **C   |       |       |        |        |        |
| ry {#country-1} | hina, |       |       |        |        |        |
|                 | Pe    |       |       |        |        |        |
|                 | oples |       |       |        |        |        |
|                 | Rep   |       |       |        |        |        |
|                 | ublic |       |       |        |        |        |
|                 | of**  |       |       |        |        |        |
+-----------------+-------+-------+-------+--------+--------+--------+
| #               | **Cot |       |       |        | (H     |        |
| ##### Commodity | ton** |       |       |        | ECTARE |        |
|                 |       |       |       |        | S)(MT) |        |
+-----------------+-------+-------+-------+--------+--------+--------+
|                 | 2004  | Re    | 2005  | Es     | 2006   | Fo     |
|                 |       | vised |       | timate |        | recast |
+-----------------+-------+-------+-------+--------+--------+--------+
|                 | USDA  | Post  | USDA  | Post   | USDA   | Post   |
|                 | Off   | Estim | Off   | Est    | Of     | Est    |
|                 | icial | ate\[ | icial | imate\ | ficial | imate\ |
|                 | \[    | New\] | \[    | [New\] | \      | [New\] |
|                 | Old\] |       | Old\] |        | [Old\] |        |
+-----------------+-------+-------+-------+--------+--------+--------+
| **Market Year   |       | 08    |       | 0      |        | 0      |
| Begin**         |       | /2004 |       | 8/2005 |        | 8/2006 |
+-----------------+-------+-------+-------+--------+--------+--------+
| Area Planted    | 0     | 59    | 0     | 5      | 0      | 5      |
|                 |       | 64000 |       | 060000 |        | 364000 |
+-----------------+-------+-------+-------+--------+--------+--------+
| Area Harvested  | 56    | 59    | 50    | 5      | 0      | 5      |
|                 | 90000 | 64000 | 60000 | 060000 |        | 364000 |
+-----------------+-------+-------+-------+--------+--------+--------+
| Beginning       | 32    | 15    | 28    | 1      | 2      | 1      |
| Stocks          | 56754 | 04758 | 44162 | 261624 | 893150 | 506624 |
+-----------------+-------+-------+-------+--------+--------+--------+
| Beginning       | 149   | 69    | 130   | 5      | 13     | 6      |
| Stocks          | 58271 | 11353 | 63236 | 794639 | 288238 | 919924 |
+-----------------+-------+-------+-------+--------+--------+--------+
| Production      | 290   | 304   | 262   | 26     | 29     | 27     |
|                 | 00524 | 05660 | 00475 | 180100 | 500531 | 787650 |
+-----------------+-------+-------+-------+--------+--------+--------+
| Imports         | 63    | 64    | 182   | 18     | 18     | 18     |
|                 | 85115 | 00580 | 50331 | 372000 | 500333 | 831300 |
+-----------------+-------+-------+-------+--------+--------+--------+
| MY Imp. from    | 0     | 0     | 0     | 0      | 0      | 0      |
| U.S.            |       |       |       |        |        |        |
+-----------------+-------+-------+-------+--------+--------+--------+
| TOTAL SUPPLY    | 503   | 437   | 575   | 50     | 61     | 53     |
|                 | 43910 | 17593 | 14042 | 346739 | 289102 | 538874 |
+-----------------+-------+-------+-------+--------+--------+--------+
| Exports         | 30001 | 30704 | 25000 | 22965  | 25000  | 13779  |
+-----------------+-------+-------+-------+--------+--------+--------+
| USE Dom.        | 385   | 378   | 455   | 43     | 49     | 46     |
| Consumption     | 00694 | 92250 | 00821 | 403850 | 500897 | 848600 |
+-----------------+-------+-------+-------+--------+--------+--------+
| Loss Dom.       | -12   | 0     | -13   | 0      | -1     | 0      |
| Consumption     | 50022 |       | 00026 |        | 500028 |        |
+-----------------+-------+-------+-------+--------+--------+--------+
| TOTAL Dom.      | 372   | 378   | 442   | 43     | 48     | 46     |
| Consumption     | 50672 | 92250 | 00795 | 403850 | 000869 | 848600 |
+-----------------+-------+-------+-------+--------+--------+--------+
| Ending Stocks   | 130   | 57    | 132   | 6      | 13     | 6      |
|                 | 63236 | 94639 | 88238 | 919924 | 263238 | 676495 |
+-----------------+-------+-------+-------+--------+--------+--------+
| TOTAL           | 503   | 437   | 575   | 50     | 61     | 53     |
| DISTRIBUTION    | 43910 | 17593 | 14033 | 346739 | 289107 | 538874 |
+-----------------+-------+-------+-------+--------+--------+--------+

## Trade Tables

### Table 3. China's Monthly Cotton Imports 

Unit: Metric Tons

  -------------- ------------------- ------------------- ------------------- -------------------
  **Month**      **2003**            **2004**            **2005**            **2006**

  January        81,308              177,400             113,076             301,372

  February       35,793              291,481             70,599              321,280

  March          35,323              269,209             101,487             

  April          101,866             290,953             169,815             

  May            121,475             227,075             160,891             

  June           113,453             201,312             206,024             

  July           83,161              170,478             294,416             

  August         51,059              107,566             373,295             

  September      20,867              58,710              313,304             

  October        13,059              29,148              198,167             

  November       52,906              22,844              224,991             

  December       163,330             59,975              347,517             

  **TOTAL**      875,603             1,906,153           2,573,582           622,652

  **Marketing    **Aug/03-Jul/04**   **Aug/04-Jul/05**   **Aug/05-Jul/06**   **Aug/06-Jul/07**
  Year**                                                                     

  **TOTAL**      1,929,125           1,393,551                               
  -------------- ------------------- ------------------- ------------------- -------------------

Unit: 480-lb Bales

  -------------- ------------------- ------------------- ------------------- -------------------
  **Month**      **2003**            **2004**            **2005**            **2006**

  January        373,448             814,800             519,358             1,384,200

  February       164,397             1,338,773           324,263             1,475,641

  March          162,239             1,236,479           466,128             

  April          467,871             1,336,348           779,959             

  May            557,934             1,042,954           738,972             

  June           521,089             924,626             946,269             

  July           381,958             783,005             1,352,252           

  August         234,513             494,052             1,714,546           

  September      95,842              269,655             1,439,007           

  October        59,980              133,878             910,179             

  November       242,997             104,925             1,033,385           

  December       750,175             275,465             1,596,146           

  TOTAL          4,012,443           8,754,960           11,820,464          2,859,841

  **Marketing    **Aug/03-Jul/04**   **Aug/04-Jul/05**   **Aug/05-Jul/06**   **Aug/06-Jul/07**
  Year**                                                                     

  **TOTAL**      8,860,474           6,400,580                               
  -------------- ------------------- ------------------- ------------------- -------------------

Source: PRC Customs Statistics

### Table 4. China's Quarterly Cotton Imports by Country of Origin 

### 

**Marketing Year: 2003/2004 Unit: Metric Tons**

  ------------------- ----------- ----------- ---------------- ---------------- -----------
  **Country**         **Jul-Sep   **Oct-Dec   **Jan-Mar/04**   **Apr-Jun/04**   **TOTAL**
                      /03**       /03**                                         

  United States       71,209      119,019     455,151          419,467          1,064,845

  Uzbekistan          35,807      7,167       72,779           69,744           185,497

  Benin               18,700      6,492       14,472           37,991           77,656

  Burkina Faso        5,022       9,098       21,005           31,924           67,049

  Australia           2,600       13,163      25,855           22,008           63,626

  Mali                5,978       6,409       7,621            33,461           53,470

  Cameroon            3,467       6,855       7,771            16,176           34,269

  Brazil              320         7,588       11,141           590              19,639

  Paraguay            0           3,950       6,500            1,925            12,375

  Greece              1,148       5,476       5,163            500              12,288

  Others              10,837      44,077      110,632          85,553           251,099

  **TOTAL**           155,087     229,294     738,091          719,340          1,841,812
  ------------------- ----------- ----------- ---------------- ---------------- -----------

**Marketing Year: 2004/2005 Unit: Metric Tons**

  ------------------- ----------- ----------- ---------------- ---------------- -----------
  **Country**         **Jul-Sep   **Oct-Dec   **Jan-Mar/05**   **Apr-Jun/05**   **TOTAL**
                      /04**       /04**                                         

  United States       131,556     50,361      150,658          285,650          618,225

  Uzbekistan          49,499      4,763       62,296           102,700          219,258

  Australia           45,340      9,550       1,948            7,909            64,747

  Burkina Faso        16,827      4,547       3,971            21,488           46,833

  India               3,443       400         3,374            27,882           35,099

  Mali                17,102      5,330       1,674            5,170            29,276

  Paraguay            15,342      6,674       399              6,848            29,263

  Benin               11,984      1,332       2,600            9,794            25,710

  Cote d\'lvoire      7,714       132         700              12,557           21,103

  Mexico              774         3,186       6,775            8,647            19,382

  Others              37,171      25,694      50,768           48,085           161,717

  **TOTAL**           336,754     111,968     285,162          536,730          1,270,613
  ------------------- ----------- ----------- ---------------- ---------------- -----------

**Marketing Year: 2005/2006 Unit: Metric Tons**

  ------------------- ----------- ----------- ---------------- ---------------- -----------
  **Country**         **Jul-Sep   **Oct-Dec   **Jan-Mar/06**   **Apr-Jun/06**   **TOTAL**
                      /05**       /05**                                         

  United States       496,237     272,891                                       769,128

  Australia           100,184     91,690                                        191,874

  Uzbekistan          87,251      50,961                                        138,212

  Burkina Faso        57,483      49,077                                        106,560

  India               39,120      54,221                                        93,341

  Benin               52,113      36,636                                        88,749

  Mali                32,633      24,341                                        56,974

  Brazil              4,507       43,742                                        48,249

  Cote d\'lvoire      17,845      19,242                                        37,086

  Cameroon            7,898       18,673                                        26,571

  Tanzania            6,073       18,621                                        24,694

  Others              79,672      90,579                                        170,252

  **TOTAL**           981,016     770,675                                       1,751,691
  ------------------- ----------- ----------- ---------------- ---------------- -----------

Source: PRC Customs Statistics

### Table 5. China\'s Monthly Cotton Exports 

Unit: Metric Tons

  -------------- ------------------- ------------------- ------------------- -------------------
  **Month**      **2003**            **2004**            **2005**            **2006**

  January        13,901              1,150               204                 1,450

  February       17,995              1,323               59                  581

  March          17,786              1,151               359                 

  April          12,091              399                 711                 

  May            7,134               205                 509                 

  June           5,906               77                  861                 

  July           5,881               1,806               810                 

  August         5,063               1,023               250                 

  September      1,970               1,044               52                  

  October        9,791               790                 208                 

  November       10,173              172                 382                 

  December       4,756               143                 719                 

  **TOTAL**      112,447             9,283               5,124               2,031

  **Marketing    **Aug/03-Jul/04**   **Aug/04-Jul/05**   **Aug/05-Jul/06**   **Aug/06-Jul/07**
  Year**                                                                     

  **TOTAL**      37,864              6,685                                   
  -------------- ------------------- ------------------- ------------------- -------------------

Unit: 480-lb Bales

  -------------- ------------------- ------------------- ------------------- -------------------
  **Month**      **2003**            **2004**            **2005**            **2006**

  January        63,847              5,281               939                 6,662

  February       82,651              6,075               269                 2,668

  March          81,691              5,285               1,650               

  April          55,534              1,834               3,266               

  May            32,766              940                 2,337               

  June           27,126              355                 3,955               

  July           27,011              8,295               3,722               

  August         23,254              4,700               1,148               

  September      9,048               4,796               241                 

  October        44,970              3,627               954                 

  November       46,725              790                 1,753               

  December       21,844              656                 3,302               

  **TOTAL**      516,467             42,636              23,535              9,330

  **Marketing    **Aug/03-Jul/04**   **Aug/04-Jul/05**   **Aug/05-Jul/06**   **Aug/06-Jul/07**
  Year**                                                                     

  **TOTAL**      173,909             30,704                                  
  -------------- ------------------- ------------------- ------------------- -------------------

Source: PRC Customs Statistics

### Table 6. China\'s Quarterly Cotton Exports by Destination

### 

**Marketing Year: 2003/2004 Unit: Metric Tons**

  ----------------- ----------- ----------- ----------- ----------- -----------
  **Country**       **Jul-Sep   **Oct-Dec   **Jan-Mar   **Apr-Jun   **TOTAL**
                    /03**       /03**       /04**       /04**       

  Thailand          2,777       16,648      224         79          19,729

  Indonesia         3,094       4,919       954         79          9,046

  Korea, South      4,662       1,983       969         41          7,654

  Japan             494         40          826         41          1,402

  Taiwan            563         376         81          115         1,135

  India             39          0           93          0           132

  Peru              0           0           124         0           124

  Other             1,286       755         351         326         2,718

  **TOTAL**         12,915      24,721      3,623       681         41,940
  ----------------- ----------- ----------- ----------- ----------- -----------

**Marketing Year: 2004/2005 Unit: Metric Tons**

  ----------------- ----------- ----------- ----------- ----------- -----------
  **Country**       **Jul-Sep   **Oct-Dec   **Jan-Mar   **Apr-Jun   **TOTAL**
                    /04**       /04**       /05**       /05**       

  Japan             1,674       284         111         705         2,775

  Indonesia         636         102         236         220         1,194

  Thailand          159         100         0           681         940

  Korea, South      709         12          42          71          833

  Taiwan            461         114         0           176         750

  Korea, North      6           32          217         229         485

  India             0           258         0           0           258

  Italy             228         0           0           0           228

  Other             0           203         16          0           219

  **TOTAL**         3,874       1,105       622         2,081       7,681
  ----------------- ----------- ----------- ----------- ----------- -----------

**Marketing Year: 2005/2006 Unit: Metric Tons**

  ----------------- ----------- ----------- ----------- ----------- -----------
  **Country**       **Jul-Sep   **Oct-Dec   **Jan-Mar   **Apr-Jun   **TOTAL**
                    /05**       /05**       /06**       /06**       

  Indonesia         296         314                                 610

  Japan             504         31                                  534

  Hong Kong         0           416                                 416

  Taiwan            0           360                                 360

  Thailand          286         0                                   286

  Korea, South      27          181                                 208

  Other             0           7                                   7

  **TOTAL**         1,113       1,308                               2,421
  ----------------- ----------- ----------- ----------- ----------- -----------

Source: PRC Customs Statistics

### Table 7. China's Monthly Cotton Yarn and Thread Imports 

Unit: Metric Tons

  ------------- ------------------- ------------------- ------------------- ------------------- -------------------
  **Month**     **2002**            **2003**            **2004**            **2005**            **2006**

  January       39,953              49,962              57,570              51,642              62,896

  February      27,254              37,295              62,846              33,919              61,535

  March         54,675              60,884              65,562              68,635              

  April         58,569              64,663              61,596              73,086              

  May           60,154              63,609              54,009              67,277              

  June          56,615              49,654              54,389              64,463              

  July          51,374              46,655              53,176              62,159              

  August        46,028              49,351              50,786              66,628              

  September     50,846              58,487              58,653              65,194              

  October       53,324              64,332              54,461              62,357              

  November      48,734              64,071              57,615              64,206              

  December      49,710              78,893              56,285              70,759              

  **TOTAL**     597,236             687,857             686,948             750,327             124,431

  **Marketing   **Aug/02-Jul/03**   **Aug/03-Jul/04**   **Aug/04-Jul/05**   **Aug/05-Jul/06**   **Aug/06-Jul/07**
  Year**                                                                                        

  **TOTAL**     621,364             724,282             686,948                                 
  ------------- ------------------- ------------------- ------------------- ------------------- -------------------

Source: PRC Customs Statistics

### Table 8. China's Quarterly Cotton Yarn and Thread Imports by Country of Origin

**Calendar Year: 2004 Unit: Metric Tons**

  ------------- ----------- ----------- ----------- ----------- ------------
  **Country**   **Jan --    **Apr       **Jul --    **Oct --    **TOTAL**
                Mar**       --Jun**     Sep**       Dec**       

  China         73,684      69,189      66,899      73,155      282,926

  Pakistan      53,643      45,494      40,511      46,986      186,634

  India         23,948      18,610      19,197      14,448      76,204

  Indonesia     8,867       8,672       7,699       8,666       33,904

  Taiwan        6,774       7,922       9,062       7,348       31,106

  Hong Kong     6,682       7,962       7,301       6,022       27,967

  Korea, South  3,682       4,156       3,190       3,519       14,548

  Thailand      4,069       3,140       3,623       2,793       13,625

  Other         4,628       4,849       5,133       5,424       20,034

  **TOTAL**     185,978     169,995     162,615     168,361     686,948
  ------------- ----------- ----------- ----------- ----------- ------------

**Calendar Year: 2005 Unit: Metric Tons**

  ------------- ----------- ----------- ----------- ----------- ------------
  **Country**   **Jan --    **Apr       **Jul --    **Oct --    **TOTAL**
                Mar**       --Jun**     Sep**       Dec**       

  China         58,120      93,967      77,611      68,794      298,493

  Pakistan      51,499      62,147      63,735      68,125      245,506

  Taiwan        8,773       11,439      13,167      20,059      53,438

  India         11,703      11,453      12,850      16,053      52,059

  Indonesia     6,859       8,395       8,943       6,769       30,966

  Hong Kong     6,725       7,191       7,090       6,106       27,111

  Thailand      2,936       3,167       3,600       4,318       14,022

  Korea, South  3,549       3,333       2,856       1,965       11,703

  Other         4,033       3,733       4,129       5,133       17,028

  **TOTAL**     154,196     204,826     193,982     197,323     750,327
  ------------- ----------- ----------- ----------- ----------- ------------

**Calendar Year: 2006 Unit: Metric Tons**

  ------------- ----------- ----------- ----------- ----------- ------------
  **Country**   **Jan -     **Apr       **Jul -     **Oct -     **TOTAL**
                Mar**       -Jun**      Sep**       Dec**       

                NA\*                                            
  ------------- ----------- ----------- ----------- ----------- ------------

Source: PRC Customs Statistics

Note: As of this writing, the 1st quarter of CY05 is not available

### Table 9. China's Monthly Cotton Yarn & Thread Exports 

Unit: Metric Tons

  ------------- ------------------- ------------------- ------------------- ------------------- -------------------
  **Month**     **2002**            **2003**            **2004**            **2005**            **2006**

  January       17,864              22,778              24,906              23,490              26,322

  February      15,882              22,279              32,647              19,406              33,121

  March         34,106              38,966              40,241              44,378              

  April         36,191              43,278              34,155              45,339              

  May           36,431              40,906              33,594              43,642              

  June          32,693              32,011              34,402              38,775              

  July          32,486              33,424              31,143              34,481              

  August        29,240              34,522              30,152              36,940              

  September     29,765              41,239              34,799              37,634              

  October       29,228              41,267              31,469              32,429              

  November      27,329              43,512              33,372              34,724              

  December      26,682              56,561              30,811              32,096              

  **TOTAL**     347,898             452,747             391,691             423,334             59,443

  **Marketing   **Aug/02-Jul/03**   **Aug/03-Jul/04**   **Aug/04-Jul/05**   **Aug/05-Jul/06**   **Aug/06-Jul/07**
  Year**                                                                                        

  **TOTAL**     375,886             448,162             391,691                                 
  ------------- ------------------- ------------------- ------------------- ------------------- -------------------

Source: PRC Customs Statistics

### Table 10. China's Quarterly Cotton Yarn and Threads Exports by Destination

**Calendar Year: 2004 Unit: Metric Tons**

  ---------------- ------------- ---------- ------------- ------------- -----------
  **Country**      **Jan-Mar**   **Apr-     **Jul-Sep**   **Oct-Dec**   **TOTAL**
                                 Jun**                                  

  Hong Kong        84,546        84,958     80,471        82,157        332,132

  Japan            2,071         3,326      3,351         3,553         12,300

  Korea, South     3,830         4,050      3,699         3,173         14,752

  Myanmar          1,622         1,861      2,089         2,458         8,029

  Bangladesh       269           738        378           493           1,877

  Macau            557           1,171      1,290         490           3,507

  Vietnam          700           391        436           380           1,906

  Italy            311           277        172           308           1,069

  Other            3,889         5,380      4,209         2,640         16,118

  **TOTAL**        97,794        102,151    96,095        95,652        391,691
  ---------------- ------------- ---------- ------------- ------------- -----------

**Calendar Year: 2005 Unit: Metric Tons**

  ---------------- ------------- ---------- ------------- ------------- -----------
  **Country**      **Jan-Mar**   **Apr-     **Jul-Sep**   **Oct-Dec**   **TOTAL**
                                 Jun**                                  

  Hong Kong        70,537        107,945    89,351        75,033        342,865

  Korea, South     4,414         5,215      5,369         5,702         20,700

  Japan            3,465         3,387      2,443         2,916         12,211

  Bangladesh       795           1,148      1,436         1,953         5,332

  Myanmar          2,028         2,087      2,028         1,666         7,809

  Italy            462           619        947           1,429         3,457

  United States    741           1,096      399           1,137         3,373

  Indonesia        426           1,320      995           772           3,513

  Other            4,406         4,939      6,087         8,642         24,073

  **TOTAL**        87,274        127,756    109,055       99,249        423,334
  ---------------- ------------- ---------- ------------- ------------- -----------

**Calendar Year: 2006 Unit: Metric Tons**

  ---------------- ------------- ---------- ------------- ------------- -----------
  **Country**      **Jan-Mar**   **Apr-     **Jul-Sep**   **Oct-Dec**   **TOTAL**
                                 Jun**                                  

                   NA\*                                                 NA\*
  ---------------- ------------- ---------- ------------- ------------- -----------

Source: PRC Customs Statistics

Note: As of this writing, data for 1st quarter of CY06 is not available

### Table 11. China's Monthly Cotton Fabric Imports 

Unit: 1,000 Square Meters

  -------------- ------------------- ------------------- ------------------- ------------------- -------------------
  **Month**      **2002**            **2003**            **2004**            **2005**            **2006**

  January        104,339             112,343             73,589              90,434              78,984

  February       73,270              79,579              88,617              69,559              76,877

  March          99,602              112,626             110,499             116,262             

  April          121,099             116,254             120,592             130,929             

  May            111,637             114,310             112,212             110,630             

  June           113,295             102,886             114,908             110,427             

  July           117,215             103,818             111,746             105,540             

  August         107,758             92,108              105,428             105,485             

  September      109,480             110,663             110,110             108,576             

  October        110,241             115,600             120,197             119,587             

  November       124,746             120,834             143,780             130,908             

  December       125,801             141,968             158,767             142,123             

  **TOTAL**      1,318,484           1,322,989           1,370,445           1,340,459           155,861

  **Marketing    **Aug/02-Jul/03**   **Aug/03-Jul/04**   **Aug/04-Jul/05**   **Aug/05-Jul/06**   **Aug/06-Jul/07**
  Year**                                                                                         

  **TOTAL**      1,319,841           1,313,337           1,370,445                               
  -------------- ------------------- ------------------- ------------------- ------------------- -------------------

Source: PRC Customs Statistics

### Table 12. China's Quarterly Cotton Fabric Imports by Country of Origin 

**Calendar Year: 2004 Unit: 1,000 Square Meters**

  ------------- ------------- ------------- ------------- ------------- -------------
  **Country**   **Jan-Mar**   **Apr-Jun**   **Jul-Sep**   **Oct-Dec**   **TOTAL**

  China         95,002        119,063       119,127       154,706       487,898

  Hong Kong     70,542        103,634       88,662        128,010       390,848

  Pakistan      25,766        23,725        29,383        37,210        116,084

  Taiwan        19,215        27,615        25,040        36,698        108,569

  Japan         37,596        35,404        31,950        34,984        139,934

  Korea, South  9,070         10,827        11,392        12,861        44,150

  Indonesia     3,389         2,357         3,303         4,531         13,580

  India         2,568         8,120         5,577         1,272         17,537

  Other         9,556         16,967        12,851        12,471        51,844

  **TOTAL**     272,705       347,711       327,285       422,744       1,370,445
  ------------- ------------- ------------- ------------- ------------- -------------

**Calendar Year: 2005 Unit: 1,000 Square Meters**

  ------------- ------------- ------------- ------------- ------------- -------------
  **Country**   **Jan-Mar**   **Apr-Jun**   **Jul-Sep**   **Oct-Dec**   **TOTAL**

  China         98,378        136,876       128,064       167,823       531,141

  Hong Kong     73,437        103,383       92,251        108,525       377,596

  Pakistan      26,954        24,150        32,734        34,210        118,048

  Japan         34,725        32,645        26,536        34,022        127,928

  Taiwan        18,330        25,667        17,209        20,577        81,784

  Korea, South  10,022        13,010        11,422        11,374        45,828

  Indonesia     2,504         3,190         2,787         3,932         12,413

  Thailand      3,048         2,660         1,329         2,158         9,195

  Other         8,856         10,404        7,269         9,997         36,526

  **TOTAL**     276,255       351,986       319,601       392,618       1,340,459
  ------------- ------------- ------------- ------------- ------------- -------------

**Calendar Year: 2006 Unit: 1,000 Square Meters**

  ------------- ------------- ------------- ------------- ------------- -------------
  **Country**   **Jan-Mar**   **Apr-Jun**   **Jul-Sep**   **Oct-Dec**   **TOTAL**

                NA\*                                                    
  ------------- ------------- ------------- ------------- ------------- -------------

Source: PRC Customs Statistics

Note: As of this writing, data for 1st quarter of CY06 is not available

### Table 13. China's Monthly Cotton Fabric Exports 

Unit: 1,000 Square Meters

  ------------- ------------------- ------------------- ------------------- ------------------- -------------------
  **Month**     **2002**            **2003**            **2004**            **2005**            **2006**

  January       243,238             340,945             266,477             367,102             436,041

  February      205,387             255,225             215,131             284,965             273,382

  March         276,775             361,889             357,430             437,819             

  April         324,130             405,110             362,893             417,040             

  May           292,785             367,592             335,913             385,868             

  June          287,557             339,135             351,726             414,540             

  July          309,311             329,240             332,007             398,196             

  August        319,404             322,999             347,696             419,847             

  September     339,919             390,739             399,186             437,275             

  October       345,531             378,620             396,667             424,741             

  November      367,091             369,244             443,212             441,006             

  December      369,102             480,706             465,363             447,263             

  **TOTAL**     3,680,230           4,341,446           4,273,700           4,875,663           709,423

  **Marketing   **Aug/02-Jul/03**   **Aug/03-Jul/04**   **Aug/04-Jul/05**   **Aug/05-Jul/06**   **Aug/06-Jul/07**
  Year**                                                                                        

  **TOTAL**     4,319,841           4,163,885           4,273,700                               
  ------------- ------------------- ------------------- ------------------- ------------------- -------------------

Source: PRC Customs Statistics

### Table 14. China's Quarterly Cotton Fabric Exports by Destination 

**Calendar Year: 2004 Unit: 1,000 Square Meters**

  --------------- ------------- ------------- ------------- ------------- ------------
  **Country**     **Jan-Mar**   **Apr-Jun**   **Jul-Sep**   **Oct-Dec**   **TOTAL**

  Hong Kong       221,978       275,829       271,373       366,697       1,135,876

  Japan           56,694        67,386        67,694        82,546        274,320

  Korea, South    58,390        69,760        69,594        75,868        273,611

  Bangladesh      47,596        69,159        59,267        77,051        253,073

  Benin           25,805        42,546        68,751        87,941        225,043

  United States   23,986        44,474        42,072        30,920        141,453

  Mexico          30,650        33,523        25,498        39,741        129,412

  Togo            14,730        21,748        33,126        39,438        109,042

  Other           359,210       426,107       441,514       505,039       1,731,869

  **TOTAL**       839,038       1,050,531     1,078,889     1,305,241     4,273,700
  --------------- ------------- ------------- ------------- ------------- ------------

**Calendar Year: 2005 Unit: 1,000 Square Meters**

  --------------- ------------- ------------- ------------- ------------- ------------
  **Country**     **Jan-Mar**   **Apr-Jun**   **Jul-Sep**   **Oct-Dec**   **TOTAL**

  Hong Kong       235,640       264,690       273,197       340,674       1,114,201

  Benin           68,627        88,783        92,610        108,611       358,632

  Bangladesh      55,894        78,990        84,226        105,442       324,552

  Korea, South    84,171        88,569        83,752        77,478        333,970

  Japan           70,321        60,173        71,464        72,056        274,014

  United States   58,136        56,875        57,255        48,157        220,424

  Togo            27,705        26,372        35,687        41,380        131,143

  Indonesia       23,296        29,797        34,532        33,953        121,579

  Other           466,094       523,198       522,596       485,259       1,997,147

  **TOTAL**       1,089,886     1,217,448     1,255,319     1,313,010     4,875,663
  --------------- ------------- ------------- ------------- ------------- ------------

**Calendar Year: 2006 Unit: 1,000 Square Meters**

  --------------- ------------- ------------- ------------- ------------- ------------
  **Country**     **Jan-Mar**   **Apr-Jun**   **Jul-Sep**   **Oct-Dec**   **TOTAL**

                  NA\*                                                    
  --------------- ------------- ------------- ------------- ------------- ------------

Source: PRC Customs Statistics

Note: As of this writing, data for 1st quarter of CY06 is not available

**Table 15. Cotton Planted Area and Production by Province**

### 

  -------------------- ---------- ---------- ----------- ---------- ------------
  **Planted Area                                                    
  (1,000 hectares)**                                                

                       **2002**   **2003**   **2004**    **2005**   **2006\***

  State                4,184      5,110      5,690       5,060      5400

  Xinjiang             944        1,055      1,137       1,162      1174

  Shandong             580        882        1,059       847        930

  Henan                773        927        952         782        870

  Hebei                407        581        669         573        600

  Anhui                244        390        399         376        380

  Jiangsu              311        369        409         368        380

  Hubei                300        355        408         390        400

  Hunan                119        139        167         133        150

  Gansu                           52         68          64         69

  Jiangxi                         80         62          81         80

  \* 2006 area is                                                   
  Post's forecast                                                   
  based on various                                                  
  sources. Total                                                    
  planted area for                                                  
  2005 is based on                                                  
  NSB\'s statistics,                                                
  planted area for                                                  
  individual province,                                              
  however, is based on                                              
  reports by industry                                               
  source. Detailed NSB                                              
  report will be                                                    
  available in June or                                              
  July.                                                             

  **Production (1,000                                               
  MT)**                                                             

                       **2002**   **2003**   **2004**    **2005**   **2006\***

  State                4,916      4,860      6,320       5700       6050

  Xinjiang             1,477      1600       1783        1957       1950

  Shandong             722        877        1098        846        846

  Henan                765        377        667         677        757

  Hebei                402        522        665         577        600

  Jiangsu              363        291        503         323        425

  Anhui                337        241        412         311        342

  Hubei                323        325        395         375        392

  Hunan                153        163        203         185        190

  Gansu                           87         110         110        110

  Jiangxi              67         76         85          90         104

  \*2006 Production is                                              
  Post's forecast.                                                  
  2005 total                                                        
  production is based                                               
  on NSB statistics,                                                
  production for                                                    
  individual province,                                              
  however, is based on                                              
  reports by industry                                               
  source. Detailed NSB                                              
  report will be                                                    
  available in June or                                              
  July.                                                             
  -------------------- ---------- ---------- ----------- ---------- ------------

Source: PRC State Statistical Bureau

### Table 16. Cotton Tariffs as of January 1, 2006

  ------------------------------- ------------- ------------ --------- --------- -------
  **Description**                 **HS Code**   **Import                         **V. A.
                                                Duty                             T.**
                                                Rate(%)**                        

                                                **M.F.N.**   **CP**    **Gen**   

  Cotton, not carded or combed    5201-0000     \*40                   \*125     13

  Cotton, not carded or combed,   5201-0000 10  1                      125       13
  including absorbent cotton,                                                    
  in-quota                                                                       

  Cotton, not carded or combed,   5201-0000 80  0                      125       13
  including absorbent cotton,                                                    
  (custom, out-quota, interim)                                                   

  Cotton, not carded or combed,   5201-0000 90  40                     125       13
  including absorbent cotton,                                                    
  out-quota                                                                      

  Cotton, carded or combed        5203-0000     \*40                   \*125     17

  Cotton, carded or combed,       5203-0000 10  1                      125       17
  in-quota                                                                       

  Cotton, carded or combed,       5203-0000 90  40                     125       17
  out-quota                                                                      

  Cotton sewing thread,           5204-1100     5                      40        17
  containing                                                                     

  85% or more by weight of cotton                                                

  Cotton yarn (other than sewing  5205-1100     5            3.5-4.5   40        17

  thread), containing 85% or more to                                             

  by weight of cotton, not for    5205-4800                                      
  retail sale                                                                    

  Cotton yarn (other than sewing  5207-1000     6            5         50        17

  thread), containing 85% or more 5207-9000     6                      50        17

  by weight of cotton, for retail                                                
  sale                                                                           

  Woven fabrics of cotton,        5208-1100     10           5         70        17

  containing 85% or more by       to                                             
  weight of cotton, weighing not                                                 
  more than 200 g/square meter                                                   

                                  5208-5900\*                                    

                                  \*Except:                                      

  \"                              5208-2300     12           5         70        17

  Woven fabrics of cotton,        5209-1100     10           5         70        17
  containing 85% or more by                                                      

  weight of cotton, weighing more 5209-1200                                      

  than 200 g/square meter         5209-1900                                      

                                  5209-3100                                      

                                  5209-3200                                      

                                  5209-3900                                      

                                  5209-4100                                      

  \"                              5209-4200                                      

                                  5209-4300                                      

                                  5209-4900                                      

                                  5209-5100                                      

                                  5209-5200                                      

                                  5209-5900                                      

                                  5209-2100     12           5         70        17

  \"                              5209-2200                                      

                                  5209-2900                                      
  ------------------------------- ------------- ------------ --------- --------- -------

Source: PRC Customs Import & Export Tariff, 2006

### Table 17. Cotton Tariff Rate Quotas

+-------------+-----------+-------------+-------------+---------------+
| Description | HS Code   | Initial     | Final Quota | I             |
|             |           | Quota       |             | mplementation |
|             |           |             | and Tariff  | of Final      |
|             |           | and Tariff  | Rate        | Quota         |
|             |           | Rate        |             |               |
+-------------+-----------+-------------+-------------+---------------+
| Cotton      |           | 780,750 mt  | 894,000 mt  | 2004          |
+-------------+-----------+-------------+-------------+---------------+
|             | 5201 -    | 1%          | 1%          | 2006          |
|             | 0000      |             |             |               |
+-------------+-----------+-------------+-------------+---------------+
|             | 5203 -    | 1%          | 1%          | 2006          |
|             | 0000      |             |             |               |
+-------------+-----------+-------------+-------------+---------------+
| Other terms |           |             |             |               |
| and         |           |             |             |               |
| conditions: |           |             |             |               |
|             |           |             |             |               |
| 1\) STE     |           |             |             |               |
| share = 33% |           |             |             |               |
| (See Note)  |           |             |             |               |
|             |           |             |             |               |
| 2\) Staging |           |             |             |               |
| of TRQ for  |           |             |             |               |
| cotton:     |           |             |             |               |
|             |           |             |             |               |
| Year TRQ    |           |             |             |               |
| quantity:   |           |             |             |               |
|             |           |             |             |               |
| 2002        |           |             |             |               |
| 818,500 mt  |           |             |             |               |
|             |           |             |             |               |
| 2003        |           |             |             |               |
| 856,250 mt  |           |             |             |               |
|             |           |             |             |               |
| 2004        |           |             |             |               |
| 894,000 mt  |           |             |             |               |
|             |           |             |             |               |
| 2005        |           |             |             |               |
| 894,000 mt  |           |             |             |               |
| (China\'s   |           |             |             |               |
| WTO         |           |             |             |               |
| commitment  |           |             |             |               |
| does NOT    |           |             |             |               |
| mandate TRQ |           |             |             |               |
| for CY05,   |           |             |             |               |
| but China   |           |             |             |               |
| maintained  |           |             |             |               |
| an          |           |             |             |               |
| identical   |           |             |             |               |
| quantity of |           |             |             |               |
| TRQ as      |           |             |             |               |
| CY04)       |           |             |             |               |
|             |           |             |             |               |
| 2006        |           |             |             |               |
| 894,000 mt  |           |             |             |               |
| (China\'s   |           |             |             |               |
| WTO         |           |             |             |               |
| commitment  |           |             |             |               |
| does NOT    |           |             |             |               |
| mandate TRQ |           |             |             |               |
| for CY06,   |           |             |             |               |
| but China   |           |             |             |               |
| maintained  |           |             |             |               |
| an          |           |             |             |               |
| identical   |           |             |             |               |
| quantity of |           |             |             |               |
| TRQ as      |           |             |             |               |
| CY04)       |           |             |             |               |
|             |           |             |             |               |
| Note:       |           |             |             |               |
|             |           |             |             |               |
| Tariff      |           |             |             |               |
| quotas      |           |             |             |               |
| indicated   |           |             |             |               |
| in the      |           |             |             |               |
| third       |           |             |             |               |
| column are  |           |             |             |               |
| volumes for |           |             |             |               |
| calendar    |           |             |             |               |
| year 2001.  |           |             |             |               |
| Tariff      |           |             |             |               |
| quota       |           |             |             |               |
|             |           |             |             |               |
| Concessions |           |             |             |               |
| will be     |           |             |             |               |
| implemented |           |             |             |               |
| according   |           |             |             |               |
| to the date |           |             |             |               |
| specified   |           |             |             |               |
| in the      |           |             |             |               |
| \"Imple     |           |             |             |               |
| mentation\" |           |             |             |               |
|             |           |             |             |               |
| Column. The |           |             |             |               |
| imp         |           |             |             |               |
| lementation |           |             |             |               |
| column      |           |             |             |               |
| indicates   |           |             |             |               |
| the date    |           |             |             |               |
| (referring  |           |             |             |               |
| to 1        |           |             |             |               |
| January of  |           |             |             |               |
| the year    |           |             |             |               |
|             |           |             |             |               |
| Indicated)  |           |             |             |               |
| when the    |           |             |             |               |
| final quota |           |             |             |               |
| quantity    |           |             |             |               |
| will be     |           |             |             |               |
| achieved.   |           |             |             |               |
| The tariff  |           |             |             |               |
| quota       |           |             |             |               |
| concessions |           |             |             |               |
| are         |           |             |             |               |
|             |           |             |             |               |
| Subject to  |           |             |             |               |
| equal       |           |             |             |               |
| annual      |           |             |             |               |
| adjustments |           |             |             |               |
| (occurring  |           |             |             |               |
| on 1        |           |             |             |               |
| January of  |           |             |             |               |
| each year), |           |             |             |               |
| unless      |           |             |             |               |
| otherwise   |           |             |             |               |
| specified   |           |             |             |               |
| in the      |           |             |             |               |
| \"Other     |           |             |             |               |
| terms and   |           |             |             |               |
| co          |           |             |             |               |
| nditions\". |           |             |             |               |
+-------------+-----------+-------------+-------------+---------------+