China imported 1.05 million tons of cotton yarn in the first half of 2026, a staggering 56.3% year-on-year increase, with June alone accounting for 170,000 tons—up nearly 60% from the same month last year. This surge marks a quiet but profound shift in the country's cotton textile landscape: imported yarn is displacing domestic production at a pace that has caught many industry insiders off guard.
Price Gap as Primary Driver
The most immediate catalyst is the persistent spread between domestic and international cotton prices. Since the 2025/26 season, the Zhengzhou Commodity Exchange cotton futures contract has consistently traded 2,000-2,500 RMB/ton above the Cotlook A index, driven by China's Xinjiang cotton policy adjustments and quota tightening expectations. This translates directly into a 1,500-2,000 RMB/ton cost advantage for Southeast Asian spinners on 32-count carded yarn. In June, this gap widened further as Chinese fabric mills aggressively sought cheaper inputs to protect paper-thin margins. Imported yarn is being picked up almost immediately upon arrival, with port inventories remaining low—a clear sign that end-users have fully embraced the substitution.
Capacity Expansion in Southeast Asia
On the supply side, 2025-2026 marks a peak commissioning period for spinning capacity in Vietnam, India, and Pakistan. Vietnam alone added an estimated 1.2 million ring spindles in 2025, many equipped with open-end machines targeting the medium-to-low count yarns that Chinese downstream mills consume in bulk. This capacity began ramping up from Q1 2026, coinciding with sluggish domestic demand in China, pushing surplus yarn toward the Chinese market. Notably, Vietnam's share of China's imports rose to about 45% in June, overtaking India as the top source, thanks to zero-tariff access under the ASEAN-China Free Trade Agreement and consistent quality.
Structural Shifts in the Weaving Sector
The primary absorption channels for imported yarn are the traditional cotton weaving hubs in Guangdong, Zhejiang, and Jiangsu provinces. Small and medium-sized fabric mills in these regions, squeezed by brand-side price pressure and razor-thin margins, are extremely cost-sensitive. Imported yarn offers a 10-15% price discount over domestic yarn, with stable shipping schedules and good batch-to-batch consistency, making it a default choice for many. A telling indicator: domestic cotton yarn production fell about 3.2% year-on-year in H1 2026, while imports surged 56.3%. This divergence suggests a structural, not cyclical, displacement—especially in commodity-grade yarns, where domestic mill operating rates have slipped from 70% in 2024 to around 60%.
Policy and Currency Variables
Two wildcards could alter the trajectory. First, import policy: while cotton yarn currently faces no quota, authorities could tighten technical inspection standards if domestic cotton destocking pressure mounts. Second, the RMB exchange rate: the yuan depreciated about 2.5% against the USD in H1 2026, partially offsetting the import price advantage. A stabilizing or strengthening yuan in H2 would further boost import competitiveness. Additionally, the U.S. ban on Xinjiang cotton continues to drive some export-oriented garment makers to source imported yarn for supply chain compliance, contributing an estimated 15-20 percentage points to the import growth in 2025/26.