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Abstract

Chinese synthetic fiber capacity is more than 100 times larger than it was just 30 years ago. It represents more capacity than exists in the United States and Western Europe combined and continues to expand each year to serve the growing Chinese textile industry. Historically, the Chinese government has provided support to the synthetic fiber industry and encouraged its expansion. At the same time, petroleum consumption in China continues to expand, and China is now the second largest petroleum consumer in the world. As a byproduct of petroleum distillation, the feeder materials for synthetic fiber production are readily available in the marketplace. In the presence of inter-fiber competition, the large amount of synthetic production capacity may have consequences for world cotton consumption and prices. With changes in Chinese government support to the synthetic fiber industry or other changes in the demand for synthetic capacity, there is the potential for indirect consequences on cotton fiber markets. Using a structural econometric model of inter-fiber competition, such impacts are investigated. Man-made fiber production is handled in a unique fashion, with capacity and utilization rates estimated separately to determine production. Models of man-made fiber markets in China, Japan, and Taiwan as well as the United States will help to more fully represent the market for man-made fibers. The world cotton market is covered with country level models for all countries of primary importance in the natural fibers markets with the remainder of the world broken up into regional blocks. The model includes relevant input prices at the mill level to reflect inter-fiber competition, and therefore contains the most important factors determining cotton production, prices and trade. To simulate a reduction of subsidization provided to the synthetic fiber industry by the Chinese government, changes in Chinese synthetic capacity are imposed to determine the impact on world cotton markets.

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