Pakistan yarn export to China reduced to $80 million in February 2014 while in January it was about $200m. Although yarn manufacturing posted growth compared to the previous year, a gradual slowdown is visible in the second and third quarters of the fiscal year 2014.

Cotton yarn production has also started falling in the country, reflecting the slowing demand from China. Growth in cotton yarn production was just 0.9pc in the third quarter of the FY-14 while the growth was 3.2pc in the same quarter of last year.

In fact, during fiscal year 2011to first half of FY-2014, the country earned $3.5 billion from export of cotton yarn to China only. The reversal of cotton policy by China has hit Pakistan’s yarn production and yarn export, reveals a report recently issued by the State Bank.

The SBP report also indicated another bad impact on local cotton yarn production that is import from India. While external demand for yarn weakened after a change in cotton policy by China, import of cheaper yarn from India (at zero tariff) lowered the domestic demand.

The import of Indian yarn reached $86.3m during July-March FY-14 compared to $58.3m during the same period of FY-13.

This not only lowered demand for local yarn, but also kept market prices down.

In response, the Economic Coordination Committee of the cabinet restored 5pc duty on yarn import from India in April 2014.

Interestingly, yarn demand from China had already fallen in February 2014 in anticipation of China’s new policy.

While China had been building cotton stocks which created space for Pakistani yarn, neither the government nor the textile industry came out with an alternative policy in case of change in the Chinese Policy.