Thousands of Chinese textile producers face rising costs and insufficient supplies of raw cotton as market shortfall is expected to climb to 4 million tons this year.
Rural Economic Research Center under the Ministry of Agriculture said traditional cotton growing areas in the east China region reduced drastically.
The gap between demand and supply has been growing for the past six years.
China's cotton growing area has declined to 10 percent from previous year to 5.12 million hectare in 2005.
Total cotton yield amounted to 5.76 million tons last year, as China's Textile Association statistics suggests.
Domestic cotton demand has been growing at 10 percent since 1999, where as cotton plantation has dropped 14.2 percent to 4.59 million hectare in 2004, reports Rural Economic Research Center.
China's Cotton imports stood at $3 billion in 2004, which amounts to one fourth of the world's total cotton import trade.