CASHMERE IN CHINA
China is the world’s leading producer of de-haired cashmere and cashmere finished products. The raw material resources and processing capacity in China dwarfs that of any other country. The industry emerged out nowhere in the 1990s and really taken off since joined the World Trade Organisation (WTO) in 2001. [Source:Cashmere World 2013 \*\]
In the early 2000s, China was home to more than 60 million cashmere-producing goats. They produced 20,000 tons of cashmere annually. The result of all these goats was an oversupply of cashmere often of dubious quality. Most cashmere goats in China are raised in Inner Mongolia or Xinjiang.
Marina Romanov wrote in Mongolia Briefing: “Cashmere down hair in China comes from goats grazing on the plains of Inner Mongolia, Xinjiang, and the Himalayan Mountain highlands leading to the Tibetan Plateau — regions surrounding the Gobi Desert, which also constitutes a third of Mongolia’s territory. The fibers are locally combed, cleaned, dyed, and spun before being knitted into fabric in northern Chinese mills or exported. [Source: Marina Romanov, Mongolia Briefing, February 24, 2012]
According to Cashmere World: In the past 30 years the development of China’s cashmere industry was reflected in the quantity of cashmere produced. As the industry matured it became evident that growth will be limited by the amount of material available. The future of the cashmere industry in China will be about higher value-added products and established brands. Price competition will abate and be replaced by quality and brand competition. This implies that Cashmere companies worldwide will have to rely on innovation to achieve sustainability, launch brands and implement vital marketing strategies to remain competitive. \*\
History of the Cashmere Industry in China
In the Mao era, the Chinese cashmere trade was controlled by the Communist and the supply was shipped to foreign countries. In the 1970s, as the economy began opening up, Hong Kong industrialist Tang Hsiang Chien was invited to open up a cashmere factory in Xinjiang. It was China’s first foreign-Chinese joint venture. Supervised by Augustine Tse, the factory was manned by Uyghurs and other Xinjiang minorities using technology and expertise from Japan.
The factory, run under the name Xinjiang Tianshan, opened in 1981 with 1,200 employees. The first orders from a New York retailer came a few years later. By the mid-1980s, Xinjiang Tianshan was a major supplier for low-priced, private label cashmere sweaters. In the late 1980s and 1990s the cashmere industry boomed. By 2005, China and Hong Kong accounted for 80 percent of U.S. cashmere knit imports, up from 66 percent in 1995.
The Chinese cashmere industry is centered primarily in Inner Mongolia. China began its drive to become a cashmere superpower in the 1990s. Production increased from around 9,000 tons in 1990 to 12,000 tons in 1998. Finishing facilities are capable of producing 20 million cashmere pieces a year.
In 1991 China threw the cashmere market into a tizzy when it withheld its entire supply from the world market. In recent years China has begun banning cashmere goats from Inner Mongolia for environmental reasons, reducing the supply by 30 percent to 7,000 tons.
Cashmere Goat Herders in China
There are many cashmere goat herders in Inner Mongolia and elsewhere in China. In 1994, the Chinese Communist government dismantled collective farms, carved up the grasslands and returned them to herders. In Inner Mongolian, most herders live in permanent settlements and live as Mongolians in Mongolia did under the Soviets. Children of Inner Mongolian herders go to school in nearby towns. Instruction is in Chinese and Mongolian. About 90 percent of Mongolia herders had televisions in the early 2000s.
Keith Bradsher wrote in the New York Times: “Nicknamed the “diamond fiber” in Inner Mongolia, cashmere has changed the life of Yrthashun, a herder who like many ethnic Mongolians has only one name. He lives in the tiny village of Baiyuanhua, a four-hour drive north of Hohhot on a two-lane, paved road that traverses a vast flatness, where close-cropped grass and areas of dirt stretch beneath an immense sky.As affluence spread worldwide in the 1990s, the middle classes began to wear cashmere and Mr. Yrthashun grew prosperous. As recently as a year ago, the cashmere combed from his flock of 100 thigh-high Kashmir goats sold for as much as $27.50 a pound, allowing Mr. Yrthashun to buy a compact Chinese car." [Source: Keith Bradsher, New York Times, June 19, 2009 \=/]
After the global financial crisis in 2008-2009 the price of cashmere fell by almost half and after that herders were forced to sell many of their goats for meat.“The end to goat herding after centuries is the most sorrowful thing I have ever had to face,” Mr. Yrthashun said. The problem is not just the collapse of the cashmere market, but also a government ban on Kashmir goats across much of Inner Mongolia for environmental reasons. Hungry goats with sharp hooves have denuded arid plateaus and broken up the soil, contributing to dust storms that fill the sky in Beijing and other cities in northeastern China.
Cashmere Exports from China
According to customs statistics, China’s cashmere and cashmere products exported between January and July of 2010 were valued at $552.7 million, increasing by 25.2 percentyear-on-year, including 1,380 tonnes of cashmere and de-haired wool, worth $95.42 million, increasing by 69.1 percent and 78.6 percent respectively year-on-year; and included $457.28 million worth of cashmere products, increasing by 17.8 percentyear-on-year. A total of 2,464 tonnes, worth $20.025 million of cashmere yarn was exported, increasing by 74 percent and 56.7 percent respectively year-on-year. The export of cashmere scarves reached $34.85 million, increasing by 8.7 percent year-on-year. The export of cashmere sweaters reached $20.997 million, decreasing by 2.2 percentyear-on-year. [Source: Cashmere World 2013]
The export of cashmere products realised a double-digit increase between January and July 2013, year compared to the same time in 2009, however there is still some way to go for exports to regain the strength seen in 2008.
Raw material prices remain high, but the selling prices for finished products do not adjust correspondingly, and the profits of the cashmere intensive processing enterprises do not increase with the rising export amount. The price rise of production factors such as raw materials leads to the rise of cost of downstream products, while Chinese cashmere materials and cashmere finished products export enterprises are generally lacking in bargaining power. According to CFNA Director Mr. Tian, it will be difficult for companies to manage the cost rise of exported products and RMB appreciation, and solutions must be sought.
In spite of increased demand of overseas markets, the foundation for the world economic recovery is uncertain for the short term. However, CFNA believes that the overall trend of the cashmere industry is becoming better and more stable, expecting a yearly growth rate of about 15 percent.
Cashmere Industry in China
According to USAID: For decades the government of China has subsidized its cashmere processing with very low interest rate loans, reduced contributions to social benefits and, until recently, export bounties. As yet, however, no Chinese processor has been able to integrate forward into the international channels of distribution much less develop an internationally recognized brand name. [Source: USAID, May 2005 <^>]
The processing sector in China has enjoyed subsidies for over thirty years and has developed into a powerhouse with which other countries are not able to compete. Of note, the Chinese government never distorted the market for cashmere by using export taxes; rather it advanced very low interest rate loans, reduced social contributions for cashmere producers, and paid export bounties depending on the level of processing.
The cashmere herding and processing sectors in China are largely located in Inner Mongolia, one of China’s poorer regions. Since the 1970s, the Chinese government has granted substantial subsidies to the cashmere processing sector: low interest rate loans, tariff protection, no charges for worker welfare and housing, and export subsidies in the form of tax rebates as a percentage of export sales (the percentages escalating depending on the stage of processing). It also has a strict licensing system for traders and excludes all foreign traders. When China joined to the WTO, it agreed to end the export incentives in 2004. It has alsoreduced its subsidies on interest rates on bank loans, although commercial bank rates remain very low in China. <^>
In April 2005, at the China International Cashmere Forum, in speeches by several officials and industry representatives, the Chinese outlined their strategy for their cashmere industry: worldwide dominance by controlling and regulating the entire value-added chain for cashmere by controlling the supply and pricing of raw cashmere and being the “factory to the world” for finished cashmere products either as contract producers or in alliances with international brand holders, and, more importantly, by either developing or buying brand names for themselves. <^>
Cashmere Processing Sector in China
According to USAID: Compared to production costs in Inner Mongolia in China, labor costs (including fringe benefits) are about 25 percent higher in Mongolia, while labor productivity is 25 percent less than in China. China has been able to develop cashmere clusters of herders, processors, machinery and parts manufacturers, die and other chemical input producers, and traders and service providers (repairs, shipping and transportation, and so on). Overall, at each stage of the value added chain, production costs are 30 percent 40 percent higher in Mongolia compared to China. [Source: USAID, May 2005 <^>]
On the demand side, Chinese processors have several advantages over those in Mongolia. They have a large, protected domestic market in which they can sell lower quality pure cashmere products (produced using the lower quality portion of the Mongolian raw cashmere they purchase) at high prices. Although on average Mongolian cashmere has a larger diameter than Chinese cashmere, it also is longer so that when it is mixed with Chinese cashmere it reduces pilling in garments. Mongolian producers cannot access raw Chinese cashmere to be able to produce this mixture. <^>
The fatal constraint on many firms in the sector is the cost of funds in Mongolia relative to their cost in China and abroad. The cost of funds for a medium-sized, privately-owned processor in Mongolia is 37 percent/year (2.5 percent/month) compared to 1 percent-6 percent in China and 6 percent abroad in dollars. These far lower capital costs allow Chinese processors to pay substantially higher prices for their inputs than can the processors in Mongolia. Put another way, low capital costs in China compared to Mongolia compress the value added in each stage of the processing value added chain. Mongolian processors cannot operate profitably in this compressed value chain if they pay such high interest rates. Conversely, low interest rates in China increase the value of the raw cashmere produced by Mongolian herders when used as an input to the processing sector in China. <^>
Troubles for Chinese Cashmere Manufacturers in 2008-2009
Reporting from Inner Mongolia at the time of the global financial crisis in 2008-2009, Keith Bradsher wrote in the New York Times: “ Yarn factories, which take cloud-soft wool from the goats and spin it for the sweater factories’ looms, are suffering too. The Tiaje Cashmere Company’s factory here, a windowless hall the size of a football field, is filled with rows of machines that transform wool into yarn. But because business has shrunk, in recent months only a handful of workers have labored in small pools of light in an otherwise dark expanse of shadowed machinery. “I wish more of the lights were on; it’s a bit dark,” said Lin Siuchi, a soft-spoken 38-year-old, adjusting several spools of downy white cashmere being twisted into yarn. “I’m not afraid to be here alone,” she said, “but I would be happier if there were more people here with me.” [Source: Keith Bradsher, New York Times, June 19, 2009 \=/]
"The Tiaje Cashmere Company sells yarn to the nearby Inner Mongolia Harmony Industry and Trade Company, which knits beautifully textured sweaters and other cashmere garments for the American and Italian markets. But the factory has been operating at less than half of capacity for much of the last year. Employment at the factory fell to 50 early this year. Muren, the owner and general manager, who also has only one name, said that employment had since recovered to 70 — but this is supposed to be the annual surge of production, from June to September, to accommodate the autumn retailing season in the West. \=/
"Inner Mongolia Harmony has orders for 20,000 sweaters so far this year, compared with 28,000 at this time last year. And Mr. Muren differs with some economists, saying that he sees little sign of a nascent recovery in the United States. “Our American and European customers say the situation is terrible,” he said. Da Lisu, the merchandise manager of the rival Inner Mongolia Saihan Cashmere Products Company, said some cashmere companies had failed in recent months. One mistake by the failed companies was to ship sweaters to American customers on promises that they would be paid later, Ms. Da said. \=/
“I’ve had friends at companies that have gone bankrupt because U.S. buyers have reneged on payments,” said Ms. Da, who added that she did not know the identity of these American buyers. Her company demands payment in advance and has not had problems, she said, and it is following that policy with particular attention now. “We all have to be much more cautious,” she said. Mr. Wang said that American buyers facing slower sales had become much quicker to reject shipments by complaining that the garments did not precisely match the original specifications. “Our sizes are very accurate — now they say, ‘You made a mistake,’ ” he said. \=/
"Complaints about the accuracy of designs are often followed by demands from buyers for further deep price reductions. “They say, ‘please give me a discount and I can sell it anyway,’ ” Mr. Wang said, folding the fingers of his left hand in the shape of a gun and pretending to shoot such buyers. As China tries to make up for falling exports of all sorts, many export industries are trying to sell more to the domestic market. But garments designed for American customers frequently cannot be marketed in China, and demand in China is still weak for luxuries like cashmere sweaters. \=/
"Indeed, the speed of the economic downturn left Inner Mongolia Dongda with 2,000 unsold sweaters made for Americans. Now they are piled in a warehouse. In China, Mr. Wang said, “we can only sell the ‘S’ size.” But Mr. Muren sees one small sign of hope in Inner Mongolia: the global recovery in commodities prices is starting to reach cashmere, as companies have started stockpiling raw cashmere again in anticipation of eventual better times, pushing up the price by 3 to 5 percent in the last several weeks. “Some people are collecting the cashmere even though they do not have orders,” he said, “because they think, and I also think, that this is the bottom price.” \=/
Cashmere Companies and Designers in China
The largest Chinese cashmere company is called Eerduosi. It produces about a third of the world's cashmere and controls half the output of China. It employs 13,000 people and is 44 percent owned by the Chinese government. In the mid 2000s, it decided that cashmere was not enough, and made plans to invest almost $100 million to diversify into banking, electricity and property.
Cashmere sweaters sold in Britain include Loro Plana baby cashmere sweaters ($1,500); Superfine cropped cardigans at N. Peal ($350), Bora V-necks ($225), Jigsaw merino machmere sweater ($120), M&S Autograph jumper of Uniqlo V-neck ($105) and Women's Primark jumper ($57). Profits margins are much larger for high-end cashmere products. Some cashmere mixes contain as little as 5 percent cashmere. When low end cashmere marketers are squeezed by high cashmere prices they often respond by lowering the cashmere content on their products rather than raising prices.
Augustine Tse of Cashmere House is a designer known for his cashmere jogging suits, hooded sweaters, bathrobes, baby clothes and even bikinis. Sales topped $100 million in 2005 and his name was mentioned in the film “Friends with Money.” Tse's doubled-faced men's cashmere jackets sell for $2,200, half the price of similar Italian varieties. Among the satisfied customers are Madonna who bought Tse clothes for her children and Steven Spielberg who gave cashmere jogging suits as gifts to his friends.
Cashmere and Desertification in China
Since the 1960s, the average grass output has declined in Inner Mongolia by one third to two thirds as the size of cashmere goat herds there has increased. To prevent overgrazing there are limits on the numbers of animals livestock herders can raise.
Keith Bradsher wrote in the New York Times: “The problem is not just the collapse of the cashmere market, but also a government ban on Kashmir goats across much of Inner Mongolia for environmental reasons. Hungry goats with sharp hooves have denuded arid plateaus and broken up the soil, contributing to dust storms that fill the sky in Beijing and other cities in northeastern China. [Source: Keith Bradsher, New York Times, June 19, 2009 \=/]
Jane Macartney wrote in The Times of London: “Fly over Mongolia in summer and the steppes look as green as they must have done when Genghis Khan and his armies galloped across the land — but the switch is startling as the flight crosses the border into China’s Inner Mongolian region. The ground suddenly turns brown...The culprit is the humble goat — and the fascination of fashionistas for cashmere." In China, where the problem of desertification and loss of pastureland is far more advanced" than in Mongolia, "the authorities have decimated goat flocks and ordered more rotational farming. [Source: Jane Macartney, The Times of London, August 8, 2009 +++]
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.
© 2008 Jeffrey Hays
Last updated April 2016