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Global Ambition of Ningxia's Cashmere Industry
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The Chinese cashmere business has made the leap from exporting raw materials to selling finished goods to the most prestigious brands in the world of fashion. But firms are still struggling to establish an international brand presence of their own.

As with so many global industries in the past decade, the chase for the China price has transformed the venerable cashmere business. Long associated with traditional brands such as Burberry, Ballantyne and 200 year old Pringle, cashmere hit the headlines in mid-1990s with a craze for pashminas. In the early 2000s fashion designers started to feature it in their collections and stars such as Robbie Williams, Madonna and Ewan McGregor began to be seen wearing it.

Cashmere's image-change from twin set and pearls to high fashion wool coincided with a shift in finished goods production from traditional locations, such as Scotland and Italy, to China, reflecting the profound changes that have taken in the global economy in the last two decades. China's lower production costs turned cashmere from a luxury item into a mass market, high-street commodity.

But this was not just another case of Chinese firms taking over a traditionally Western industry. The cashmere business is coming home. The finest cashmere wool has always come from the Alashan plateau which stretches through China and Mongolia. Despite the origin of its name, comparatively little cashmere is sourced from Kashmir.

Lingwu Cashmere industrial park in Ningxia Hui Autonomous Region is one of the powerhouses of China's cashmere industry. Just two hours drive from Alashan, the 200 hectare industrial park was established in 2004 and today houses 43 factories with a total investment of 1.5 billion yuan. The park has transformed Ningxia's cashmere industry. Before it was built, the area basically exported raw cashmere. Now the park exports millions of finished items each year.

China produces more than two thirds of the world's cashmere, the remainder coming from Mongolia, Iran, India and Afghanistan. The fine down is combed from under the coarse outer hair of goats that roam the sparse grasslands on the fringes of the Gobi desert. It takes the annual yield of three or four animals to make a single sweater. Only about 15,000 tons of cashmere is produced worldwide each year, compared with 1.3 million tons of wool, so cashmere's relative scarcity explains its still relatively high price tag.

Production has soared over the past two decades. The UN FAO estimated world production of cashmere at 5,000 tons in 1988, one third of today's figure. And while increased production has put the price of cashmere products within the reach of the high street shopper, it has also brought worries about the environment. The number of goats in Inner Mongolia increased more than tenfold from 2.4 million in 1949 to 25.8 million in 2004. Environmentalists claim that over-grazing by millions of goats is turning China's grasslands into deserts, leading to increasingly frequent dust storms in Beijing and air-pollution as far away as the USA. The Chinese government was moved to act in the mid 2000s by paying herders to slaughter goats, and subsidizing fenced grazing projects.

For the cashmere firms of the Lingwu industrial park however, the main concern is how to claw their way up the value chain from the relatively low returns of contract manufacturing to the higher margins available from marketing their own label goods.

But launching a new brand onto the market is an expensive and risky business. An alternative is to acquire an existing brand, which is exactly what Hong Kong based Fang Brothers Knitting Company did when they bought Pringle from cashmere giant Dawson International in 2000. The Fangs broadened the brand's appeal to include a younger demographic and, crucially, expanded into the mainland China market.

In 2008, the Ningxia-based Lingwu Zhongyin Cashmere Company entered into negotiations to take over 120-year old Dawson International, widely regarded as the world's number one cashmere business. Although the takeover talks were called off on June 4, the bid was an indicator of the ambition of Ningxia's emerging cashmere giants.

If Lingwu Zhongyin shows the scale of the Ningxia industry's ambition, a more typical case is the Jiayuan Cashmere Industry Group, which has an annual turnover of 2 billion yuan (US$291 million), and employs 3000 staff, including 126 technicians, on a 22 hectare production site. Also sited in the Lingwu Cashmere industrial park, the company was founded in 1995. It is a private, unlisted company and has had no state investment.

In 2006 Jiayuan made a strategic decision to create its own brand and launched the Rongdian clothing range in 2007. But in June 2008 a company spokesman told China.org.cn that the overwhelming bulk of its business remains contract manufacturing. The spokesman did not reveal which brand names they supplied, but said the company's main markets were the USA, Japan, and Europe.

The workforce is almost entirely female. Wages are based on piecework and average around 900 to 1000 yuan (US$131-145) per month. The workers live in dormitories inside the factory complex; many work seven days per week, others work five or six days. The spokesman assured us that overtime is voluntary.

When we asked Jiayuan's spokesmen to comment on the environmental impact of the industry, he merely said that as far as he knew the government had forbidden open grazing. He added that in the company's view this was lowering the quality of the cashmere available. He told us the company does not buy directly from producers.

Inside the factory which seemed impressively modern, rows of women and a few men were operating machines. The firm uses knitting machines imported from Germany but has developed its own carding machines. We were refused permission to take photographs, without any explanation other than it was company policy. However the staff we spoke to confirmed the wage rates the spokesman had outlined, and that overtime was voluntary.

The gray, corrugated walls of the workers' dormitory seemed a world away from the Hui villages just a few kilometers away, with their blue and white courtyard houses, minareted and domed mosques, and bright green paddy fields. Given that the factory is on a huge industrial estate surrounded by dozens of similar factories, life for the workers probably consists of little more than work, eat and sleep. One assumes they are putting money aside for a better future.

(China.org.cn by John Sexton and Pang Li, July 21, 2008)

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