China, Mongolia hope for more cashmere trade
Mongolia has long pushed to diversify its economy and increase the economic viability of its livestock sector, particularly its wool and cashmere business. This is also important for China. Although China sits atop the global cashmere production rankings, well ahead of second-placed Mongolia in output terms, Chinese traders are still the biggest purchasers of Mongolian cashmere. During the 18th Shanghai Cooperation Organization Summit in the coastal city of Qingdao, East China’s Shandong Province in June, Mongolian President Khaltmaagiin Battulga proposed cooperating with China in areas including the cashmere industry as the two countries account for 95 percent of the world’s market for raw cashmere, according to the Office of the President of Mongolia.
In a recent interview with the Global Times (GT), Li Chao (Li), a junior research fellow with the Russia and Mongolia Research Institute at the Inner Mongolia Academy of Social Sciences, shared his thoughts on the prospects for China-Mongolia cooperation in the cashmere trade.
GT: How important is Mongolia’s cashmere push for the nation’s diversification strategy?
Li: The push for a diversified economy has been a key issue for Mongolia and in recent years the country has put a greater emphasis on increasing livestock output. The Mongolian government’s Action Program for 2016-20 calls for stepped-up implementation of the “Mongolian Livestock” national program. It is expected that the economic viability of the nation’s livestock sector will be improved as a system is to be put in place regarding the collection, storage and transportation of wool, cashmere and leather, among other efforts.
That said, the cashmere business, in particular, means a lot to the nation’s diversification drive. Due to Mongolia’s harsh winter, the nation’s goats grow longer hair which can be sheared into wool that is warmer than that of other breeds. This, in addition to Mongolia’s natural-style livestock farming and cashmere production, renders Mongolian cashmere competitive in the global market. Cashmere is not just the Mongolian livestock industry’s top export business, but the nation’s secondlargest export category after minerals.
In an effort to boost its cashmere industry, the government in February launched a four-year program aiming specifically to improve the manufacturing and technological innovation of cashmere products and to provide financial support for cashmere companies.
The Mongolian government not only hopes to increase exports of semifinished cashmere products, but also wants to foster higher value-added exports and increase the profitability of the country’s cashmere businesses. The cashmere industry could help to cut the economy’s heavy reliance on mining exports.
GT: What are the challenges facing Mongolia’s cashmere sector?
Li: The cashmere industry is increasing its role in Mongolia’s economy but it still faces challenges. About two-thirds of Mongolian cashmere companies currently focus on the manufacturing of cashmere products for preliminary processing and there is only a small number of companies involved in making cashmere yarn and knitted products. The issue with preliminary processing is unlikely to be resolved overnight.
Additionally, drying surface waters have over the years aggravated desertification in Mongolia. Climate change and overgrazing are also believed to have resulted in the degradation of much of the country’s pastures. This fragile ecological environment could hinder the growth of Mongolia’s cashmere industry.
On top of that, there is a concern about fundraising for small and medium-sized businesses. Smaller cashmere processing companies in the country still don’t have sufficient capital to purchase raw cashmere or upgrade their technologies. Although the national cashmere program will offer some financial support, the annualized loan rates it provides remain unaffordable for some companies. This suggests further fiscal and financial support will be essential for the country’s cashmere businesses.
GT: What is the potential for the trade in cashmere between China and Mongolia?
Li: Last year, cashmere was Mongolia’s fifth-largest export to China, behind coal, copper powder, crude oil and iron ore, according to official data. China’s imports of Mongolian cashmere have risen steadily in recent years. Normally, Mongolian cashmere exported to China is processed further and turned into finished products for re-export. It could be said that the two countries’ cooperation on cashmere mainly revolves around the trade of semi-finished cashmere products.
Owing to insufficient processing capacity, even if Mongolia upgrades its cashmere supply chain, its domestic factories remain weak in terms of further processing of raw materials. This means that exporting semi-finished cashmere products is still in the interests of the Mongolian economy. As the world’s largest cashmere producer and consumer, China is also in need of raw cashmere from Mongolia. This matters not just in terms of quantity; it also suits China’s need for different varieties of cashmere. In another sign of complementarity, Mongolian cashmere makers also import wool cashmere blends from China. The two countries’ cooperation in this regard will be expected to effectively push for bilateral trade growth.
GT: What still needs to be done to build a closer partnership between the two countries in the cashmere trade?
Li: It is of vital importance for Mongolia to create a sound investment climate to attract Chinese cashmere businesses. That would require sufficient legal protection and stable investment policies for Chinese investors. Mongolia should also keep a close watch on China’s cashmere consumption market and cashmere processing technologies. China, for its part, can encourage Mongolian cashmere makers to enter into the country’s bonded warehouses, and can help in setting up sales channels for Mongolian cashmere finished products to be distributed across China. China might also transfer some of its preliminary processing capacities or technologies to Mongolia.
The two countries could also cooperate on the monitoring of quality management of raw cashmere and jointly explore the international market for finished products. More importantly, the two countries need to consider plans for strategic cooperation in the field of cashmere, which could involve the creation of an effective long-term mechanism highlighting bilateral exchanges in technologies, talent training and environmental protection so as to drive diversified development of SinoMongolian trade.
The two countries need to consider plans for strategic cooperation in the field of cashmere, which could involve the creation of an effective long-term mechanism highlighting bilateral exchanges in technologies, talent training and environmental protection so as to drive diversified development of Sino-Mongolian trade.