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CIRCULAR OF THE GENERAL OFFICE OF THE STATE COUNCIL ON TIGHTENING CONTROL ON PRODUCING AND MARKETING CASHMERE

    Cashmere is a vital aspect of China's high-grade wool textiles, and is a
major foreign exchange-earning export item. It is also an important source of
income for herdsman in the primary production areas of cashmere. Since 1985,
the management of cashmere has been gradually relaxed, which has produced
positive effects in invigorating the economy in production areas and in
increasing the incomes of herdsmen. However, some new problems have appeared
in the production and marketing of cashmere, such as too many channels of
management, a superfluous working ability, blind competition, drastic price
fluctuations, and fluctuating product quality. In order to form a better
circulation sequence, ensure the unique superiority of Chinese cashmere in the
international market, and to promote the stable, sustained and coordinated
development of cashmere production, the State Council has ratified the
following notice concerning consolidating control on the production and
marketing of cashmere:

    1. Rectifying the circulation channels, straightening out relations
between production and marketing, controlling processing ability, and
standardizing operational actions.

    (1) Enterprises which engage in purchasing, processing, producing, and
exporting cashmere shall be required to abide by the following basic
requirements:

    a. Possession of a regular organ of management, site, storage facilities,
fairly high technical level, and quite advanced equipment; possession of
relatively regular purchasing and marketing channels and a business license
covering the purchasing, processing, producing, and exporting of cashmere,
with said license authorized by an industrial and commercial bureau.

    b. An enterprise engaging in purchasing cashmere shall set up a permanent
agency in the primary production area of cashmere; it shall also have a
relatively regular purchasing network, and quality-control personnel and
equipment which has been certified by a fabric inspection institution. For
preliminary processing of cashmere, the enterprise shall have cashmere combing
machines qualified by a fabric inspection institution.

    c. An enterprise engaging in purchasing cashmere shall possess capital
that can guarantee the normal operation of purchasing, processing, producing,
and exporting cashmere.

    d. Other requirements for enterprises engaged in exporting cashmere can be
referred to in related regulations in the Interim Procedures of the Management
of Exported Merchandise in the Circular of the Ministry of Foreign Economic
Relations and Trade Endorsed by the State Council (No. 69, 1992).

    (2) The people's governments of the primary production provinces and
autonomous regions of cashmere shall appoint a leading department which, in
conjunction with other departments, shall inventory and reorganize existing
enterprises engaging in purchasing, processing, producing, and exporting
cashmere, and reconfirm their operational qualifications. The industrial and
commercial administrative departments shall re-register enterprises dealing in
cashmere, and resolutely bar the operation of businesses and units without
licenses or that do not meet requirements for dealing in cashmere. Illegal
dealers shall be severely cracked down upon according to relevant laws and
regulations.

    (3) The main channels of purchasing, processing, producing and exporting
cashmere are: qualified members of the All-China Federation of Supply and
Marketing Cooperatives system, enterprises dealing in cashmere under the
Ministry of Foreign Economic Relations and Trade, and big- or medium-sized
backbone enterprises dealing in finished cashmere products. The purchase of
cashmere shall rely mainly on the supply and marketing cooperatives at all
levels in the primary production areas of cashmere. Raw cashmere material and
the purchasing, processing, producing and exporting of finsihed cashmere
products shall rely mainly on big- or medium-sized enterprises under the
system of the Ministry of Foreign Economic Relations and Trade and China
National Textile Council. Purchasing cashmere in the primary production areas
of cashmere must be carried out through local cashmere enterprises that
possess business qualifications.

    (4) The State Planning Commission at all levels shall strictly control the
working ability of cashmere processing. It shall not examine or approve new,
repetitious processing projects with low technical levels or which do not meet
the requirements of readjusting the industrial make-up, or which do not have
obvious industrial superiority. New, internal cashmere processing enterprises
shall be examined strictly on the principles of increasing value, earning
foreign exchange, and possession of a high technological level. The State
Planning Commission shall not, based on the present internal situation of
producing and marketing cashmere, examine or approve foreign-invested cashmere
processing enterprises, and shall resolutely destroy backwards and obsolete
cashmere combing machines. The State Economic and Trade Commission, in
conjunction with the National Textile Council, shall issue separate circulars
on how to dispose of the textile department's out-of-service cashmere combing
machines.

    (5) Banks shall not provide loans to any unit that is not qualified to
deal in cashmere.

    2. Strengthening price coordination and management.

    (1) Authorized by the state's price control authority and the Ministry of
Foreign Economic Relations and Trade, the China Importers and Exporters of
Foodstuffs and Native Produce and Animal By-Products Chamber of Commerce shall
yearly, in conjunction with the All-China Federation of Supply and Marketing
Cooperatives, the China National Textile Council, and other internal large- or
medium-sized pillar industries engaging in purchasing, processing, producing,
and exporting cashmere, determine a coordinated export price of raw and
finished cashmere products, including ordinary cashmere clothing and cashmere
fabric, according to the demand on the international market and the internal
production and marketing situation of cashmere. The General Administration of
Customs and the primary production provinces and autonomous regions of
cashmere shall be promptly notified of the price.

    (2) Authorized by the state's price control authority and the All-China
Federation of Supply and Marketing Cooperatives, the China Association for the
Circulation of Animal By-Products shall yearly, in conjunction with the
Ministry of Agriculture, the Ministry of Foreign Economic Relations and Trade,
and the China National Textile Council, formulate reasonable internal price
guidelines for purchasing cashmere.

    3. Establishing a local reserve system.

    To stabilize the market, control prices, and protect the interests of the
herdsmen and enterprises, the primary production provinces and autonomous
regions of cashmere may establish a cashmere reserve system as per their own
situations. The local people's governments shall be responsible for the
purchasing, employment and administration of the cashmere reserve.

    4. Improving export management.

    (1) The state shall control the total quantity of exported cashmere. While
continuing to adjust the make-up and advocating scaled operation, the state
shall also gradually enlarge the quantity of exported finished products and
reduce the quantity of exported raw materials and primary products. Under
certain conditions, certain consideration shall be given to the interests of
an ethnic minority area. The state shall continue to improve the export order
and strengthen quality inspections of exported cashmere.

    (2) Customs shall examine prices of exports according to the price
guidelines supplied for the export of cashmere, and shall make reports to the
relevant departments; the relevant departments shall, in accordance with
relevant regulations, punish those who export cashmere at a lower price.

    5. Improving management over the market and quality.

    The State Planning Commission, the State Economic and Trade Commission,
the State Administration for Industry and Commerce, the State Bureau of
Technological Supervision, and the State Bureau of Commodity Inspection, in
conjunction with the people's governments of the primary production areas of
cashmere, shall strengthen the administration of cashmere production and
marketing links.

    (1) Bales of cashmere may be sold only after being inspected by a
professional fabric inspection agency of a technical supervision department.
In selling cashmere products, the following items shall be marked on the
package in Chinese: classification, grade, article number, specifications,
color number, cashmere content, weight, name and address of factory, date of
manufacture, and price.

    (2) The State Bureau of Technological Supervision shall formulate measures
for the quality inspection of cashmere, and shall strengthen supervision and
management.

    (3) The primary production provinces and autonomous regions of cashmere
shall list cashmere as a controlled commodity, regularly issue guiding
information, and promptly solve problems appearing in production and marketing.

    (4) The relevant departments and the primary production provinces and
autonomous regions of cashmere shall conduct pilot projects in implementing
conglomerates which incorporate the husbandry, processing, marketing, supply,
and sales of cashmere, and which will share the benefits and risks. The
governments at all levels shall strengthen their leadership. The relevant
departments of the State Council shall focus on coordination work.

    6. Supporting cashmere production

    Developing production is a main means to solve the problems existing
between supply and demand. All departments shall well coordinate and increase
capital investment, ameliorate the pasturelands, strengthen construction on
the grasslands, and establish production bases, taking these items as
long-term projects. Agricultural departments and supply and marketing
cooperative systems shall pay special attention to improving breeds,
increasing the per unit yield, technical training, disease prevention, and
socialized service.