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How wool is made

A Fibre of Success: Australian Wool in China


In recalling their experiences of travelling to China for the trade of Australian-grown wool, many of the woolgrowers, brokers and representatives interviewed in this book discuss their arrival, via state airline, at Hongquio airport. Situated in the middle of the countryside and surrounded by paddy fields, the not-too-distant memories tell a vastly different picture to that which we know of modern China, in which skyscrapers and high-speed bullet trains surround that same airport.

And today, the Chinese textile and apparel market is worth a staggering $300 billion as part of China’s transformation into a global powerhouse following its decision to open up to the international economy. With 1.4 billion people driving a new consumer culture and an economy growing at more than 7% per year, today it seems the only constant in China is change, but what endures is the country’s vast appetite and passion for Australian Merino wool and its deeply committed relationship with Australian woolgrowers.

The first exports of wool to China started more than half a century ago, with some records dating back to the 1920s, and today it is Australia’s largest customer, taking on average 75% of its total wool exports. Prior to 1980, Australia shipped less than 10 million kilograms (mkg) greasy each year to China as China’s small wool textile industry was largely supplied domestically. Australia has been one of the world’s largest producers of wool and boasted one of the largest sheep flocks for decades. However, Australia’s exports to China has risen since 1980, with a series of increases and falls driven by events both within and outside China.

The trade has expanded substantially since 1990 when China accounted for only 4% of Australia wool exports. Since 1980, Australia’s exports have grown from 21 mkg greasy worth A$64 million per year to 271 mkg greasy worth A$2.76 billion in 2017. The peak in the value of Australia’s wool exports to China was in 2017. However, the peak volume was reached in 2007 when 283 mkg greasy was exported from Australia to China. At the time, Australia’s shorn wool production was at 430 mkg greasy, compared with the current production level of 345 mkg greasy. While China has become the dominant partner for Australia’s wool in total over the past five decades, there has also been a significant trend towards China buying more fine and superfine wool from Australia. In 2017, 47% of Australia’s wool exports to China was 19 micron and finer wool. This compares with 10% in 2000 and only 3% in 1990.

“China and Australia are innovating towards a shared future in Australian Merino wool by developing new wool textiles and manufacturing techniques on a breathtaking scale that offers unlimited potential.”

 

As new Chinese designer brands emerge and consumer tastes mature faster than anyone had imagined, China’s relationship with Australian Merino wool has grown to encompass luxury, designer and mainstream retail, high-tech processing facilities and, above all else, even higher demand for the world’s preeminent natural fibre. With the country — and its economic and creative output — evolving apace, this year we celebrate more than half a century of a cross-cultural partnership. Spanning trade, economy and creativity we not only look back, but more importantly, look forward to the future of the Merino wool partnership between Australia and China — an age-old fibre and a technologically-advanced manufacturing industry — that is generating ever-increasing benefits for two countries that enjoy a deep creative, cultural and commercial relationship.

At the 2017 World Economic Forum in Davos, People’s Republic of China President Xi Jinping emphasised the need for innovation and international collaboration. “We should develop a dynamic, innovation-driven growth model,” he told the forum. “The Fourth Industrial Revolution is unfolding at an exponential rather than a linear pace. Countries have the right to development, but they should view their own interests in the broader context.” With its profound knowledge and experience in the processing of raw fibre, China is set to continue leading consumption of nature’s miracle fibre. In line with the Chinese president’s philosophy, China and Australia are innovating towards a shared future in Australian Merino wool by developing new wool textiles and manufacturing techniques on a breathtaking scale that offers unlimited potential.

BEGINNINGS

Born of the land, produced by sheep consuming a sustainable mix of fresh air, sunlight, grass and water, Australian wool is cultivated by generations of the country’s woolgrowers, who nurture every step of the growing process to deliver one of the earth’s finest and most precious fibres. With some 60,000 woolgrowing properties spread from Queensland to the mid-north of Western Australia, Tasmania and the Islands of Bass Strait, Australian Merino wool is grown year-round as an entirely natural fibre. Grazing on extensive grassland terrain, Merino sheep in Australia are free-range animals that roam from the high rainfall areas of the eastern seaboard to the drier pastoral areas of the west and have become an integral part of the iconic Australian landscape. The first sheep to arrive in Australia came with the First Fleet in 1788, about 71 million sheep in total today, and close to three-quarters of Australia’s flock being Merino.

“By 1950 – 51 the gross value of wool production had increased to 56% of the total value of production of all Australian agricultural industries.”

 

The first wool export from Australia was shipped by Australian merchant and sheep breeder John Macarthur in 1807 and within four decades Australia had become the largest producer of wool in the world. By 1950 – 51 the gross value of wool production had increased to 56% of the total value of production of all Australian agricultural industries and the attendant increase in the price of wool during this period led to a sharp increase in sheep numbers, from 96 million in 1946 to 113 million in 1950. At this time Australia was said to be “riding on the sheep’s back” and it was during this period that Australian farmers began exporting their wool to China.

CHANGES IN CHINA

The amount of wool processed and sold by Australia increased significantly following the Second World War, with China among the major growth markets. As interest in Australia’s premium natural fibre burgeoned, the first official Chinese wool industry delegation visited Australia in 1956. As Australia had not officially recognised Mainland China at that time, the Australian Government was not involved and instead the visit was sponsored by the English, Scottish and Australian Bank, which introduced the Chinese to the workings of the wool industry, through taking them to wool sales in Sydney and on a tour of the Michell Wool processing plant in Adelaide.

Between 1966 and 1976, China’s economy went through major upheaval as a result of the Cultural Revolution. Average per capita incomes were low and only 18% of the population lived in urban areas. One positive for the future of Australian trading with China was that Australia established diplomatic relations with the People’s Republic of China in December of 1972. This was followed by Australian Prime Minister Gough Whitlam’s visit to China in October of 1973. Although the liberalism of the 1960s meant more progressive politics and social attitudes in many countries, visits to China were still not permitted and wool trade negotiations instead took place at the twice-yearly Canton Trade Fair — not that it was any easier to get there.

L: Former Australian wool broker and exporter Ian McIvor A.M visits wool processing facilities on an early visit to China. R: Manual assortment of raw wool fibre in a Chinese processing facility. 

“To today’s visitor to Canton (Guangzhau) the entry problems of the 1960s would sound impossible,” says Ian K McIvor AM, who visited Canton twice-yearly as a wool buyer specialising in the Southern markets. Firstly, visitors such as McIvor had to apply for an invitation to attend from a contact organisation in China, after which they proceeded to Hong Kong, where they applied for a visa at the China Tourist Centre. They then had to wait two to three days until the visa was issued, before taking the train to Lo Wu and entering China. “At this stage, your passport and luggage were taken from you, a hotel room was allocated and you were issued with a ticket on the next train to Canton,” says McIvor.

On arrival in Canton a bus dropped people at an allocated hotel, where their luggage had been delivered to your room, but even once they arrived, travel in Canton was difficult due to the presence and influence of the Red Guards, who restricted movements and accompanied bus journeys to and from the fair. Everything improved significantly after Australia’s recognition of China in 1972 and a period of economic liberalisation under People’s Republic of China leader Deng Xiaoping, who also modernised the industries of agriculture, science and technology.

1978 saw the most significant event for China’s economy and for the future development of the wool textile industry in China. This was the agrarian reforms introduced by Deng Xiaoping. Under these reforms, the organisation of farming was decentralised to household level, and households could choose what crops and livestock to grow. They could also sell any production above state quota in the free market. In addition, the first Special Economic Zones were established on the east coast. The Chinese Government maintained tight control on the imports of wool, although there was some growth in exports of Australian wool to China in this period. China’s imports lifted by 40% in 1981 and doubled in 1982 (from a low base), then fell back in 1983 and 1984.

“On the global stage, the world economy was flourishing. This, combined with strong buying of wool by the Soviet Union, saw demand for wool boom. The Australian stockpile, which had built up in the early 1980s, disappeared very quickly and wool prices surged to the highest ever levels by April of 1988.”

 

Relations between Australia and China were further bolstered in 1986 when Australian Prime Minister Robert Hawke visited China accompanied by members of the Australia China Business Council and wool industry representatives, including McIvor. The so-called Australia China Wool Initiative resulted in increased co-operation and technical exchanges, as well as several visits to China by an Australian Wool Industry Task Force, which advised the Chinese on working with wool. “Until this time there had not been any Australian industry representatives located in China, however with an ever-increasing presence of Wool Corp staff and initiatives in China this changed, and several Australian wool industry companies established offices or local agents and representatives there,” says McIvor.

China introduced further economic liberalisation during the period between 1984 and 1988, including freeing up pricing and wage setting by state-owned enterprises. It also decentralised state control to provinces. This encouraged a significant growth in rural township enterprise wool textile mills in the 1980s. This in turn led to the ‘Wool Wars’ in China between 1985 to 1988. Provinces fought to secure wool for their increasing early stage processing capacity. Domestic wool prices rose dramatically. The rigid controls on wool imports broke down and many different agencies entered the wool-importing business (with or without official approval). As a result of the Wool Wars and relaxation of controls on wool imports, Australia’s exports of wool to China rose rapidly. Wool exports almost quadrupled in 1985, with further increases in 1986 and 1987.

On the global stage, the world economy was flourishing. This, combined with strong buying of wool by the Soviet Union, saw demand for wool boom. The Australian stockpile, which had built up in the early 1980s, disappeared very quickly and wool prices surged to the highest ever levels by April of 1988.

The late 1980s in China saw the beginning of Government reforms of State- Owned Enterprises (SOEs). This drove a surge in investment by these enterprises, but a lack of macroeconomic management instruments fuelled high inflation. At the time there was upheaval in Communist countries throughout Europe. The Tiananmen Square protests in 1989 were in part in response to the extreme inflation and extensive corruption and may have been encouraged by unrest in other Communist countries. The Chinese Government responded by reinstating controls on imports and on prices.

The crack-down led to the ‘wool depression’ in China triggered by the June 4 Tiananmen Square incident. A crack-down on illegal traders and other measures resulted in a build-up of raw wool stocks of domestic wool in China. By the end of 1989 there was 120 mkg of stocks held which built further to a peak of 143 mkg in 1990. At the same time, the Government reasserted centralised control over wool imports in 1989. For example, the wool import quota in 1990 was only 45 mkg. As a result of the stricter controls on imports and the low import quota, Australia’s exports to China fell by 60% in 1989 and a further 24% in 1990.

The global economy slumped in the early 1990s, which further hit raw wool demand. This and the upheaval in the USSR and the eventual dissolution of the Soviet Union in 1991 meant that Australia experienced a massive drop in demand for its wool. The Reserve Price Scheme collapsed in 1991 and Australia was left with a stockpile of 4.7 million bales of wool — more than a season’s worth of production. This stockpile would need to be sold over the next decade to repay the debt to the Australian Government.

“The period between 1998 and 2005 was pivotal for the development of China’s economy and its eventual dominance as Australia’s premier trading partner in wool.”

 

Two years after the crackdown and re-imposition of state controls on the economy, China once again began to reform its economy. In 1992, the Communist Party formally embraced Den Xiaoping’s view that the market system was not incompatible with ideals of socialism and established the “socialist market economy”. This encouraged the growth of the township enterprises which started to gain share (these were notionally owned by local governments but were effectively private).

The government deregulated the wool markets in China in 1992. This, plus improved demand, led to a clearing of the excess stocks in China. There was a de-facto freeing up of the wool import regime, with some mills better able to exploit the de facto arrangements than others). Import quotas were not restrictive with CHINATEX and its subsidiary organisations (China Resource Textile Corporation, Nam Kwong and CHINATEX Sydney) buying for mills. Provincial agencies also bought for mills. As a result of these changes, Australia’s exports to China jumped between 1991 and 1994, tripling in 1991 and increasing by 25% in each of 1992 and 1993. This helped push wool prices in Australia up sharply in 1993 and 1994. At the end of this period, the Asian Financial Crisis hit in 1997, bursting a credit bubble and causing major upheaval in the Asia-Pacific. This led to a slide in Australia’s exports of wool to China and also a drop in wool prices in Australia.

The period between 1998 and 2005 was pivotal for the development of China’s economy and its eventual dominance as Australia’s premier trading partner in wool. Within China, there was large-scale privatisation of SOEs, with many liquidated and sold off. As well, the banking system was reformed and lower trade barriers and tariffs introduced. A key was China becoming a member of the World Trade Organisation on 11 December 2001. This meant that quotas on textiles and clothing imports from China by the United States and Europe were eliminated, as part of the Agreement on Textiles & Clothing. As a result, China’s exports of wool clothing to the United States and, in particular, to the European Union surged. This helped boost the investment in wool textile mills, from early stage processors to garment makers.

On joining the World Trade Organisation, China introduced tariff rate quotas for the import of raw wool and wool top. This provided much clearer arrangements for Australia’s exports of wool to China. Australia’s exports of wool to China lifted by 31% in 1999 and by 45% in 2000. After rising marginally in 2001, the SARS outbreak in China between 2002 and 2004 triggered a sharp fall in Australia’s exports to China. In part this was due to Government restrictions on imports of raw animal products and on the movement of people. Australian wool exports fell by 20% in 2002 and by 32% in 2003. Once the restrictions were lifted, Australia’s exports jumped by 63% in 2004.

The global economy went through a dip in 2001 as the ‘dot com’ bubble burst in advanced economies and in the wake of the September 11 terrorist attacks in the US. By 2004, the world economy was growing at a fast 4.4% annual growth rate.

China continued to reform its economy. The government removed the hard peg of the renminbi to US$ and replaced it with a peg to a trade weighted basket of currencies. Monetary policy was also very loose, which led to property speculation and fast rising housing prices. By now, Australian wool production and supply was very constrained. Despite excess capacity in early stage processing in China, Australia’s exports of wool to China was between 250 – 280 mkg greasy, with some year-to-year fluctuations depending on the stocking and destocking decisions by mills.

Internationally, this period was dominated by the Global Financial Crisis in 2008 and 2009. Global economic growth slumped in 2008 and then went backwards in 2009 as the world entered a severe recession. The severe drought across Australia continued until 2010 before there was some relief in 2011 and 2012. In April of 2011, cotton prices hit their highest level since the US Civil War. This pushed the prices for all textile fibres to high levels, including wool. As well, the Australian dollar rose rapidly to US$1.10 in July of 2011, the highest level against the US dollar since it was floated in the early 1970s. This made Australian wool more expensive for Chinese mills than it had ever been.

The Chinese economy is now moving away from the “import raw material manufacture-
export” base to a more mature economy based on domestic consumption. This means that the annual economic growth rate is moderating, but it also presents an opportunity for Australian wool to grow through sales of finished wool product in China. China is already the world’s largest wool consuming country at retail, but there is potential for this to grow further. China’s population is increasingly urbanised, with a rising number of people in the middle-income segment. In 2016, almost 57% of the population was urban-based, up from 18% in 1968, 22% in 1988, one-third in 1998 and 43% in 2005.

After several years of weak growth as the advanced economies struggled to recover from the GFC and the subsequent Euro-debt crisis in 2013, world economic growth is once again accelerating. It grew at 3.7% in 2017 and is expected to grow at 3.9% in 2018. This has helped demand for raw wool and Australian wool prices hit record levels in early 2018.

THE NEW CHINESE DESIGNERS

 Until recently, China’s fashion consumption market was dominated by the big luxury brands and their logos, but as a more sophisticated and nuanced Chinese consumer has emerged so too have home-grown designer brands. Uma Wang and Guo Pei show on the official schedule of Paris Fashion Week and Paris Haute Couture Fashion Week respectively, while Comme Moi, Doris Q, VMajor and Ban Xiao Xue are among the labels who are working together with The Woolmark Company to take a message of Chinese design and quality to the world.

Luxury menswear in China is particularly strong, with TRANDS, UPPER and Beautyberry showcased in 2017 during the launch in Beijing of the Woolmark Gold collection, which celebrates excellence in tailoring using the finest Australian Merino wool cloths and are increasingly being used by Chinese designers to start their own brands. VMajor’s Victor Zhu, a finalist in the 2015 International Woolmark Prize held in Beijing, says Chinese factories are now much more willing to work with smaller, emerging local labels such as his as well as behemoth international brands. “Before, the factories were manufacturing for the western world, but now they are starting to change and are open to working with emerging Chinese designers,” he says. “They are beginning to try something new and are willing to work with creative ideas, not just to always be the same.”

A more established brand is Icicle, which recently worked with The Woolmark Company on a capsule collection celebrating the brand’s 20th anniversary, accompanied by a campaign shot on a wool-growing property in Australia. Similarly, Comme Moi founder Lu Yan visited Australia in early-2018 to launch her brand into the Australian market. With four stores throughout China and another six due to open in 2018, Yan, who is a long-term partner of The Woolmark Company, is a prime example of how Chinese brands are making a mark on global fashion. “China has one very good quality: we are learning very fast,” says Yan. “People used to think Chinese fashion was just about copying, but Chinese people now know exactly how to run a brand like western people. The Chinese fashion media is now quite strong, so they can push brands, and I really think Chinese designers are only just starting.”

INNOVATION IN DEVELOPMENT & RESEARCH

 As China stakes its claim as one of the world’s most dynamic fashion capitals, it has also become the global centre for wool development and research thanks to the Wool Development Centre in Shandong Province and the Wool Resource Centre in Hong Kong. The Wool Development Centre was established in 2014 to develop innovative, high-value woven fabrics produced from Australian Merino wool. It is co-funded by The Woolmark Company and one of China’s leading woollen textile enterprises, The Nanshan Group, and also functions as a training base to foster professional talent in the wool textile industry.

The Woolmark Company’s technical team, based in Shanghai, works alongside The Nanshan Group to undertake trials for the development of new fabrics based on the latest marketing trends. As a result, the trials can successfully produce sample fabrics quickly and affordably, allowing for major breakthroughs in fabric developments that are designed directly in response to market needs. “Since the Wool Development Centre opened it has enabled our design and product development team, working closely with The Woolmark Company’s technical team, to not only swap and develop ideas, but to very quickly check them out,” says General Factory Director of Nanshan’s Fabric and Garment division Mr Cao Yiru.

The Wool Resource Centre in Hong Kong.

The opening of the Wool Resource Centre was completed two years later in Hong Kong in 2016. A global hub for apparel and textile industries to discover the benefits and versatility of Australian Merino wool, the centre includes a library, a showroom and an events space and is located in the Kowloon Tower Landmark East building. A multi-functional, interactive space dedicated to product and process innovation, the Wool Resource Centre can be used by The Woolmark Company’s partners throughout the supply chain: designers can find inspiration and touch and feel the latest and greatest in wool; supply chain partners can showcase their product or host a launch; and woolgrowers can use the centre for industry presentations.

Hong Kong was selected as the home of the Wool Resource Centre due to its importance as a global hub for brands sourcing Australian Merino wool, and the region is also a key manufacturing hub for knitters and spinners. To close the circle of research and development, the excellence of their work is recognised in the Australian Merino Wool Best of China Awards, which are held each year in Shanghai. A partnership between The Woolmark Company and the China Wool Textile Association, the awards recognise Chinese textile companies excelling across a range of 10 categories and aim to promote China’s wool textile industry to the world.

NEW WORLD WOOL

 As China has consolidated its position as one of the essential engines of the global economy, so too has the country cemented its relationship with Australian Merino wool. Since the first Australian Merino wool exports to China began in the early 20th century, the natural fibre has become a pillar of China’s apparel industry, both in the manufacturing and the consumption of garments, and the relationship between Australia and China has subsequently deepened. “That long involvement over the past 50 years and that great relationship of creating quality woollen products has worked really well for the Australian woolgrowers,” said woolgrower Sydney Lawrie. “It’s so important to be involved with China and they’re so positive about the Australian wool industry; I think it’s got a massive future. With their growing population, we can continue to take that forward and grow with them.”

Designs by Chinese-born, Australia-based designer Chris Ran Lin.

As that population continues to swell and cultural, creative and commercial ties between the two countries have strengthened, the unique bond between an ancient fibre and a future-facing China has spawned countless individual stories of business and friendship across half a century of trade. The next chapter of the overarching narrative is now being written by a new generation of young Australian and Chinese fashion designers who are eager to build on the ties between the two countries first forged 50 years ago. China, for example, is the largest growth region in Asia for Australian designer Dion Lee, whose eponymous brand is enjoying greater sales increases there than anywhere else in the world. “They’ve been hugely supportive of the brand and the customer is really responsive to the product throughout the region,” says Lee. “It’s definitely something that we’re looking to support further.”

Designer Chris Ran Lin, who was born in China and now lives in Melbourne, says China is the holy grail for any fashion designer wanting to make an impact. “China is a huge market for fashion designers,” he says. “When you consider the population and economics, there is the potential for Australian designers to really grow and step into the market over there.” In January 2017 he produced a range in collaboration with Lane Crawford Hong Kong that successfully sold in Beijing, Shanghai, Chengdu and Hong Kong and he is keen to further build his brand in the region. “I’m slowly introducing my label into the Chinese market,” he says. “As a young designer from here [Australia] it’s amazing to be able to present something quite new over there [China]. I would like to develop a connection in the future that’s stronger, as I can see the future is in China.”