In recent years the Mongolian economy has stabilized with industry playing a key role, in particular in the mining sector.  Light industry is equally important to the development of Mongolian market relations. Mongolian light industry mainly consists of woodworking, textiles, clothing, leather and footwear as well as handicrafts.

Mongolia is rich in cashmere which is sought after as a luxury product. Cashmere is officially considered as the third largest export product of Mongolia, after copper and gold, and provides income to over a third of its 2.7 million people. In 1993-2002, the cashmere industry, economy’s single largest employer, provided jobs for over 16 percent of the total work force, accounting for over 6.3 percent of GDP of the same period.

Combed and knitted cashmere products meet international standards, and is differentiated with its longer and narrower feature in the foreign market. It has more demand in European markets, as the longer and darker raw cashmere is more suitable for luxury goods. In this regard, Mongolia is the world’s second largest producer of raw cashmere, producing over 26 percent of world supply, after its neighbor China, which produces more than 60 percent. In relation to increase in demand for cashmere products in the international market, Mongolia’s cashmere processing industry is growing into a strategic sector with significant impact in Mongolia’s export regime.

In the wool processing industry, 45 foreign and domestically owned factories and business entities operate in this sector. More than 40% of the factories do primary processing of wool and around 60% of the factories produce consumer goods such as carpet, blanket, felt and felt shoe, and floor covering etc.

In the leather industry raw material production capacity in 2005 was around 6.5 million counts of hides and skin. 50.8% or 3.3millin of the total is sheep skin, 36.9% or 2.4 million is goat skin, 6.5% or 0.42 million is caw hide, 4.9% or 0.32 million is horse hide, the rest is other animal skin.

As of 2007, there are about 100 business entities operating in textile industry, of which 38.3% or 36 are established with 100% foreign direct investment, 46.8% or 44 are joint companies and 14.9% or 14 are domestically owned companies. Textiles industry employs more than 20 thousand workers, which is about 17.5% of the total employment in industrial sector. This sector produces 5% of industrial goods, and exports 10% of the total export (the calculation of the businesses does not add up). The great significance accorded the textile industry is evident in the tax exemptions that raw materials, in-process materials and other basic and supplementary materials as well as equipments used in this sector enjoy under the import duties and VAT Law.