China has made its first move into Scotland's textile industry with the acquisition of its last yarn spinner, Todd & Duncan at Kinross.

After lengthy negotiations, which began two years ago and at first involved buying parent company Dawson International, Ningxia Zhongyin Cashmere Company has signed a deal which will secure for five years the Kinross site, now owned by a London property group following a cash-raising sale and leaseback deal in 2007.

The Chinese will set up a wholly-owned subsidiary, to which all 200 staff will transfer.

Further agreements will guarantee continuing commercial relationships for four years between Zhongyin and Dawson's two surviving knitwear businesses, Barrie in the Borders and Dawson Forte in the US.

For Dawson, it will mean a £6.1m cash injection with a further £5m of working capital during the year as remaining orders are settled.

Andy Bartmess, chief executive, said it was "a good deal for all parties", allowing Dawson to generate cash from a loss-making business. "At the same time we are selling to a strategic investor who wants to grow the current business."

Zhongyin had told Dawson that it wanted an extended lease at Kinross and would in time seek a "Scottish solution" to re-siting the operation.

Bartmess said: "One of its strengths is that it is the only Scottish spinner left, they want to maintain that strength I think it is a pretty good deal for the current workforce."

The Lochleven mill, which also houses Dawson's group headquarters, sources most of its raw material from China and exports around 60% of its product to the European market. In 2008 Todd and Duncan reported an operating loss of £500,000 after exceptional charges on turnover of £22.2m. It had net assets of £14.6m at the year end, now valued at £13.5m, and being sold at a discount of £5.1m.

Bartmess said that after reducing group debt, the cash would be used for acquisition in the core areas where Dawson had shown "real competence".

Dawson, where 29% shareholder Leeds Group run by Swedish investor Peter Gyllenhammar unseated chairman Mike Hartley last month, will begin seeking a new chairman soon, Bartmess said.

Former deputy chairman Ghiovanni Ghione, who quit the board two years ago and who backed Gyllenhammar's bid to remove Hartley, has been appointed a "senior adviser" to the group. Bartmess commented: "He is a substantial shareholder and we feel he can add something."