Factories lie idle in China as sportswear brands leave

Hong Kong— A quarter of the Chinese production capacity used by global sportswear brands is lying idle, according to an industry executive, as the trade war pushes the biggest labels out of the Asian nation’s factories.

The exodus is forcing plants to offer discounts of 10% to local companies such as Xtep International Holdings, chair Ding Shui Po, said in an interview with Bloomberg in Hong Kong. The sportswear label, based in the southern province of Fujian, is one of a handful of Chinese brands competing with companies such as Nike and Adidas.

“Factories are under pretty massive pressure,” Ding said. “With Trump’s policy, these international brands are shifting sourcing overseas, which results in unoccupied production capacity,” he said, referring to President Donald Trump’s campaign of levying tariffs on Chinese-made exports to the US in order to force policy concessions from Beijing.

Idle capacity in a country that’s long been the workshop to the world underscores the blow of the trade war to Chinese manufacturers, who are also grappling with an economy that’s expanding at its slowest pace in three decades. There are growing signs that the global supply chain that’s been in place for decades — and powered by China’s economic rise — is being permanently transformed.

The pivot away from China by global firms from Microsoft to bike maker Giant Manufacturing, is ongoing and accelerating as the trade war heats up. In a series of tweets on Friday, Trump “ordered” US companies to seek alternatives to business in China, including moving operations “home and making your products in the US”.

The world’s largest supplier of consumer goods, Li & Fung, said in an earnings statement on Thursday last week that it was actively helping its clients — which include some of the biggest retailers in the world — move sourcing away from China to other regions. It helped one US retailer to reduce its reliance on China from 70% to 20% within two years.

For China’s $4.7bn industry in sportswear exports, the growing local market can partially make up for waning foreign demand, said Ding. “By shifting to made-in-China and sold-in-China, factories shorten production cycles and that could be good for them,” he said.

Advantage Xtep

Ding said existing local sportswear makers such as Xtep are sitting pretty. Earlier in 2019, Xtep acquired a US-based company that added tennis brand K-Swiss, Palladium boots and Supra shoes to its portfolio.

It plans to expand production of its international brands in China — taking advantage of manufacturers’ lowered prices. “We can produce in these Chinese factories and that’s how we have an advantage,” Ding said.

Still, China’s $40bn-a-year market for sports apparel is less than half of the market in the US, according to data from Euromonitor International. Most Chinese consumers also aspire to athleisure from global labels such as Nike, Adidas and Under Armour.

Ding said this may change with time. “The gap between domestic brands and international brands will slowly be closed,” he said. Xtep — which has a market share of 4.6%, compared with 15% for local rival Anta Sports Products — seeks to increase its retail sales five-fold to 50-billion yuan ($7.1bn) in the next decade.

Ding expects younger Chinese consumers, especially those born after 1990, to have a greater affinity to local brands.

They “are confident about China’s rise and identify with national brands”, he said.

Bloomberg