Quarter of China’s sportswear factories idled: Nike challenger

Bloomberg

A quarter of Chinese production capacity used by global sportswear brands is lying idle, according to a manufacturing executive, as the protracted trade war pushes the biggest sports labels out of the Asian nation’s factories.
The exodus is forcing factories to offer discounts of 10 percent to companies such as his to use their dormant production lines, Chinese sportswear maker Xtep International Holdings Ltd’s chairman Ding Shui Po said in an interview to Bloomberg in Hong Kong. The sneakers and sportswear label is one of a handful of Chinese brands competing with the likes of Nike Inc and Adidas AG.
“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 the President Donald Trump’s campaign of levying tariffs on Chinese-made exports to the US in order to force policy concessions from Beijing.
The idling 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 the place for decades — and powered China’s economic rise — is being permanently transformed.
The pivot away from China by global firms from Microsoft Corp to bike maker Giant Manufacturing Co Ltd, is ongoing and accelerating.
The world’s largest supplier of consumer goods, Li & Fung Ltd, said in its earnings that it’s actively helping its clients, which include the biggest retailers in the world, move sourcing away from China to a diversified group of other regions. For instance, it assisted one American retailer reduce its reliance on China from 70 percent to 20 percent within two years, it said.
For China’s $4.7 billion industry of sportswear exports, the growing local market can partially make up for waning
foreign demand, said Ding, although the transition will be rocky. “But by shifting to made-in-China and sold-in-China, factories shorten production cycle and that could be good to them too,” he said.
Ding said existing local sportswear makers such as Xtep are sitting pretty. Earlier this year, 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 — at the desperate suppliers’ lowered prices. “We can produce in these Chinese factories and that’s how we have an advantage.”
Still the Chinese demand for sports apparel at $40 billion last year, according to data from Euromonitor International, is less than half of the $117 billion market in the US. Most Chinese consumers also aspire to athleisure from global labels like Nike, Adidas and Under Armour.
Ding said that this may change with time. “The gap between domestic brands and international brands will slowly be closed,” he said. Xtep, whose market share is 4.6 percent, trailing behind rival Anta Sports Products’s 15 percent, has a target to increase its retail sales to $7.1 billion in the next decade.