China sports makers ‘are idle’

By Jinshan Hong

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 like Xtep International, chairman 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 the likes of Nike and Adidas.

“Factories are under pretty massive pressure,” said Mr Ding. “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 is ongoing and accelerating as the trade war heats up.

Mr Trump in a series of tweets last week “ordered” American companies to seek alternatives to business in China, including moving operations “home and making your products in the USA”.

The world’s largest supplier of consumer goods, Li & Fung, said in an earnings statement last week that it is actively helping its clients — which include some of the biggest retailers in the world — to move sourcing away from China to other regions. It helped one American 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 Mr Ding. “By shifting to made-in-China and sold-in-China, factories shorten production cycles and that could be good for them,” he said.

Mr 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.

- Bloomberg