China’s reign as “the world’s factory” hasn’t yet come to an end. But the phrase no longer has the same ring of truth. 

Multinational sports apparel companies have been shifting their operations out of China for some years now, motivated largely by rising factory worker wages. Top producers have meanwhile come under increasing pressure to swear off sourcing cotton from Xinjiang, amid mounting global criticism of China’s policies towards the Uighur population there. 

Set against these trends is the fact that many of the factories that now manufacture apparel in countries such as Vietnam and Indonesia are owned by Chinese companies, though precise numbers are tricky to pin down due to complex offshore ownership structures. 

And while China may be getting more difficult as a place to make sports apparel, it has become a key market for multinationals to sell into. Nike, for example, targets Chinese consumers with similar tactics to those it uses in the United States, including forming partnerships with soccer’s Chinese Super League and the national men’s basketball team. 

China is ultimately still a key producer — and consumer — in the sportswear industry. This week, The Wire looks at the global market and where the top companies source their goods.

Global Giants

The U.S.’s  Nike and Germany’s Adidas are the top sportswear sellers both in China and globally. China in turn accounted for nearly a quarter of Nike’s sales in the first quarter of 2021, while Adidas made nearly a quarter of its sales in China last year. 

Nike and Adidas have each made statements expressing concern over the use of forced labor in Xinjiang, and have stated that they do not work with suppliers in the region. The statements were published in 2020 but resurfaced in late March this year after callouts from Chinese state-backed media. That didn’t go down well inside China: Both companies’ online sales dropped on TMall, the e-commerce site that’s highly popular among Chinese consumers. 

By contrast with the biggest European and American brands, China’s most prominent sportswear companies have found only narrowly domestic success. The top Chinese companies are Beijing-based Li-Ning and Anta, based in the eastern city Xiamen, which holds the license for Italian brand FILA in China, Hong Kong, and Macau. Just 1.5 percent of Li-Ning’s revenues came from outside China in 2020, according to its annual report, while Anta doesn’t offer a regional breakdown because its revenues are “predominantly attributable to a single geographical region, which is China.”

Away from China, Towards Vietnam

Apparel makers’ shift away from China has been driven by increasing wages in its factories. Real wages more than doubled between 2008 and 2019 in China, according to the International Labour Organization (ILO), pushed up by the country’s shrinking worker pool in manufacturing. 

The higher tariffs imposed by the Trump administration on products manufactured in China have played a role. “The only real winner in Trump’s trade war with China was Vietnam,” says David Swartz, a Morningstar analyst, although he adds that the tariffs’ effect has been mitigated by top companies now selling much of what they produce in China into that market. 

Manufacturers have long employed a “China plus one” strategy, keeping much of their supply chain in China with additional operations in another Asian country such as Vietnam. “That existed for a long time kind of as an insurance clause,” says Eddy Malesky, a Duke University political science professor who specializes in Vietnam’s economic development. “The trade conflict between China and the U.S. spurred them to cash in on their insurance clauses. Suddenly, the price of exports went up enough that it made sense to shift that production over.”

Some Chinese entities have still benefited from the shift in manufacturing abroad. Chinese sportswear manufacturers that supply the likes of Nike have bought and built up sites in countries like Cambodia, Vietnam, and Myanmar, explains Mary Lovely, a senior fellow at the Peterson Institute. “When China’s that important to development, it really extends China’s influence into these regions and makes you think about: what are the implications for the country and its own independence?” Lovely says. 

Increased transparency on the part of major brands has made it easier to track shifting production patterns. Four of the top five global sportswear companies — Nike, Adidas, Under Armour, and Puma — are now aligned with Human Rights Watch’s Transparency Pledge for apparel companies, meaning they release detailed data about their suppliers. “Supply chain traceability and transparency are central to driving labor rights compliance in the global supply chains of apparel brands and retailers,” Aruna Kashyap, senior counsel for the Human Rights Watch’s business and human rights division, wrote in an email to The Wire. 

The chart below reveals how Nike’s worker base has shifted in recent years. Other companies show similar patterns. The share of Chinese workers in Under Armour’s suppliers has more than halved from 22 percent in 2017 to 10 percent in 2019, the year of its most recent data release — by which time nearly one-third of its suppliers were in Vietnam. Historical data were not available for Adidas, but the company’s 2021 figures show 29 percent of its suppliers’ workers are in Vietnam, 23 percent in Indonesia, and just 12 percent in China. Puma diverges: the proportion of its workers in China held steady at nearly 30 percent from 2017 to 2020, its data show, behind nearly 40 percent in Vietnam.¹Under Armour and Puma both release ranges of worker counts rather than precise numbers. The Wire took the average for each range, and proportions are therefore estimates.

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