Shenzhou International Group Holdings Limited, a leading apparel manufacturer, has reported mixed results for the first half of the year. While revenue rose by 15.3% to 14.96 billion Chinese Yuan (2.1 billion USD), net profit only increased by 8.4% to 3.17 billion Chinese Yuan. The company’s gross profit margin also declined to 27.1%, down from 29.0% in the previous year.
This decline in profit margin was deemed more severe than the 28% anticipated by investors, according to John Chou, an analyst at Jefferies in Hong Kong. In a report to clients on August 27, Chou also highlighted a drop in free cash flow due to a surge in capital spending during the first half as the company geared up for shifts in global trade rules.
Headquartered in Ningbo, China, Shenzhou has been at the center of attention due to its perceived vulnerability to Trump’s tariffs. While the company has diversified its production bases over the years, mainland China remains its largest location for long-term assets, compared to Vietnam and Cambodia, its other two major manufacturing hubs.
Shenzhou attributed its double-digit revenue growth to a more diverse product portfolio, increased orders from key customers, and expanded production outside of mainland China, which “ensured sufficient capacity to meet the growing demand in overseas markets.”
However, despite these positive results, Chairman Ma Jianrong provided a candid assessment of the broader industry landscape. He acknowledged that global demand remains relatively weak and that domestic demand is only slowly recovering. Ma also warned of price wars and pressure on profit margins, stating that “overall production capacity in the apparel industry exceeds consumer demand, leading to a certain level of price competition, which in turn puts pressure on the profitability of the entire industry.”
The main reason for the decline in profit margin was attributed to wage increases for front-line employees in the second half of last year, resulting in a higher ratio of labor costs to revenue. Additionally, the company added 8,240 employees in the first half of this year, bringing its total workforce to 110,930 as of the end of June.
Addressing the trade war, Ma stated, “Affected by the uncertainties in US import policies, exports of Chinese apparel products to the US have experienced significant fluctuations, and their market share in the US continues to decline.” The US and China imposed steep tariff hikes on each other exceeding 100% earlier this year in a tit-for-tat battle, before agreeing to roll back tariffs temporarily until November 10.
According to Ma, the unpredictability of Trump’s trade policies, including restrictions on re-exports and potential tariff increases, “could trigger changes in the export competitive landscape of the industry.” The lack of a long-term US-China agreement, coupled with global trade uncertainties and weak market demand, is prompting the company to expand production beyond China’s borders.
Specifically, Shenzhou is preparing to build its second fabric factory in Vietnam, in Tay Ninh province. According to a recent announcement, the factory is expected to commence production by the end of this year. Once completed, the new factory will supply fabric to apparel factories in the region, including the new one in Cambodia that opened in March.
“Currently, the global textile industry is undergoing a profound transformation,” Ma remarked, as Trump’s policies have “undermined the competitiveness of Chinese products, diverting orders to low-cost countries such as Vietnam.” Notably, this shift is occurring even as Southeast Asian countries also face significant tariffs imposed by the Trump administration.
In parallel with strengthening its capabilities in Southeast Asia, Shenzhou is aiming to transform and upgrade its production model in mainland China by adopting the most advanced technologies, such as industrial robots, artificial intelligence (AI), big data, and the Internet of Things.
“These developments present strategic opportunities for companies leading the digital transformation to build a new supply chain ecosystem and achieve sustainable growth,” Ma shared.
Vu Hao (According to Nikkei Asia)
– 09:21 09/03/2025
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