Olympics a Win for Sporting Brands Sold in China

TAIPEI ( TheStreet) -- Whether or not China finishes No. 1 in the Olympics this summer, the country's obviously strong showing will fan enthusiasm for sports back on the home court.

There's no contest.

China's government already encourages participant sports as an enduring piece of its diplomacy that calls on citizens to understand the world as is and then conquer a piece of it. Children eagerly attach to soccer as taught in school or to basketball as seen on television.

Their elders play ping pong or badminton in public parks, with grimaces revealing a passion to win, not just have fun. The government grooms its top athletes at specialized universities to play in international events.

It's impossible then for the London Olympics, ballyhooed in the Chinese media whenever a local wins, not to motivate more public interest in traditional sports. The burst in excitement in turn should raise the incomes of multinational sporting retailers.

The other heavyweight in the equation is China's massive population and a general rise in consumption.

The trend of events driving enthusiasm is clear from the past decade.

In 2002, basketball enthusiasm perked up in China when its own Yao Ming signed with the NBA's Houston Rockets. Now 300 million people, about the size of the U.S. population, can watch NBA games.

A month after the 2008 Olympics in Beijing, which is the only Chinese city to host the Games, the official China.org news Web site reported that "enthusiasm for physical exercise has sent people rushing to parks and training fields." Ping pong perked up particularly that year because of the Chinese table tennis team's performance, it said.

In 2010, even though China's soccer team had missed the World Cup, its victory in the four-nation East Asia Football Championship finals in February that year "raised enthusiasm" for soccer in China, the Beijing Today newspaper reported.

China this year has picked up gold medals in sports such as diving and swimming. Ditto for badminton and table tennis, which are no surprise: Badminton kept much of China going through the 2003 SARS outbreak, as it could be played on sidewalks clear of any contagious crowds and was seen as a way to boost immunity. Office workers are so keen on table tennis that they often set up tables in halls and lobbies.

The post-London sports landscape is clear, says David Wolf, president and CEO with Beijing-based management consulting firm Wolf Group Asia: "I expect we will see an increase in people in the pool because of China's improved swimming performance, and there will naturally be an increase in ping pong and badminton play."

Although China still regulates the sporting industry, keeping up some barriers against private firms, the government aims to expand and liberalize the elements that can breed champions and promote public fitness, Matt Beyer, associate director at the public affairs consultancy North Head in Beijing, wrote last year in a US-China Business Council publication.

Meaning, it's hard to lose in China's 106 billion yuan ($16.6 billion) per year sporting industry after the Games if you're a clothier such as Adidas, Nike ( NKE) and their top Chinese rival Li Ning.

Li Ning's share prices have sunk by a stiff 80% over the past five years because of rising costs, a dip in pre-Olympic demand and competition from foreign brands. But Nike share prices are up 48% and Adidas 30% over the same period. Adidas boasts that company share prices gained in 2011 despite drops of 15% in the DAX-30 and 4% in the MSCI World Textiles, Apparel & Luxury Goods Index. The sports clothier says on its Web site that it "intends to propose" a 25% higher dividend this year versus last.

Those three can depend on sales to younger Chinese who fret about brands, since they are already internationally known names, says Donald Ruan, principal partner with Ryan Retail Consulting in Shanghai. "The brand recognition does make a big difference," he says. "Those young people need to be able to show their friends."

ANTA Sports Products, which designed and made uniforms for the Chinese athletes in London, should also sparkle in the months ahead. Its logo crossed the television screen every time the national delegation was shown at an event.

That Chinese brand had also lost luster before the London Games as foreign competitors edged it out. ANTA share prices have sunk 38% over five years and a more shocking 74% since their five-year high in October 2010.

Even if local brands can't outrun their foreign rivals, it's hard to imagine them losing money, giving support to company fundamentals despite depressed share prices. Lesser-known local sporting equipment makers, many from China's southern provinces, also should net growth in sales of off-brand badminton rackets and ping pong balls -- cutting into the bigger names that sell partly on prestige.

The Olympics not enough? State-run Chinese media reported in mid-2011 that the country's Five-Year Plan, which runs through 2015, will foster a sports industry worth 400 billion yuan, or a bit over 0.7% of the GDP. Sports, at that point, will "become one of the important growth points of China's economy," the China Dailynewspaper said.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.