Two friends tap into China’s well-heeled and growing middle class

The entrepreneurs lost millions between them when boom turned to bust, but now they are back with a fresh approach to the markets

Wang Youjun and Li Chunlong – two friends who had made their fortune trading cheap textiles in the years after China joined the World Trade Organisation – each lost a bundle when a buyer went bust five years ago.

Now they’re back, forging a path that illustrates China’s historic shift away from low-margin export businesses and into higher-end manufacturing. As labour costs and South-East Asian competitors rise, the two are staking their fortunes on climbing the value chain and feeding demand from an increasingly wellheeled local middle class.

Meeting again in a hangar-sized hall among the 25,000 exhibitors at Guangzhou’s huge trade fair last month, the two reflected on how the loss of some US$3.3 million between them in 2012 forced them to change things up. Mr Li now pitches his agency business towards wealthier domestic consumers. Mr Wang is trying to crack the global market for high-tech sportswear with his runner’s compression leggings.

“If we continue to make basic, low-end stuff, China’s labour-intensive model has 10 years left at most,” said Mr Wang, surrounded by rails of neon running outfits and order books in his booth. “Innovative, high-value products will always have a place though.”

Mr Wang’s determination to boost the value-added component of his Runtiger brand of functional sportswear fits the ambition outlined by China’s leadership. A couple of years ago, it unveiled its Made in China 2025 campaign, which aims to move away from the nation’s image as a maker of cheap, low-end goods.

China’s share of high value-added exports globally quadrupled to about 16 per cent in 2015 since 2001, according to Morgan Stanley calculations based on WTO data.

Mr Wang, 44, started his trade agency in 2001, the same year China joined the WTO. The share of global exports for the “factory of the world” has surged by more than two-anda-half times times since then. Hundreds of millions of rural citizens flooded to coastal factories, with their low-cost labour an unbeatable advantage for China’s output.

The former English teacher rode the boom, snapping up a villa and a Mercedes during the peak years around 2008. Things started to slide after 2010. Costs rose, migrant workers became hard to find and foreign buyers became pickier and bargained harder.

“We had one pricing war after another and it became a dead end,” Mr Wang said. His biggest customer started to delay payments in 2011, and went bankrupt the following year. His profit since the inception of the firm, some $3m, was wiped out overnight, he says.

“I’m not religious, but people in their most desperate times pray to gods and Buddha for help. I drove for a few hours to temples.”

Mr Li, a trim, shaven-headed 41-year old, was more vigilant. Concerned over the long payment cycles, he cut supply before things became worse. He got away with $300,000 in losses, but had a similar case two years later, he says.

“Things got harder and harder,” said Mr Li. “All of our competitors used to be in China, and now they are in Vietnam, Cambodia, Bangladesh.”

Mr Li has a new maxim these days: “Use two legs to walk,” meaning sell to both domestic and foreign customers. He still exports $2 shirts to the US and Europe, but is also focusing on sourcing for upmarket brands within China, aiming to boost his share of local sales to 50 per cent in 2018 from 20 per cent this year.

As China seeks to get a leg up on higher-technology manufacturing, it isn’t averse to using some old methods. For Mr Wang, a visit to Japan in 2013 kick-started his transition: a shopping mall full of expensive, sleekly designed and technology-intensive sportswear in Osaka was a revelation. He brought back some $6,000 worth of samples by maxing out his credit card to set about figuring out how they were made and how to make his own versions.

It took five years working “day and night” to design and produce his own compression leggings, which are claimed to improve the performance of runners by increasing oxygen supply to muscles and reducing fatigue.

The legging, after more than 500 failed trials, is ready for the market. Mr Wang says he wants Runtiger, which holds a Chinese patent, to compete with specialised makers of compression sportswear like Skins or X-bionics – but be a quarter of the price.

“We everyday people are the neurons of the Chinese economy,” Mr Wang said. “We never wait, never ask for anything, but always are seeking changes, seeking better ways to do things.”