China's Apparel Brands Show Resilience While Manufacturing Nears Turning Point, Guosen Says

China’s textile and apparel sector is experiencing a significant divergence, with brand-focused companies outperforming manufacturers in the first half of 2026 amid a moderate recovery in domestic demand and persistent pressure on exports, according to a new research report from Guosen Securities.

A Tale of Two Sectors

In a review of the first half of the year, Guosen Securities noted that while the overall textile and apparel index has outperformed the broader market since the third quarter began, performance has been sharply divided. From January to July, apparel retail sales grew a cumulative 5.8% year-over-year.

• Branded Apparel: This segment demonstrated greater resilience. High-end and differentiated casual wear brands reported strong growth, while the sportswear and outdoor category saw robust demand in professional and niche segments. The home textiles sub-sector benefited from a focus on the "sleep economy" and new product launches.
• Manufacturing: Original equipment manufacturers (OEMs) faced broad pressure from cautious brand orders, exchange rate fluctuations, and tariffs. However, the report highlights a clear trend of sequential improvement in the second quarter.

Outlook: Stability for Brands, Rebound for Manufacturing

Looking ahead to the second half of 2026, Guosen Securities expects brand performance to stabilize, supported by continued resilience in high-end consumption. The home textiles segment is poised for further growth as it enters its peak autumn and winter season with new product iterations.

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The manufacturing segment is approaching a potential inflection point, according to the report. Catalysts for a turnaround include a clearer tariff environment, stabilizing raw material costs, and a cycle of downstream inventory restocking by global brands. The firm suggests that revenue in this segment is likely to recover first, with leading manufacturers at historically low valuations potentially poised for a dual lift in both fundamentals and valuation.

Key Investment Themes

Guosen Securities outlined three primary themes for investors monitoring the sector:

• Resilience in High-End Apparel: Premium consumption continues to accelerate, with luxury and high-end sportswear brands demonstrating strong pricing power and growth.
• Home Textiles' Dual Appeal: Driven by the "sleep economy" and product innovation, leading home textile companies offer both steady growth and attractive high-dividend yields, with some firms like Luolai and Fuanna posting dividend payout ratios of 99% and 95% respectively in 2025.
• Selective Manufacturing Leaders: As global brand inventories normalize, opportunities exist in manufacturing companies that are gaining market share and improving operational efficiency. The report notes that while risks from raw material price volatility remain, the overall inventory and tariff environment is improving.