One of the hot China business stories this year has been the plight of the nation’s garment and footwear manufacturers. Not only have rising costs for everything from labour to land eaten into profit margins, particularly on the eastern seaboard, but the rising yuan and the global credit crunch have also eaten into export orders and sales revenues.

Many are responding by closing down or shifting production to cheaper areas inland or in neighbouring countries like Vietnam and Cambodia. But as TCP’s featured article last Friday showed, others are simply turning their attention closer to home to tap domestic garment sales that rose 12.55% year-on-year in large shopping centers over the first five months of the year.

According to a recent Guoxin Securities report cited by China Business News, just nine out of the 31 garment makers the brokerage was watching reported profits for the first six months of the year, with three operating in the red and the rest breaking even. But firms that made garments for domestic sale, such as Shanghai Metersbonwe Fashion & Accessories (002269.SZ), Fujian Septwolves Industry (002029.SZ) and Zhejiang Baoxiniao Garment (002154.SZ) performed strongly. For example, Metersbonwe’s first-half net profit surged 472% year-on-year to US$26.37 million (RMB180.29 million) while Septwolves’s net profit surged 190% to US$12.48 million (RMB85.30 million).

In our daily briefs today, JeansWest chairman Yeung Chun Fan labels the phenomenon the “design + production + marketing one-stop strategy” and says that competition for domestic sales is heating up as export markets cool. JeansWest, a clothing brand under Bermuda-based investment holding company Glorious Sun Enterprises (0393.HK), said it expects its mainland revenue to exceed US$526.15 million (RMB3.6 billion) for the whole of 2008 after business grew 20% year-on-year in the first half. It is predicting it will maintain annual sales growth at 15-20% until 2014, by which point it expects to earn US$1.46 billion (RMB10 billion) in sales a year.

As the US literally turns from riches to rags (excuse the huge exaggeration in that statement), watch out for those Chinese garment producers that most quickly adopt the “design + production + marketing one-stop strategy” and turn their attention inwards. Come to think of it, it’s not bad advice for any sector.