Li Ning, China’s best-known homegrown sportswear brand, on Tuesday announced losses of nearly Rmb2bn for 2012 – its first annual loss since listing in 2004.

The company, founded by and named after the Olympic gymnast who is one of the country’s most high-profile athletes, is a household name in China and one of only a handful of world-class Chinese brands.

But despite support from TPG Capital and Singapore sovereign wealth fund GIC, the company has struggled to recover from branding mistakes and inventory problems exacerbated by a shakeout in the mainland’s overcrowded sportswear market.

“Market and industry conditions continue to be difficult, and the group’s financial performance is expected to remain challenging at least in the first half of 2013,” company chairman Li Ning said.

The 2012 loss followed a profit of Rmb385.8m the previous year. Revenues fell 24.5 per cent to Rmb6.74bn.

Gymnast Li Ning was anointed by China’s rulers to light the flame at the opening ceremony of the 2008 Beijing Olympic Games, and his brand rode a wave of popular support after the games to draw neck and neck with Adidas to tie for second place in the Chinese sportswear market, after Nike.

But since that time Li Ning has struggled to offload the inventory taken on when the market was at its post-Olympic peak, leading to deep discounting that has damaged the brand’s reputation. “Chinese people know that Li Ning is a cheap brand that is having big sales,” said Elyse Wang, sportswear analyst at Haitong International Research in Shenzhen.

Li Ning blamed its problems partly on the market environment, including last year’s Chinese economic slowdown which hit sportswear retailers hard, including leading domestic rival Anta. “China’s sporting goods industry is experiencing the worst industry downcycle that the sector has seen. Years of overexpansion caused the build-up of inventory . . . adversely affecting store productivity and profitability,” the company said in a statement.

But retail analysts say the company also made a mistake in trying to take its products upmarket, to compete head to head with foreign brands – an important test of Beijing’s ambitions to rebrand China as more than just a cheap manufacturing base.

Shaun Rein, of China Market Research in Shanghai, said: “One of Li Ning’s problems is they are trying to sell to everyone, the 15-year-old teenager as well as the retired person. Their product selection is far too wide, they are trying to be a little bit of everything to everyone.”

Analysts also criticise the company’s recent decision to spend $100m hiring US basketball star Dwyane Wade, since Li Ning has no retail outlets in the US and Mr Wade is not well known in China. Ms Wang said: “From its financial statement, I don’t see enough capital for Li Ning to run expensive events or hire expensive stars at the moment, which I don’t think will help boost its sales in the short term.”

Li Ning’s shares closed down 4.1 per cent to HK$4.46 in Hong Kong.

Additional reporting by Yan Zhang in Shanghai

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