* Chief executive steps down with immediate effect
* Founder Li Ning to help run firm during search for new CEO
* Shares jump on hopes of stronger management
By Donny Kwok
HONG KONG, July 5 (Reuters) - China's best known local sportswear group Li Ning Co Ltd, grappling with a slowdown that has halved its share price in recent months, replaced its chief executive on Thursday and said it will focus more on its business in China.
The company said founder and Olympic gymnast Li Ning and executive vice-chairman Kim Jin-Goon, who is a managing director at U.S. private equity fund TPG Capital that invested in the retailer this year, will lead the firm during the search for a new CEO after the departure of Zhang Zhiyong.
Shares in the company, which have dropped abount 20 percent this year, jumped on the news on hopes of more effective management and a clearer strategy for China.
"Investors put a bet on the new jockey. Kim has a strong track record in retail and comes from the private equity front, and that fuels hopes of better prospects going forward," said Steve Chow, head of research of Kingsway Group Research.
"It's set to strengthen the management team. At least the management is now facing the problems of the industry and trying to solve them."
Li Ning, backed also by Singapore sovereign fund GIC, has struggled in recent months as China's economy has slowed, leaving inventories bloated. Like many other local sportswear groups, it plans to cut back on new stores openings after an expansion blitz following the 2008 Beijing Olympics.
"The first most important focus for us is to build a very clear and strong brand with clear brand strategy that focuses on the core businesses in China," Kim said on a conference call.
"Secondly, to continue to make investments into this brand with a much clearer focus in building comparatively exciting products with much better design and technology, and shortern the development cycle to keep track with market changes."
Li Ning said Zhang, who has been with the company for 20 years, had agreed the time was right for new leadership, but would continue as an executive director and adviser.
The change of management comes just three weeks after Li Ning, which competes with local player Anta Sports as well as Adidas and Nike, warned that profits for 2012 would be weaker than expected because of soft sales and high marketing costs.
Kim said it could take 6-12 months for inventories to return to a normal level, while it may be three years before the group's earnings rise steadily.
Li Ning's inventores of finished goods swelled to 1.25 billion yuan as of December 2011, up from 872 million a year earlier.
Li Ning's shares rose nearly 6 percent to HK$4.96, outpacing a 0.4 percent drop in the benchmark Hong Kong index. They have shed half their value since a mid-March peak.
"It brings new excitement and may help strengthen the management," said Patrick Yiu, a director at CASH Asset Management. "It brings new hope of a potential breakthrough in a struggling industry."
Kim has a successful track record in driving transformation at consumer and retail companies in South Korea and China, including Dell Korea, China Grand Auto and footwear and apparel distributor Daphne International Holdings Ltd.
He was previously an executive at Daphne, a family-run Taiwan shoe firm in which TPG invested through a convertible bond in 2009 and turned the company around.
TPG's other investments in China have included Shenzhen Development Bank and Wumart.
TPG and GIC agreed in January to invest around $115 million in Li Ning through a convertible bond, giving much-needed capital to a company whose stock fell more than 60 percent in 2011. TPG also acquired 5 percent of existing stock of the company from a family trust.
Li Ning also appointed Samuel Su as an independent non-executive director. Su is Chairman and CEO of the China Division of YUM! Brands, Inc, a restaurant group with brands including Pizza Hut, KFC, Taco Bell and Little Sheep.