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H&M and Nike Face County in China as Xinjiang Dilemma Exacerbates

(Bloomberg) – Retail brands in the United States and Europe are suddenly facing a dilemma: embrace cotton from the controversial Xinjiang region and under attack in the West, or reject it and risk its boycott in the world’s second largest economy. Investors are appalled at the prospect, driving shares down Thursday, and the Communist Youth Union and the People’s Liberation Army slammed Hennes and Moritz AB on Wednesday after social media users released an undated statement to the company about accusations of forced labor in Xinjiang. Calls to boycott the Swedish retailer, which gets 5.2% of its global revenue in China, quickly spread to include Nike Inc. , Which previously said it would not obtain products from the region due to employment concerns. Brand ambassadors in China for both companies severed ties with the two companies in recent days: “Would you like to make money in China with spreading false rumors and boycotting Xinjiang’s cotton? Wise thinking!” In a post on Weibo, the Communist Youth League said, referring to H&M. A Weibo account of the People’s Liberation Army described the H&M statement as “ignorant and arrogant.” The Communist Party’s move to target businesses in Xinjiang shows that President Xi Jinping’s government is seeking to impose real costs on governments and companies critical of China’s human rights record, such as the Biden administration. It aims to unite allies on this issue. Beijing imposed reciprocal sanctions on European Union officials on Monday, after coordinated sanctions and data from the European Union, the United States, Canada, Australia and New Zealand, and H&M shares fell 4.4% in Stockholm. Nike shares fell 5.4% in New York before the start of regular trading on Thursday, and in a test meeting between top diplomats in the United States and China last week, Politburo member Yang Jiechi made lengthy remarks attacking the human rights record in the United States and calling on the world to stop interfering. In China’s “internal affairs”. Foreign Ministry spokeswoman Hua Chunying, who has attacked the United States and Europe this week over everything from the slave trade and Nazism to the killing of George Floyd and the alleged hoarding of coronavirus vaccines, on Thursday described allegations of forced labor in Xinjiang as “malicious lies fabricated by Chinese forces.” . China is attacking US allies in an attempt to thwart Biden’s strategy. “We cannot tolerate any forces that shame and stain the pure and flawless Xinjiang cotton,” Gao Feng, a spokesman for the Ministry of Commerce, said in a separate briefing Thursday. Chinese consumers have acted in response to so-called business decisions made by some companies based on false information. We hope relevant companies respect market laws, correct malpractices, and avoid politicization of business issues. “Chinese companies are now clustered around Xinjiang, which produces more than 80% of the country’s cotton. Anta Sports Products Ltd., the Chinese sports footwear giant that owns the Fila brand, and Hongxing Erke Sports Products are among the companies that have released statements saying they will continue to acquire materials from the region. Shareholders rewarded companies that showed patriotism, while penalizing those with ties to Western brands, and Anta shares rose 11% in Hong Kong, the best performer on the benchmark Hang Seng Index. Xinjiang LaChapelle Fashion Co at one point achieved a rise of nearly 40%. Topsports International Holdings Inc., a supplier of Nike, closed 12% in its worst drop ever, and H&M China said Wednesday that its global supply chain is in compliance with sustainability commitments, and does not reflect any political stance. The company also said that it does not buy cotton directly from suppliers, but does use third parties, but these statements did little to stem the growing anger in China. H&M no longer appears on Alibaba Group Holding Ltd.’s Tmall e-commerce platform. , As the retailer was previously located. Alibaba did not immediately respond to a request for comment. “Companies caught in the crossfire can be punished severely, as they end up in China on the wrong side of consumer preferences, comments on social media, and e-commerce platforms,” ​​Luka said. Solka is an analyst at Sanford C. Bernstein. “European fashion retailers are torn between this and having to stand on the right side of Western consumers’ concerns, ”said Mark Tanner, managing director of Shanghai-based China Skinny Marketing and Branding. “If the bipolar path continues, brands will need to make more conscious decisions that weigh how consumers in China will react versus those in the West.” Xinjiang has steadily become a hot issue between China and the West as reports have surfaced that more than a million Uighurs, most of them Muslims, have been placed in re-education camps, prompting the United States and others to accuse Beijing of genocide. China denied the accusations, and officials regularly described it as “the biggest lie of the century.” Beijing says its policies are lifting the region out of poverty, boosting the economy, and countering extremism, and in January, the Trump administration ordered a halt to all imports of cotton and tomato paste from Xinjiang. This came a month after the US-based Center for Global Policy published a report alleging new evidence from Chinese government documents and media reports of hundreds of thousands of Uyghurs being forced to manually pick cotton through state-imposed forced labor. The world’s largest consumer of cotton and also the largest exporter of textile products, it imports between 2-3 million tons annually to meet demand, largely from the United States and Brazil. Xinjiang cotton is of the highest quality, and the Chinese government purchases it from farmers to fill the state’s reserves. “Due to the potential risk of punishment, all textile exporters to the US and European markets require suppliers that are free of Xinjiang cotton,” said Wang Qianjin, a senior official. Analyst at the Shanghai International Cotton Exchange. Companies like H&M now find themselves caught in the middle of the issue. In the undated statement, H&M said it is “deeply concerned about reports from civil society organizations and the media that contain accusations of forced labor and discrimination against ethnic and religious minorities.” Cotton, including Zara and Adidas AG from Inditex SA. The Global Times, a party newspaper, also reported that Burberry Group Plc.China’s Online Army is displaying foreign brands who are in charge, Inditex previously said in a statement that it was aware of allegations of social and labor malpractice in Xinjiang’s supply chains, and that it had no zero. . Tolerance of forced labor. While an excerpt from the statement was still available on Google’s search engine on Thursday, the link to the full statement was cut off. Inditex, Nike, Burberry and Adidas weren’t immediately available for comment. Marks & Spencer Group Plc has become one of the first companies that UK retailers will sign a pledge in January to exit the region by a coalition of civil society organizations and trade unions. M&S said in a statement at the time that 100% of M&S apparel cotton “is sustainably sourced and Marks & Spencer is indeed one of the few retailers that does not work with any supplier in Xinjiang or sourcing from Xinjiang”. The company has not operated stores in China since 2016, and closed franchises in that market in 2018, as UK fashion retailer Boohoo Group Plc banned suppliers from using cotton from Xinjiang, and the company is considering asking them to provide testimonials, said Andrew Ryanni, president. The company’s ethical compliance division, in an interview, said: They don’t, Ryanni told a parliamentary inquiry in November that Boohu was shocked by what was happening in Xinjiang, and all of its suppliers assured that they did not. It doesn’t have links to the area. The retailer does not operate in China, and Chinese celebrities who previously represented H&M have released statements saying they no longer have any ties to it, adding that they oppose “attempts to discredit China”. Famous actor Wang Yibo has announced that he will stop all cooperation with Nike because he firmly opposes any comments and behaviors that shame China, explains Chinese companies such as Xtep International Holdings Ltd, the third largest sportswear manufacturer in China. “As a national brand, we use Xinjiang cotton with an annual consumption of thousands of tons,” Xtep said in an official statement on Thursday. “The quality of Xinjiang’s cotton is world-class and we will continue to use it in the future.” (Updates with posts in the first paragraph) For more articles like this one, please visit us at bloomberg.com. Business News Source © 2021 Bloomberg LP