China Escalates Trade War With Western Brands Over Uyghur Cotton

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“Can H&M continue to make money in the Chinese market? Not anymore,” Xu Guixiang, a Chinese government spokesman, said at a news conference on Monday morning.

His comments escalate the war between fashion retailers, including H&M, Burberry, Nike and Adidas, and the Chinese government.

These Western fashion and luxury brands have chosen not to buy cotton picked by Uyghurs over concerns about child and forced labor. In return they face a tirade of furious abuse in Chinese media. Their local ambassadors have quit and Chinese consumers have boycotted their products.

Now one of China’s Communist Party spokespeople says their future in the country might be doomed.

“I don’t think a company should politicize its economic behavior,” says Guixiang, according to a Reuters translation of his comments. “To rush into this decision and get involved in the sanctions is not reasonable.”

H&M sales in China were SEK 2.9 billion ($339 million) during the 12 months to November 2020, its fourth-biggest market. Chinese consumers constitute 40% of Burberry’s sales and they spend around 4.6 billion-a-year with Nike. Neither Burberry nor H&M responded to Forbes‘ request for comment.

Prior to the standoff, Chinese demand for western luxury was booming. In December, Bain, a consultancy, predicted China would buy 48% more luxury goods in 2020 than the year before, bringing their total spend up to around RMB 346 billion ($52.6 billion).

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Guixiang’s comments will therefore be a serious blow to the sector. Many were hoping that their removal from online retailers and Chinese mapping and taxi apps and video games might be temporary. But this latest warning shows the Chinese are serious.

Other brands have purposefully decided not to wade into the war. Skechers have said they will continue to buy Uyghur cotton. Inditex, which owns Zara, has deleted statements from its website saying that forced labor allegations were “highly concerning.”

The U.N. has urged companies to “scrutinise their supply chains” for any practices of forced labor of Uyghurs. They found evidence that “connected over 150 domestic Chinese and foreign domiciled companies” to human rights abuses against Uyghur workers but stopped short of naming those companies.

Xinjiang, in China’s northwest, is one of the country’s largest cotton producers, accounting for a third of its total output. NGOs and campaigners say state abuses against the region’s majority Uyghur population are getting worse.

Brands Must Choose: Western Or Chinese Consumers

But with western consumers now more aware than ever about the environmental and ethical impact of their purchases, retailers have to make a choice: Do they bet on the future of the Chinese market or the Western one. The consequences of such a decision are far-reaching.

Last year, when news broke that workers at Boohoo, a fast fashion retailer, had been underpaid, ambassadors similarly boycotted the firm. Now the company faces a possible U.S. import ban.

Investors, too, now scrutinize companies according to environmental, social and governance (ESG) data. Any company falling behind on these metrics is likely to be punished on global markets.

Legislation is not far behind. An amendment to the U.K.’s Trade Bill could prevent any future trade deals with countries that abuse human rights.

In Switzerland, a law that would make Swiss companies liable for human rights abuses anywhere in the world was only narrowly voted down in a national referendum in November.

Earlier this month, the European Parliament voted for binding laws that would require all E.U. companies to conduct environmental and human rights due diligence of their full value chain, or face fines.

Investors, consumers and laws are therefore making the choice between a Chinese future or a Western one very stark. But Chinese consumers are also worried lest their beloved brands choose the latter.

Videos uploaded to social media on Sunday show queues of Chinese shoppers outside Nike shops. Why? They were worried that the Chinese government might impose tariffs or boycott their favorite brands.

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