Multinationals tread cautious path in China boycott

A backlash in China against foreign brands that have sought to distance themselves from “forced labour” in Xinjiang cotton threatens to drag multinationals into a lengthy diplomatic spat as Beijing demands that the global apparel industry reject the allegations.

Online calls, fanned by state media, for boycotts of Hennes & Mauritz, Nike, Adidas, Burberry, Uniqlo and Zara among others have mounted pressure on brands to take a side in the diplomatic row between Beijing and western governments over alleged rights abuses in the region, which produces more than 80 per cent of China’s raw cotton. 

The campaign was launched a day after the UK, US, EU and Canada imposed co-ordinated sanctions on officials in Xinjiang over a mass internment campaign that has detained more than 1m Uighurs, Kazakhs and other Muslims in “re-education” camps. China denies allegations of abuses.

Unlike in some previous nationalist outcries targeting foreign groups, multinationals appear reluctant to apologise and acquiesce to China’s demands. To do so could spark criticism at home from politicians and human rights groups lobbying for Beijing to be held accountable for using “forced labour” in the region.

Zuzanna Pusz, an analyst at UBS, said the boycott was more serious than past crises as the brands have “been caught up in something that’s political”.

“If a brand makes a mistake in terms of its communications or the choice of an influencer, it can apologise and make things right. Here by trying to make things right, they would actually make things wrong,” she said, noting that many western groups have committed to following guidance on sourcing from Better Cotton Initiative, a Geneva-based ethical trade group that counts more than 2,000 brands as members, including Nike and H&M.

Almost all brands are telling their suppliers ‘don’t buy Xinjiang cotton’ but the whole issue is traceability

Yet membership is now a liability in China, after state media accused BCI of “smearing” Xinjiang and sparking a widespread rejection of its cotton. The non-profit group stopped licensing cotton from Xinjiang last year citing “sustained allegations of forced labour and other human rights abuses in Xinjiang”.

Chinese state broadcaster CCTV last week aired an interview with BCI’s Shanghai representatives, who accused the Geneva headquarters of disregarding its assessments declaring that there was no evidence of “forced labour” in Xinjiang.

Mei Xinyu, a researcher affiliated with China’s commerce ministry, told the Financial Times that he believes BCI is now “just one step away from Chinese government sanctions”. The group should reform its verification work to focus on technical standards and “steer clear of politicised acts”, he said.

BCI declined to comment.

Previous boycotts in China, such as that of Dolce & Gabbana after one its advertising campaigns was branded racist, have targeted single companies, but the BCI’s withdrawal of its ethical stamp on Xinjiang cotton has meant brands that have sought to alter supply chains have been ensnared.

H&M, which has taken the brunt of the latest campaign, is absent from searches on China’s largest ecommerce platforms Alibaba’s T-mall and JD.com. Local media have reported that some of the Swedish group’s stores have shut, although those in major cities remain open.

Dozens of brand ambassadors have ended their representation of foreign brands caught up in the boycotts, although Nike and Adidas have so far kept their sponsorship deals with major Chinese sports teams.

Many apparel groups had already been wary of indicating that Xinjiang cotton would no longer appear in their supply chains, partially as most lack oversight of where exactly components for clothes come from.

Cotton will change hands “at least” six or seven times from harvest to being spun into textile, sometimes passing through several different countries, according to BCI. 

A Bangladeshi garment factory owner, who did not want to be named, said it was “incredibly difficult” to ensure that cotton is not from Xinjiang.

“Almost all brands are telling their suppliers ‘don’t buy Xinjiang cotton’ but the whole issue is traceability,” he added, explaining that most garment manufacturers had no choice but to trust suppliers’ assurances on the origin of cotton.

Brands have sent mixed message about their position on Xinjiang, with what appeared to be internal disagreements leading some groups to release contradictory statements in Chinese and in English.

The official Hugo Boss account on Weibo, the Chinese microblog, said last week that the brand would “purchase and support” Xinjiang cotton, while its website said the company “has not procured any goods originating in the Xinjiang region from direct suppliers”. The Weibo post was later deleted with the company saying it was “unauthorised”. 

Luxury groups like Hugo Boss and Burberry are much more exposed. China is H&M’s fourth-biggest market but accounts for just roughly 5 per cent of revenues. Chinese consumers accounted for roughly 40 per cent of the €281bn spent on luxury goods in the year before the pandemic, but drove 80 per cent of the growth, according to Jefferies.

Still, Greater China is Nike’s third-largest market: in the year to May 2020 it recorded its sixth consecutive year of double-digit revenue growth in the region, with $6.7bn of sales.

More recently, China’s economic recovery has made the country a rare bright spot for western brands as demand in Europe and North America remains weak.

H&M declined to comment and Burberry did not respond to a request for comment. There is, however, indication that brands have tried to soften the impact of their previous statements. H&M has, for example, updated its original statement, removing lines stating that it would “reduce exposure” to Xinjiang.