China’s pricey ultimatum

In March, China flexed its muscles against a popular retailer with more than 400 stores in the country. Clothing store H&M disappeared on ride-sharing apps, Baidu Maps, and e-commerce sites, and multiple Chinese Android app stores scrubbed an H&M app. Two Chinese brand ambassadors for H&M cut ties with the Swedish company. One day, shoppers browsed racks of pleated dresses and linen pants in H&M’s minimalist white stores. The next day, the stores stood empty.

The cause of the disappearing act: A post by China’s Communist Youth League on Weibo, a Twitter-like Chinese social media app. The post included a screenshot of a statement H&M made in September 2020 stating it did not source cotton products from Xinjiang, China, due to concerns over forced labor. The Communist group captioned it: “Spreading rumors to boycott Xinjiang cotton while trying to make money in China? Wishful thinking!”

Before then, the Chinese public had largely ignored H&M’s statement as well as similar ones by other international brands and the Better Cotton Initiative (BCI), a cotton watchdog organization. But calls for boycotting H&M spread quickly in China, and the outrage soon engulfed other companies: Videos on Weibo showed people lighting their Nike shoes on fire. TV stations blurred out the logos of Western brands worn by contestants of a reality dancing competition. Pro-Beijing Hong Kong lawmaker Regina Ip posted on Twitter a photo of herself glaring at her Burberry scarves, which she vowed not to wear again unless the company apologized for “unfounded allegations against Xinjiang.”

In response to the backlash, BCI and some companies took down their statements on Xinjiang. H&M, in a vaguely worded response, asserted, “China is a very important market to us.” Meanwhile, BCI’s branch in Shanghai told state media it found no evidence of forced labor in Xinjiang. Japanese retail chain Muji doubled down, proudly advertising its use of Xinjiang cotton in its clothing and winning the praise of Chinese consumers. (Half of Muji’s revenue outside Japan comes from China.)

A farmer picks cotton in a field in Hami in northwest China’s Xinjiang region in October 2020. FeatureChina via AP Images

Along with H&M, a string of Western companies have faced the same ultimatum: Either discard their values to follow China’s party line or lose China’s 1.4 billion-strong market. The stakes are rising as companies become more dependent on China while the country’s human rights abuses become more egregious. The latest flash point for companies is Xinjiang, where the United States and several other Western countries say the Chinese government is committing genocide against the Uyghur minority group.

China is proving U.S. politicians wrong in their long-standing beliefs that increased trade with the Communist country would lead to greater political freedoms and that China’s participation in international organizations would bring it in line with international standards. Instead, China has become more repressive, and it now uses its economic clout to pressure foreign businesses to acquiesce to its policies.

ONE YEAR AFTER THE UNITED STATES normalized relations with China in 1979, it gave the country most-favored-nation (MFN) status. That meant China would receive the same trade benefits as other countries. Both Democrats and Republicans were optimistic that trade with the United States would lead China to open up.

Even after the Tiananmen Square massacre in 1989, President George H.W. Bush suspended military sales and high-level visits, but trade continued. “No nation on Earth has discovered a way to import the world’s goods and services while stopping foreign ideas at the border,” Bush said in 1991.

The process of annually renewing China’s MFN status kept U.S. companies from becoming too dependent on Chinese suppliers, since the status’s future was always uncertain. It also allowed activists to bring up China’s human rights record—its persecution of Tibetans and house church Christians—as they tried to convince lawmakers to revoke China’s most-favored status.

They failed: Not only did corporations eager for cheap labor support MFN status, so did some prominent evangelicals. In 1997, evangelist Billy Graham and his son Ned, founder of the China ministry East Gates International, also pushed for the renewal of MFN, arguing trade would open doors for evangelism in China. (East Gates said in an email Ned Graham was not available for an interview.)

In May 2000, the United States granted China permanent most-favored status (known as Permanent Normal Trade Relations, or PNTR), allowing companies to expand their investments in China. A year later, China became a member of the World Trade Organization. With trade status permanent, human rights activists lost leverage to air complaints, since trade would continue regardless of China’s actions. As a concession, Congress created the bipartisan Congressional-Executive Commission on China to monitor China’s human rights abuses and legal developments. Every year the group compiles a report and recommendations for the president and Congress.

Writing for WORLD in October 2000, then-Sen. Sam Brownback said he supported giving China PNTR because “it gives me a door to walk through to raise a number of human rights issues with the Chinese government, including religious liberty and the development of the rule of law.”

He believed globalization would “force upon China the infrastructure necessary for greater political liberalization and will require China to respect property rights and adhere more closely to the rule of law.” He also said the growing middle class in China would demand greater freedom while the internet would expose Chinese people to “Western standards of political and religious freedom and human rights.”

Today, Brownback believes the United States should have kept the annual vote on MFN: He believes China would annually release political prisoners and possibly allow U.S. companies into China without requiring technology transfers. “I think we were doing well, on the trajectory of an opening up of China,” Brownback said. “But I think Xi Jinping just really abruptly changed the trajectory that China was on and has taken it back to its totalitarian Communist roots and ideology.”

China sanctioned Brownback in July 2020 while he was the U.S. ambassador-at-large for international religious freedom in retaliation for U.S. sanctions on officials responsible for the human rights abuses in Xinjiang. Even though he has an adopted daughter from China, he is barred from entering the country because of his criticism of the Chinese Communist Party.

CHINA UNDER PRESIDENT XI JINPING has reached a level of repression unseen since the rule of Mao Zedong. Technological advances allow the government to censor the internet and surveil its citizens intensely. Since Xi came to power in 2013, the world has seen China’s limited press freedoms shrink, outspoken professors fired, churches and mosques closed, and human rights lawyers imprisoned.

Economically, China achieved a miracle, growing from an isolated developing country to a superpower set to surpass the United States. Trade between China and the United States grew from $95 billion in 1999 to $658 billion in 2018, when the U.S.-China trade war began.

Yet in recent years, the world’s view of China has darkened. The country has become more aggressive toward its neighbors, thrown more than a million Uyghurs into concentration camps, quashed democracy in Hong Kong, and resisted investigations into the origins of the coronavirus. Former President Donald Trump’s hard-line approach toward China has continued under President Joe Biden, who retained Trump’s 25 percent tariff on Chinese goods.

A growing number of U.S. companies are moving manufacturing out of China due to increased labor costs, unfair treatment by the Chinese government, and intellectual property theft, as well as the costs of U.S. tariffs and sanctions. Dan Harris, an attorney at the Seattle-based Harris Bricken law firm who specializes in business in China, said all of his clients want to move their manufacturing out of China. Some companies stay in China because there are “certain things that have to be manufactured in China, but they all look forward to the day when they’re not.”

In the past few years, so many companies have moved manufacturing from China to Vietnam that Vietnam’s factories are now full, Harris said. Now his clients are headed to Thailand, Taiwan, or Mexico.

But global companies and organizations that rely heavily on the lucrative China market—such as Apple, Nike, or the NBA—face a more difficult predicament. The China region (including Taiwan and Hong Kong) makes up 20 percent of Apple and Nike’s revenue and 10 percent of the NBA’s. China is many companies’ fastest-growing market. Matt Pottinger, former deputy national security adviser under Trump, wrote in a Wall Street Journal op-ed that Beijing’s message to U.S. companies is unambiguous: “You must choose. If you want to do business in China, it must be at the expense of American values.”

It’s clear where most companies stand: FedEx customers must send mail not to Taiwan but to “Taiwan, China” (China claims the self-governing island as part of its territory). Apple dropped its core value of privacy by storing its Chinese customers’ data on China-based servers, which the Communist government can easily access. The NBA supported social justice activism in the United States but apologized to China when the general manager of the Houston Rockets supported Hong Kong pro-democracy protesters.

The latest battlefield is Xinjiang, which produces 20 percent of the world’s cotton. Government documents and media reports reveal the Chinese government forced hundreds of thousands of Uyghurs and other ethnic minorities to pick cotton by hand through a “coercive state-mandated labor transfer and ‘poverty alleviation’ scheme,” according to a December report by researcher Adrian Zenz. That means any products made with Xinjiang cotton are likely associated with forced labor.

A report from the Australian Strategic Policy Institute last year found government officials also forcibly transferred an estimated 80,000 Uyghurs to factories around China between 2017 and 2019. Authorities monitored them, limited their freedom, and sent them to after-work ideological training. More than 80 global brands depend on these factories to manufacture apparel, electronic devices, and cars.

China has repeatedly denied the existence of forced labor in the country. Liu Yuyin, spokesman for the Chinese Mission to the United Nations, said in March the reports are lies fabricated by the West “out of bias and political purposes.” He claimed the 56 ethnic groups in the country were “equal members of the big family of the Chinese nation” and free to choose their jobs.

Chinese customers look at Macbook laptops at the opening of a new Apple Store in the Sanlitun shopping area of Beijing on July 17, 2020. Kevin Frayer/Getty Images

In January, the Trump administration banned cotton and tomato imports from Xinjiang, as well as products made with those materials. Canada and the United Kingdom have also banned the goods. On July 14, the U.S. Senate passed the Uyghur Forced Labor Prevention Act, which would ban the import of all goods manufactured in Xinjiang unless importers can prove they were not produced with forced labor. (The bill awaits passage in the House.)

LAST YEAR, the Coalition to End Forced Labour in the Uyghur Region, an alliance of nearly 190 organizations from 36 countries, called on clothing brands to cut ties with suppliers implicated in Uyghur forced labor. Eager to distance themselves from the controversy, brands such as H&M, Nike, Ralph Lauren, and Gap pledged not to use cotton from Xinjiang and to conduct audits of their supply chains.

The Chinese backlash came in March. Some companies, including Inditex, the owner of retailer Zara, removed its statement on forced labor. H&M’s vague and noncommittal response didn’t mention Xinjiang or forced labor. Instead, the company insisted it was dedicated to being “a responsible buyer, in China and elsewhere,” and “regaining the trust and confidence of our customers, colleagues, and business partners in China.”

Fred Rocafort, an attorney focusing on customs law at Harris Bricken, said it’s “close to impossible for a company to really assure itself that its supply chain is free of forced labor in China.” For one thing, supply chains are so bloated that it’s hard for large companies even to know whom their work is contracted out to. And then there’s China’s notorious lack of transparency. In 2020, Rocafort helped clear an agricultural company in Brazil of any forced labor. A third-party audit team visited the factory three times, his Brazilian colleague interviewed workers, and they had access to the factory’s documents.

None of that is possible in China. The Communist government bars independent auditors from factories, and in the rare instances when journalists are allowed to visit, the tour is tightly controlled. Workers who speak freely can get into serious trouble, while factory managers face enormous pressure to participate in forced labor programs, Rocafort said.

As much as companies may wish otherwise, forced labor isn’t going away soon. A new area of focus is solar panels: Reports found that forced labor in Xinjiang produces polysilicon, a key component in solar panels. Forced labor is also used in the “mining and processing of quartz, the raw material at the very start of the solar panel supply chain,” according to a report from Sheffield Hallam University.

Xinjiang produces about 40 percent of the world’s polysilicon, Jenny Chase, the head of solar analysis at BloombergNEF, told The New York Times. That complicates Biden’s plans to move the United States further toward green energy by 2035, which would increase demand for solar panels. In June, the Biden administration sanctioned several Chinese producers of polysilicon in Xinjiang over forced labor concerns.

When Harris talks to companies about forced labor, he says, “their eyes glaze over because until it becomes really real to them, it doesn’t exist.” He said most midsized companies don’t seem to care, as it’s only the largest companies that get in trouble for it.

Yet public pressure from customers and employees could possibly force them to change: “A lot of these companies are putting their reputations at risk.”