With 1.4 billion consumers, China has a powerful weapon it is not shy of using.
In the past few years, Beijing has held tourists back from shopping jaunts to South Korea to punish Seoul for deploying a US missile shield, and dropped National Basketball Association broadcasts over an official’s tweeted support for Hong Kong protesters. The latest display of whipped-up anger involves Hennes & Mauritz AB, purveyor of affordable clothing, due to a months-old statement expressing concern over reports of Uyghur forced labor in Xinjiang. Beijing, smarting from coordinated Western sanctions, is retaliating in kind.
For H&M, it’s a $1.1 billion-a-year problem, roughly 5% of its global sales, and one that’s harder than ever to muffle in the age of stakeholder capitalism when retailers have invested heavily in cleaning up supply chains. Others, from Burberry Group Plc to Adidas AG and Nike Inc., have been dragged into the scuffle and in some cases dropped by Chinese stars for being seen as insufficiently supportive of official policies. Beijing argues it is alleviating poverty, providing vocational training and combating extremism in Xinjiang, and has rejected evidence and accounts of torture, coercive work and even sterilization of Uyghur Muslims and other minorities.
A large number of Western companies have been happy to stay silent to avoid China’s wrath. Far fewer, though, will actively line up behind Beijing’s policies, described by Washington in January as genocide. China isn’t wrong that companies have too often spoken out of both sides of their mouths. Hugo Boss AG initially appeared to appease Chinese concerns with comments on a social media account that it would “continue to purchase and support Xinjiang cotton.” That was later deleted; a statement on its website says the company does not tolerate forced labor.
A more aggressive China is forcing companies to pick sides. But with reputations and trillions of sustainable investment dollars on the line, it may not yield the government’s desired effect. There are tough choices ahead, such as sponsorship deals for the 2022 Winter Olympics, and little sign that Beijing will stop leaning on the power of popular outrage — real or manufactured.
Part of the muddle here is that everyone is using the same tools — sanctions and boycotts. History has lessons for both sides.
First, they rarely work fast, or alone. Timing and complementary efforts often matter more than direct economic pain, as the Montgomery bus protest proved when it became a galvanizing moment for US civil rights. But while shunning may not have hurt companies working with, say, South Africa’s apartheid regime as much as expected, overseas pension funds and bank Barclays Plc were eventually forced into divestment. Consumer campaigns, sanctions and isolation through cultural and sporting bans all helped accelerate the end.
The more immediate consequence then and today is that boycotts bring an issue to international and national attention. Raising the issue in China’s tightly controlled domestic environment means Chinese know about it. That may be bad news for companies caught in the crossfire and won’t immediately free hundreds of thousands of Uyghurs and others from a network of re-education camps, detention centers and prisons — but it does make it costlier for the government to keep up its current campaign and pretense of benevolence.
It’s not hard to understand why China is acting as it has. As historian Jeffrey Wasserstrom of the University of California, Irvine, points out, a nationalist strategy of squeezing errant companies has worked until now. Beijing has been adept at getting apologies from companies deemed to have “hurt the feelings” of its people. It hasn’t had to pay for policies in Xinjiang or Hong Kong.
Considering past experience, companies, too, may think the storm will blow over. Despite some more extreme examples — South Korean retailer Lotte Mart retreated from the mainland after being caught up in the 2017 missile spat — firms have been able to return to business as usual once Beijing feels it has been heard. Consumers have proven easy to wind up into performative patriotism, but then cool off.
Yet this time, Beijing is suggesting a fudge is not acceptable. And on the other side, compromise may not be admissible, either, if environmental, social and governance funds stick to their guns on an issue so objectively undesirable as forced labor.
For democracies and campaigners trying to encourage good behavior, sanctions, bans and improved supply chain monitoring are only partial wins: China isn’t necessarily motivated to act in response. It’s a problem that comes with autocratic leaders ready to allow populations to bear significant economic discomfort in pursuit of other aims, as in Myanmar, North Korea or Russia.
But punishment adds up. Companies react to shareholder pressure and opportunity cost. Countries eventually feel the knock-on effect. State-backed China Daily reported this week that some cotton yarn factories in the region may consider cutting employees. Industry analysts suggested to Bloomberg that textile manufacturers could increase imports from elsewhere to replace Xinjiang cotton, which accounts for about a fifth of global supply but over 80% of China’s, in order to avoid rejection by global buyers. There’s a price that comes with being a pariah state, even a fast-growing one.
For now, there’s only one clear outcome from this mess, and that’s noise. Boycotts will keep bringing attention to accusations of brutal abuse against Uyghur and other ethnic minorities in parts of China where too little light is shed.
That’s not necessarily what Beijing, for all its wolf-warrior aggression, was aiming for.
Bloomberg
