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Xi’s Red Line on China Human Rights Makes Companies Pick Sides

Bloomberg News
·6 min read

(Bloomberg) -- For years China has sought to draw moral equivalence with the West over human rights, insisting that other countries have no standing to criticize its policies. Now Beijing is making companies pay if they disagree.

China this week has pushed a campaign to boycott Western retailers after the U.S., U.K., Canada and the European Union imposed sanctions over human-rights abuses against ethnic minority Uyghurs in Xinjiang. The furor started when the Communist Youth League amplified a months-old statement from Sweden’s Hennes & Mauritz AB expressing concern about reports of forced labor in the far west region, and quickly spread to other companies.

Shares of H&M, Nike Inc. and others plummeted as Chinese government officials endorsed the boycotts and celebrities cut ties with brands including Adidas, New Balance and Japan’s Uniqlo. Meanwhile, Chinese apparel makers have seized the opportunity with statements supporting cotton made from Xinjiang, boosting local companies from sportswear maker Anta Sports Products Ltd. to leisurewear brands including Zhejiang Semir Garment Co. Ltd.

Over 7 million viewers tuned in Friday night on e-commerce platform Taobao to watch China’s livestream queen sell products made specifically from Xinjiang cotton.

While both Western and Asian companies have frequently been targets of Chinese nationalism over the years, the latest flurry signals a shift in strategy by President Xi Jinping’s government as it confronts a more unified approach from the U.S. and its allies.

Analysts say the Communist Party is betting that a response that inflicts financial costs on companies will be popular at home, show China stands on equal footing with the U.S. and help thwart President Joe Biden’s efforts to heap more pressure on Beijing over human rights.

Although Xinjiang is in the spotlight now, Chinese diplomats made clear during tense talks with U.S. counterparts in Alaska last week that Xi’s administration is drawing a firm line against what it calls “interference” in “internal affairs” including Hong Kong, Tibet and Taiwan.

That raises the prospect that foreign companies operating in China across a range of industries could find themselves in the geopolitical firing line, facing pressure from Beijing to keep quiet on human rights just as global investors put more weight on environmental, social and governance issues.

China’s earlier approach of simply denying allegations has been seen as a “weak defense,” according to Wang Huiyao, an adviser to China’s cabinet and founder of the Center for China and Globalization. China’s containment of Covid-19, push to eradicate absolute poverty and economic progress are all boosting morale in Beijing, he said.

“Rather than hiding and saying no, how about saying what we did well,” Wang said. “A little more confident approach.”

In addition to hitting the EU and U.K. with retaliatory sanctions over Xinjiang, a move that threatens to scuttle an investment deal between China and the 27-member bloc, Chinese officials hammered the West this week for a laundry list of failings from Nazism and colonialism in Europe to Japan’s invasions to the U.S. war in Iraq. China also published its 22nd annual report critical of how the U.S. handles human rights, prominently featuring George Floyd’s dying plea “I Can’t Breathe.”

‘Counterpunch’

“Under Xi, China appears to have adopted the mantra that it is better to be feared than liked,” said Ryan Hass, senior fellow at the Brookings Institution. “China is committed to sending a message that it will not take a punch without throwing a counterpunch.” The more aggressive rhetoric, he added, is part of a strategy to “build acceptance for the view that democracy is not a universal ideology and does not hold answers for challenges of the 21st century.”

In Alaska, Politburo member Yang Jiechi told his American counterparts most countries wouldn’t recognize “the universal values advocated by the United States” while saying their political systems were essentially the same: “The United States has its style -- United States-style democracy -- and China has the Chinese-style democracy.”

A senior Western diplomat in Beijing said the Alaska meeting showed China’s relationship with U.S. allies will only get worse from now on. China’s power mostly comes from its ability to leverage its huge market while dealing with countries on an individual basis, the diplomat said, and a more unified approach among Beijing’s critics represents a threat to that approach.

Multinationals operating in China have frequently found themselves apologizing. Daimler AG in 2018 expressed remorse for an Instagram post quoting the Dalai Lama that “hurt the feelings of Chinese people,” while Gap Inc. issued an apology for a T-shirt with a map of China that didn’t include Taiwan, Tibet or disputed islands in the South China Sea.

‘Irrational Behavior’

At an H&M store in Shanghai on Friday, a security guard noticed a drop in foot traffic over the past few days while expressing worries of possible “irrational behavior” by some customers. While H&M hasn’t commented over the recent uproar, on Friday a statement on forced labor in Xinjiang was no longer accessible on its website. Similarly, a statement by Zara parent Industria de Diseno Textil saying it had “zero tolerance” regarding forced labor in Xinjiang also appeared to be taken down.

Chinese brands have put more pressure on global rivals in recent years, a trend that has accelerated during the pandemic. Beijing-based China Feihe Ltd. has outperformed brands like Danone and Nestle by claiming its products are “more suitable for Chinese babies.” Anta Sports in 2018 passed Nike to become China’s No. 2 sports apparel brand behind Adidas, while local names accounted for seven of the top 10 cosmetics brands last year, up from just three in 2017, according to market researcher Daxue Consulting.

Chinese celebrities are also feeling the heat to get in line. The agency of Huang Zitao, a 27-year-old singer and actor, said Thursday he had terminated cooperation with France’s Lacoste S.A. even though the clothing manufacturer never issued a statement on Xinjiang cotton. The announcement came after Lacoste didn’t respond to his requests to clarify its stance on “all global social-media platforms,” according to the agency. The company didn’t immediately respond to a request for comment.

While China realizes it’s unlikely to silence criticisms from the West by fighting back, its more aggressive stance is mainly to show a domestic audience that the Communist Party is “the best and most determined defender of China’s interests,” said Shi Yinhong, director of Renmin University’s Center on American Studies in Beijing.

“So the recrimination is set to continue,” he said. “And this could push China and the U.S. -- and even China and the West -- further away.”

(Adds online shopping show on Xinjiang cotton in fourth paragraph.)

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