What if Western companies leave the Chinese market?



Nike, H&M and a series of Western brands dilemma in China. Retailers are "stuck" between nationalist Chinese consumers and those who oppose unethical behavior at home.

For more than a year, several major foreign apparel and technology companies have expressed opposition to the use of "forced labor" in Xinjiang.  But it seems that these big companies dare not flaunt these actions, for fear of angering Beijing and 1.4 billion Chinese consumers.  

 There have been times in the past that Chinese people have carried out nationalist protests against foreign companies.  This time, however, the campaign appears to be part of a broader, more permanent counterattack.  Foreign companies are forced to make the option they have been trying to avoid: either favoring China or withdrawing from the Chinese market.

H&M, Nike and a series of Western brands dilemma in ChinaWhat if Western companies leave the Chinese market? / ph: pexels

 The newest company is H&M.  An online national boycott was launched after netizens "dug up" a statement a few months ago on the website of the Swedish apparel manufacturer, in which H&M displayed  expressed concern over reports of forced labor in Xinjiang.  Government officials and state media are involved.  A group of online communities surrounded H&M and other brands, including Nike, Uniqlo and Adidas, asking them to withdraw past claims about Xinjiang if they want to continue making money in China.

 On March 26, Chinese apps, from e-commerce to maps, kicked H&M off their platforms.  By the next day, several H&M stores in China were closed.  The China branch, which has a turnover of $1 billion, about 5% of H&M's total global revenue by 2020, is at stake.  Many Chinese celebrities have openly abandoned the brands they once supported including H&M, Adidas, Nike, Puma and Uniqlo.  Actress Zhou Dongwu gave up her contract with Burberry because she said that British luxury coat maker, a member of the appraisal firm Better Cotton Initiative (BCI), did not "expressly state and make public her stance on cotton production in Xinjiang, "her representative said.  Tech giant Tencent has removed Burberry-designed outfits from its online games.

 The attack on foreign companies comes as both China and the West are tumultuous about the "economic separation" between the two regions that have been closely tied together after decades of globalization.  Part of the conflict arose around important technologies like computer chips and artificial intelligence.  But China's new five-year plan makes it clearer its self-sufficiency ambition to help shield China from a volatile and risky international environment.  It seems that China sees itself as increasingly able to put economic pressure on other countries with the "weapon" that is the attractiveness of the world's second-largest economy.

 China's gravity is really strong.  Several garment companies, including Muji, Fila China and Hugo Boss, have issued testimonials on Chinese social media that they support Xinjiang cotton yarn.

 Other companies have clearly rejected earlier claims about Xinjiang.  They include PVH, the company that owns Calvin Klein and Inditex, the company that owns Zara, among other brands.  Inditex has 570 stores in mainland China as of January 2020, more than any other country outside its Spanish domestic market, and the outsourcing factories for Inditex in China use it.  more than 500,000 workers.

 Western brands that have taken a stance on Xinjiang may worry that being viewed as being submissive to the Chinese Communist Party could cause a backlash against consumers in the West, who it is increasingly expected that companies behave responsibly in everything from the treatment of workers to climate change.  Companies may also be calculating that the wave of nationalism in China will cool down.  And they are hedging their bets.

 Stock prices of H&M, Nike and Fast Retailing, which owns Uniqlo, all fell after the boycott, but later regained most of the lost points.  Companies with a more relaxed stance, such as Fila and Hugo Boss, responded in the same way.  The big winners are Chinese companies using Xinjiang cotton as pride, such as Anta, a major Hong Kong-listed sportswear maker (thanks in part to interest from patriotic retail investor).

 All of that could change as the Chinese authorities get really angry at criticism of their Xinjiang policies, and pressure from human rights campaigners and Western consumers continues increase.  

It is said that Western companies feel stuck. They know that responding to pressure from China by giving up on their own human rights commitments will cause controversy in their home market, they also worry about the consequences in China. 

 For Western companies in China, both options - Oppose or give in both carry risks.  But if foreign companies leave the Chinese market and reduce their dependence on the Chinese supply chain, the consequences could upset many Chinese shoppers and and affects millions of Chinese workers.

What if Western companies leave the Chinese market?

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