By incentivizing companies togo along with the Chinese government's repressive policies in Xinjiang and imposing punishments on those that don't, the Chinese Communist Party has made complicity in repression profitable for some companies — and for others, even mandatory.
The big picture: With the second-largest market in the world — one that is projected to surpass the U.S. to take the top spot by 2028 — the Chinese Communist Party has an enormous amount of power.
- Since Beijing has made access to the potential riches of China's markets contingent upon toeing party lines, companies face growing financial incentives to accede to China's demands — unless they face counterpressure, in the form of sanctions, export bans, or other actions, from their home governments.
Driving the news: Last week, Chinese social media users lambasted Swedish clothing retailer H&M for its previous statement disavowing the use of Xinjiang cotton, amid a state-supported nationalist backlash. H&M stores were removed from Baidu maps and their products disappeared from Chinese e-commerce platforms.
- Other multinational brands including Nike, New Balance, and Hugo Boss soon faced a similar boycott. Hugo Boss then posted a Chinese-language statement on Weibo saying the brand would “continue to purchase and support Xinjiang cotton" — but then deleted the post the next day.
Context: The Chinese Communist Party has put at least one million Uyghurs in mass internment camps in its northwest region of Xinjiang, banned most religious practice, used forced sterilization, and destroyed cultural heritage sites, in what some international human rights lawyers and several governments are now calling genocide.
- Hundreds of thousands of Uyghurs have reportedly been pushed into factory work and cotton production as part of the Chinese government's forced assimilation campaign, potentially tainting global supply chains and resulting in a U.S. import ban on all cotton and tomato products from Xinjiang.
- A United Nations human rights panel recently warned that more than 150 companies, including "well-known global brands," were connected to "serious allegations" of forced labor and other abuses in Xinjiang.
What's happening: Beijing is increasingly incentivizing companies to proactively contribute to its domestic repression and global geopolitical goals.
- The Chinese government has required domesticfacial recognition companies to develop software that can recognize Uyghur faces, and has increasingly worked to integrate these requirements into national industry standards. Chinese companies, in turn, are working hard to set international standards in emerging industries.
- The government has provided incentives for foreign and domestic companies to open facilities in Xinjiang. Demonstrating economic development in the region could burnish the Chinese Communist Party's policies there.
- Companies that accept Uyghur "labor transfers" — a term referring to a coerced labor program — may receive government subsidies. Some Chinese suppliers who receive labor transfers are intertwined in supply chains around the world, including for major global brands.
What to watch: The U.S. has banned cotton and tomato imports from Xinjiang, and the U.S. and the EU have levied sanctions on several Chinese government officials and entities deemed complicit in Xinjiang rights violations.
- Those actions can help push the private incentive structure in a direction that marginalizes human rights violators — but only if the measures are adopted by major markets and consistently enforced.