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Corporate Social Responsibility in China

H&M's statements about forced labor in Xinjiang have angered both Chinese and human rights groups.
April 8, 2021

Cotton farmers in China's Xinjiang Uygur Autonomous Region. (VCG)

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Several years ago communication firm MSL Group published the results of its survey of millennials in China and elsewhere. Worldwide, 83% of those surveyed wanted businesses to address social issues. An even larger proportion (92%) of Chinese millennials thought this necessary. Glenn Osaki, then MSL Group's Asia president, presented these findings at our #MillennialMinds conference in Shanghai. But what happens when a corporation's sense of its social responsibility runs afoul of Chinese governmental policy and nationalistic netizens?

In Oct. 2020, H&M, one of the top three fashion retailers in the world, said it was "deeply concerned by reports" that "ethnoreligious minorities" in Xinjiang were being subjected to "forced labour and discrimination." The company explained that its suppliers are prohibited from using forced labor or engaging in religious or ethnic discrimination. It further noted that it regularly carries out "due diligence" checks and was not working with any garment factories in Xinjiang. H&M said it was ending a relationship with a Zhejiang plant owned by Huafu Fashion Company, a firm that was reported in 2019 to have used workers from a detention center at one of its Xinjiang factories. H&M said that while it found no forced labor at the Zhejiang plant, the association with Huafu necessitated removing it from its supply chain. Other companies also ended ties with Huafu and other firms with operations in Xinjiang. H&M thought it was fulfilling the expectations of international human rights groups and its US$24 billion global customer base.

Five months later, Chinese cyberspace was suddenly ablaze with condemnations of H&M for "spreading lies" about China and "boycotting Xinjiang cotton." In short order H&M storefronts on Chinese ecommerce platforms were removed, physical store locations disappeared from Chinese digital map services and Chinese celebrity endorsers announced they were breaking ties with the company. Landlords for some of the H&M's 505 stores in China evicted the company. The charts below show that China is important to H&M, not simply as a supplier of the garments it sells, but as a market. The pandemic diminished H&M's 2020 sales in China, but the market remained the company's fourth largest and customers there bought US$1.1 billion of its goods.

A New York Times report speculates this prairie fire was set by a Chinese government upset with sanctions imposed by the U.S. and European Union on Chinese officials tied to the Xinjiang policies. Hua Chunying, spokesperson for China's Foreign Ministry, said popular outrage over foreign "lies" about forced labor in Xinjiang was natural. She showed reporters a photo of an African American being forced to pick cotton (at some unstated date) and contrasted that with a photo of mechanized cotton picking in Xinjiang. The accusations of forced labor involve factory work, not cotton harvesting.

Sweden-based H&M has sought to calm these waters. It removed the 2020 press release from its website and announced via Chinese social media that it wasn't taking a political position and greatly valued its Chinese customers. A new English-language press statement stressed the company's continuing commitment to the China market. There was no mention of Xinjiang or forced labor, but H&M said, "We want to be a responsible buyer, in China and elsewhere, and are now building forward-looking strategies and actively working on next steps with regards to material sourcing."

Foreign companies in China try to be mindful of the government's red lines and work to avoid them. They have had plenty of reminders of the hazards. Protests around the 2008 Olympic torch in Paris (over policies in Tibet) yielded demonstrations at Carrefour’s China stores. Companies have pulled products, reworked websites, and more. "Territorial sovereignty" has always been central to Beijing's priorities and it may be taking a harder line due to foreign sanctions over policies in Xinjiang and Hong Kong. One famous case: a team official's tweet supporting protests in Hong Kong got the NBA pulled from Chinese television and internet streaming.

It isn't only in China where companies are finding political waters increasingly treacherous. Georgia-based companies such as Coca-Cola and Delta condemned the state's new voting law as too restrictive. Some critics on the right have called for boycotts of the two firms and of Major League Baseball for pulling its 2021 all-star game from Atlanta.

China is an important supplier and market for H&M. The company wants to satisfy the expectations of its customers, employees, suppliers and the party-state. But it also wants to defend its global image as delivering safe and environmentally sustainable products produced in a socially responsible manner. It wants to keep Germans, Americans and others shopping, but also weather the current backlash in China. H&M should be able to manage this, but other companies may prove more vulnerable, especially as China’s relations with the U.S., Europe and others become more contentious.