Why Corporations Are Terrified Of China: Nike, H&M Tumble After Boycott Begins Over Xinjiang Criticism

China may be a closed, authoritarian, militant, “reverse-engineering” society. But even more importantly, China has the world’s largest consumer army, and that – more than anything else – is why China is feared by countless corporations around the globe, all of whom desperately seek access to this army of rabid buyers.

For the latest example of that look no further than the plunge in H&M shares, which fell as much as 3.1% in Stockholm, while Nike dropped 3.6% in U.S. premarket trading, with the brands facing possible boycotts in China over their stance on using cotton sourced from the contentious Xinjiang region.

As Reuters reports, Nike and Adidas came under fire on Chinese social media on Thursday after Beijing’s propaganda offensive against Swedish fashion brand H&M sparked by the company’s expression of concern about labor conditions in Xinjiang. The sportswear companies were the latest to be caught up in a backlash prompted by a government call to stop foreign brands from tainting China’s name as internet users found statements they had made in the past on Xinjiang.

Chinese state media had singled out H&M on Wednesday over a statement that was reported last year in which the Swedish retailer said it was deeply concerned by reports of accusations of forced labor in Xinjiang, and that it did not source products from the Chinese region. The company was then blasted by the influential Communist Youth League as well as Chin’s real army, the People’s Liberation Army although as Reuters notes, it was unclear why the H&M statement was back in the public eye but diplomatic tensions between China and the West have been rising.

A post on the official Weibo page of Beijing Youth Daily dated Thursday noted foreign apparel brands including Adidas and Inditex-owned Zara have previously made remarks about boycotting Xinjiang cotton, while The Global Times, a communist-party tabloid,  also mentioned Burberry while noting that Spain’s Inditex, owner of Zara, had “quietly removed” a statement on Xinjiang from its English and Spanish-language websites. Shortly after, calls to boycott the Swedish retailer spread to include Nike, which has previously said it won’t source products from the region due to labor concerns.

The threat of boycotts comes after China denied allegations of human rights abuses by its officials in the western region of Xinjiang after the European Union, United States, Britain and Canada imposed sanctions on the officials earlier this week. Beijing hit back with retaliatory sanctions on European lawmakers, scholars and institutions.

In response to the campaign to single out foreign companies who criticize China’s actions in Xinjiang, many internet users said they would stop buying Nike and will support local brands such as Li Ning and Anta, while others told Adidas to leave China.

Internet users also targeted the Better Cotton Initiative (BCI), a group that promotes sustainable cotton production which said in October it was suspending its approval of cotton sourced from Xinjiang for the 2020-2021 season, citing human rights concerns. BCI members include Nike, Adidas, H&M and Japan’s Fast Retailing.

“If you boycott Xinjiang cotton, we’ll boycott you. Either Adidas quits BCI, or get out of China,” one internet user wrote. Nike, Adidas and the BCI did not respond to requests for comment.

H&M said on Wednesday it respected Chinese consumers and that it was committed to long-term investment and development in China. But by Thursday morning, H&M did not exist on some Chinese store locator maps. Searches for H&M stores on Baidu Maps yielded no results. The retailer’s official store on Alibaba’s Tmall, an e-commerce platform, was inaccessible.

At a daily media briefing at China’s foreign ministry, spokeswoman Hua Chunying, when asked about H&M, held up a photograph of Black Americans picking cotton. “This was in the U.S. when Black slaves were forced to pick cotton in the fields,” she said.

Hua then held up a second photograph of cotton fields in Xinjiang, noting that cotton production has been highly mechanized in Xinjiang, with much of the cotton harvested by machines (and supposedly, not by black slaves):

“More than 40% of the cotton in Xinjiang is harvested by machinery, so the alleged forced labor is non-existent.”

People’s Daily, the main newspaper of the Communist Party, rolled out a social media campaign in support of cotton sourced from Xinjiang. The graphic “I support Xinjiang cotton” posted by the newspaper on the Twitter-like microblog Weibo has since attracted about 2.2 million likes. Japanese retailer Muji, owned by Ryohin Keikaku, told the Global Times that it uses Xinjiang cotton, winning praise from Chinese internet users, who lauded the firm’s “survival instincts”.

Ryohin Keikaku recently conducted due diligence for Xinjiang factories, with which it has an indirect relationship via its supply chain, and also commissioned an independent audit group to make onsite audits, but found no “significant” issues, the company told Reuters on Thursday.

As it emerged that China is serious in following through on its threats of boycotting western clothing makers, shares of China’s Anta Sports Products and Li Ning surged, while shares in Adidas, Inditex and H&M fell when European markets opened on Thursday: Burberry shares fell as much as 6.3%, Adidas was down as much as 6%, Inditex slipped as much as 1.9%; Nike was down 4% in premarket trading.

Stating the obvious, Bernstein analyst Aneesha Sherman told Bloomberg that the market reaction is due to concern about topline impact and possible market share loss to Chinese apparel and sportswear brands: “It’s a fast-growing region and the discretionary spend levels are going up, so it is an important region not to lose market share in.”

The question is what happens next: will the threat of boycotts, and an even sharper drop in prices, be sufficient to silence any criticism of Chinese human rights violations, exposing the entire global virtue signaling sham as nothing but hollow platitudes where money talks and bullshit virtues walk, or will companies such as Nike actually put their money where their mouth is.

We’re joking: of course, the Nikes of the world will quickly fold when faced with the threat of losing the world’s biggest purchasing power.