56 Business The EconomistAugust 22nd 2020
T
he worldhas few more Orwellian conglomerates than the
Xinjiang Production and Construction Corps (xpcc), a nearly
3m-strong paramilitary-style business in western China. It was set
up in 1954 to spur an influx of demobbed soldiers from the Han ma-
jority into an area dominated by Muslim Uighurs. It retains a mili-
tia of 100,000, charged with rooting out extremism. The militia-
men and others help the xpcc furnish the world with a panoply of
goods. About 400,000 xpcc farmers harvest a third of China’s cot-
ton. Others are part of Xinjiang’s tomato-exporting business. From
pyjamas to passata, xpccproducts penetrate global supply chains.
America’s State Department says that it also uses forced labour.
In late July the us Treasury hit xpccwith sanctions, alleging a con-
nection with human-rights abuses in Xinjiang where at least 1m
Uighurs and members of other ethnic minorities have been held in
detention camps. That followed a memo from President Donald
Trump’s administration advising firms to sever any connection
they may have with forced labour within and outside the autono-
mous region. Some retailers, such as pvhCorp, whose brands in-
clude Calvin Klein and Tommy Hilfiger, publicly said they would
cut ties with Xinjiang, out of concern for labour practices. Supply-
chain auditors for Western makers of electronics and footwear say
there are numerous “red flags” indicating Uighurs may have been
forcibly transferred to factories in other Chinese regions.
Assessing the treatment of workers is nothing new for big firms
sourcing materials from places of poverty and repression. But in
China these problems are compounded by the power of the state,
the size of the economy and tensions with America. At a time when
covid-19 has forced many companies to consider reducing their
Chinese supply chains, concerns over Uighur forced labour have
added “gasoline to the fire”, says one executive.
Western firms thus face several conundrums. How can they
prove that their supply chains are free of forced labour when audit-
ing in Xinjiang is taboo? How do they respond to labour-rights
worries publicly without enraging either Beijing or Washington?
And how do they ensure that overzealous scrutiny of their work-
places does not make life even worse for Uighurs? These are moral,
political and social questions that businesses feel they should not
have to answer alone.Start with traceability. Xinjiang is at the heart of China’s cotton,
yarn and textile industry, the world’s biggest. The region supplies
84% of the country’s cotton. Its extra-long staple variety is coveted;
it produces fabric that is whiter and less knotty than other sorts,
making it a favourite for dress shirts sold around the world. It con-
tains spinning factories belonging to some of China’s most ad-
vanced shirtmakers, under contract to Western brands.
Until recently, when those brands fretted about labour condi-
tions in Xinjiang, they sent auditors to inspect the factories. That
stopped when they began to be monitored by Xinjiang authorities,
“as if doing something wrong”, says one. Without audits, Xinjiang
has become a black hole in the supply chain, making it almost im-
possible for Western firms to retain suppliers there. Furthermore,
even outside Xinjiang, its cotton is a staple ingredient of Chinese
yarn, where it may be mixed with other varieties, including im-
ported stuff, and exported all over the world. Verifying the prove-
nance of that cotton to show that none of it is from Xinjiang is “the
hardest work we have ever done,” an auditor laments.
The second big problem is geopolitical. Navigating the Sino-
American stand-off is getting tougher. Big international firms say
that even if they reduce their dependence on supply chains within
mainland China, they have no desire to pull out completely. But
keeping Chinese factories, if only to supply domestic consumers,
risks using tainted Xinjiang raw materials. And the Chinese gov-
ernment is so hostile to any criticism about human rights in Xin-
jiang, especially from outsiders, that Western firms must rely on
Chinese suppliers to lobby on their behalf, a delicate endeavour.
In America, meanwhile, penalising the repression of Uighurs
has bipartisan support that is unlikely to wane whoever wins the
elections in November. But American brands feel that politicians
have put them on the front line to safeguard human rights in Chi-
na, without backup from Uncle Sam. They have little diplomatic
support when negotiating with China, and the Twitter court of
public opinion can be harsh. As one aggrieved executive puts it: “It
is like the old witching days. The bar of guilt is incredibly low. The
bar of innocence is extremely high.” It is easy to point fingers.
All of this leaves global firms feeling ultra-cautious—and poses
a final dilemma. Averting a backlash from activists (and, poten-
tially, consumers) requires removing Uighur employees from sup-
ply chains simply because it is so hard to prove whether they were
coerced or not. Ultimately, it may necessitate breaking ties with
Chinese suppliers with any links to Xinjiang—ie, most of them—
even if a relationship of trust goes back decades. That can end up
hurting the Uighurs, whom Western firms would gladly offer de-
cent jobs, directly or indirectly.A stitch in time
Textile firms believe technology may provide an answer. Pilot pro-
grammes exist to test dnaand other things to verify the source of
cotton in yarn and fabric. Patricia Jurewicz of the Responsible
Sourcing Network, an ngo, says fashion brands are studying how
tech firms like Apple responded to a part of America’s Dodd Frank
Act of 2010 to ensure no conflict minerals from the Democratic Re-
public of Congo entered their supply chains.
Of course a t-shirt is cheaper than a smartphone, and traceabil-
ity costs money. The ideal solution would be for the Chinese gov-
ernment to stop persecuting its Muslim minority. As a business-
man notes, the irony is that the more heavy-handed its tactics in
Xinjiang are in an attempt to preserve stability, the more economi-
cally unstable the region risks becoming. 7Schumpeter Supply chained and bound
Forced labour in China presents complex dilemmas for fashion brands