Firms must move fast to avoid commercial Cold War
U.S. limits Chinese firms believed to have links to human-rights abuses
On Monday, the U.S. Department of Commerce added 11 Chinese companies to its “entity list,” limiting the ability of U.S. companies to do business with them. Washington accuses the 11 of connections with forced labor or other humanrights abuses in China’s Xinjiang region.
More such moves are likely coming soon. Western companies will have to move much faster than they have so far to make sure their supply chains aren’t involved.
One of the newly sanctioned companies, Changji Esquel Textile—which denies using forced labor—names Tommy Hilfiger, Hugo Boss and Ralph Lauren as brands it has supplied.
Another of the companies is on Apple’s 2019 supplier list. Apple, Hugo Boss and PVH, which owns the Calvin Klein and Tommy Hilfiger brands, didn’t respond to requests for comment.
U.S.-China relations have deteriorated rapidly in 2020, especially since Beijing imposed a national-security law on Hong Kong earlier this month, dramatically curtailing the territory’s autonomy. Corporate America was warned: At the beginning of July a joint memo from the Commerce, Treasury, Homeland Security and State departments flagged legal and reputational risks to companies that did business with Chinese companies linked to human-rights violations.
And early this year, the Australian Strategic Policy Institute’s “Uyghurs for Sale” alleged forced-labor links at dozens of Chinese companies—including most of the 11 hit with sanctions Monday.
There are other areas worth watching.
Surveillance-technology company Hangzhou Hikvision Digital Technology, already on a U.S. export blacklist, is 5.9%-owned by foreign investors though the Hong Kong Stock Connect link.
Even setting aside moral questions, eliminating such exposures before they become a legal issue has obvious value. Finding new suppliers, moving premises or selling shares is better done at a managed pace. Fire sales and emergency suppliers are expensive. Economic decoupling between China and the U.S—and, by extension, other Western investors and companies—will proceed at varied speeds.
Technology transfer to China has been a top concern for the Trump administration since at least 2018, but companies entangled in human-rights abuses in Xinjiang are quickly moving up the ladder. Changes that might have been expected to take years are now playing out in a matter of months.
Investors and companies in the West—the U.S. in particular—would do well to get ahead of the pack.