Xinjiang in the Crosshairs of the West: H&M and the Norwegian Pension Fund Global Add to the Pressure on Chinese Officials to Meet the Allegations of Human Rights Abuses

 

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 Xinjiang has proven to be both a test of China's internal policies--and of the effectiveness of the implementation of the CPC Party Line in accordance with its spirit--but also of the consequences for global trade and finance where the ideological lens, principles, and expectations of  liberal democratic states appear incompatible with those of Chinese Marxist Leninism as applied in Xinjiang. For a discussion, see, The Emerging Business, Compliance, Human Rights, and Sanctions Nexus--the Case of the Management of Global Production and Chinese Uighurs.

Of course, the government of the United States has been at the forefront of  Western efforts to characterize Chinese policies in Xinjiang as incompatible with Western (and international) principles, not the least fo which are human rights principles. (see, e.g.,  Congressional-Executive Committee on China (CECC) Hearings: Forced Labor, Mass Internment, and Social Control in Xinjiang 17 October 2019). 

Now, it appears, others in the Western camp are beginning to align with American policy in the operation of their global production chains, especially, when they transact the Xinjiang region. There have been two principal vectors for Western financial pressure--both contemporary examples of societal 2nd Pillar exercises of corporate responsibility to respect human rights autonomous (though not unconnected with) of states.


 

The first had its genesis in the role of non-governmental organizations and their role of monitoring of enterprises (against the standards of human rights principles as they envision them) and transparency (in the form

of reporting to inform enterprise, consumer, and investor decision making in markets). In March 2020, the Australian Strategic Policy Institute (ASPI) identified 83 foreign and Chinese companies directly or indirectly benefiting from the use of Uighur workers outside Xinjiang through what they described as potentially abusive labor transfer programs (Vicky Xiuzhong Xu et al., Uyghurs for sale: ‘Re-education’, forced labour and surveillance beyond Xinjiang (The Australian Strategic Policy Institute Limited Policy Brief Report No. 26/2020. The Report suggested that

The Chinese government has facilitated the mass transfer of Uyghur and other ethnic minority1 citizens from the far west region of Xinjiang to factories across the country. Under conditions that strongly suggest forced labour, Uyghurs are working in factories that are in the supply chains of at least 83 well-known global brands in the technology, clothing and automotive sectors, including Apple, BMW, Gap, Huawei, Nike, Samsung, Sony and Volkswagen. (Ibid. PP 3).

Now the Swedish company Hennes & Mauritz AB (H&M) has issued a statement declaring that "it was halting transactions with a Chinese yarn producer that owns the factory where Uighurs are allegedly being forced to work. The company also said it will no longer procure cotton from China's Xinjiang Uygur Autonomous Region. " (H&M cuts ties with Chinese supplier). The actin was interesting in at least one respect:

A report by the Australian Strategic Policy Institute think tank, published in March, pointed to H&M as one of the beneficiaries of a forced labor transfer program through their relationship with the dyed yarn producer Huafu Fashion Co’s (華孚時尚) factory in Anhui Province. However, H&M said in a statement that it had never had a relationship with the factory in Anhui, nor Huafu’s operations in Xinjiang. H&M did concede that it has an “indirect business relationship with one mill” in Shangyu in Zhejiang Province, belonging to Huafu.“While there are no indications for forced labor in the Shangyu mill, we have decided to, until we get more clarity around allegations of forced labor, phase out our indirect business relationship with Huafu Fashion Co, regardless of unit and province, within the next 12 months,” H&M said. (H&M cuts ties with Chinese supplier).

While the effects may be slow, they are appearing to be gaining some momentum--something that ought to concern Chinese officials tasked with meeting these accusations, and western enterprises, responsible for mitigating human rights risk in the face of accusations such as these. This state of affairs if allowed to continue unresponded may well threaten China's objectives for its Bet & Road Initiative as well as push forward  and globalize the disentanglement strategy pursued by the US in which western enterprises are being guided to shift their production chains out of China.

The second touches on the role of state and state related financial institutions in furthering  international human rights objectives consonant with national policy applied through their commercial or financial activities in (in this case investment) markets. The Norwegian Pension Fund Global is an important international actor in this area.  The Pension Fund Global has turned its attention to enterprises which may contribute to the human rights violations of others, including states. The Pension Fund Global's action must be understood within a broader European context, one driven, to some extent, by the work of influential global NGOs.  These have targeted European companies  (see, e.g., Amnesty International, Out of Control: Failing EU Laws for Digital Surveillance Exports (2020) ("“Europe’s biometric surveillance industry is out of control. Our revelations of sales to Chinese security agencies and research institutions that support them are just the tip of the iceberg of a multi-billion Euro industry that is flourishing by selling its wares to human rights abusers, with few safeguards against end-use abuses,” said Merel Koning, Senior Policy Officer, Technology and Human Rights at Amnesty International.") Press Release).

 

The particular target in this case was Hikvision Digital Technology Company, a Chinese enterprises with global operations, one which generates ESG reports and other relevant documents. In a press release the Pension Fund Global announced

On 14 January 2020, the Council on Ethics recommended that Hangzhou Hikvision Digital Technology Co Ltd be excluded from investment by the Government Pension Fund Global due to an unacceptable risk that the company is contributing to serious human rights violations. The recommendation concerns Hikvision’s role in the mass surveillance of the population in the Xinjiang region of China. On 11 September 2020, the Council received a letter from Norges Bank stating that the Bank will not process the recommendation because the company is no longer in the Fund’s portfolio. The Council therefore decided to withdraw its recommendation on 15 September 2020. Please find the Council’s recommendation here:https://etikkradet.no/hangzhou-hikvision-digital-technology-co-ltd-2/

Unlike the direct relationship of alleged human rights harms within a supply chain, the Pension Fund Global targeted those who make that harm possible or contribute to its maintenance.  In this case, the Norwegian SWF examined the complicity of those who make state and private surveillance possible. The case is interesting not just in the narrow context of the situation in Xinjiang, but also with respect to the parameters within which western enterprises (and the states within which they operate) may also set up systems for the surveillance and data harvesting of individuals, institutions and others.  It is a pity that the Pension Fund Global will likely not venture too far in that direction.   

 

The notice and the action were odd, in the sense of representing a somewhat unusual chain of decisions.  The most critical aspect of that chain  appears to have been the the proactive elimination of the potentially offending company from the SWF's investment portfolio.  The decision, however, is still potentially useful as a warning.  Here that warning goes to the reception of Chinese companies outside of China in the context of allegations of human rights abuses within China.

Taken together, the actions suggest a two prong strategy, in the private (markets driven) management of human rights harms in the context of confronting systems whose own approach to human rights may be incompatible with those who would hold those actors to account by their own standards. The first targets outside (foreign) companies doing business in the territory and in the context in which harm is alleged internally.  The second is to make it more difficult for Chinese enterprises to access capital (or at leats to seek to raise the cost of capital) where Chinese companies seek investment outside of their home territory and financial institutions. In a sense the markets driven strategy provides a more effective means of surrounding China, and at less expense, than any traditional effort of political containment.  But one ought to be prepared for countermeasures as well. 

The Pension Fund Global's Ethic's Council Recommendation follows.