Chinese sports-apparel companies have seen their stocks leap in Hong Kong trade since mid-week. They are benefitting as their overseas competitors such as Nike (NKE) , Adidas (ADDDF) and H&M (HNNMY) face government-stoked anger about their stance on cotton supplied from China's westernmost province, Xinjiang.
Li-Ning (LNNGF) , a sportswear brand started by an Olympic gymnast of the same name, has seen its shares rise 14.7% in the last two days in Hong Kong (HK:2331). The stock of China's largest sports brand, Anta Sports, has climbed 13.7%.
Hong Kong-based Xtep International (XTPEF) , a running-shoe and sports clothing maker selling into China, has risen steadily, up 10.7% since Tuesday's close. Right at the close on Tuesday, 361 Degrees (HK:1361) jumped 11.3%, although it has since settled back on a 7.4% rise.
Most of those Chinese manufacturers have international aspirations - Xtep International sponsors the former NBA player Jeremy Lin, who briefly play in Beijing, and has also paid to place its logo on European top-flight soccer-club shirts. But their Western sales are small, and they are unlikely to be caught up in the political to-and-fro currently buffeting their Western counterparts.
The Chinese Communist Party has essentially dredged up comments made months ago as Western clothing companies sought to distance themselves from allegations that their supply chains rely in part on forced labor. But those company comments initially came due to political pressure in the United States. The companies can't win.
In March 2020, a congressional committee released a report stating that 20 companies including Nike, H&M, Adidas, Patagonia, and the PVH (PVH) subsidiaries Tommy Hilfiger and Calvin Klein, not to mention the Coca-Cola Co (KO) , Costco (COST) and Campbell Soup (CPB) , are suspected of directly employing forced labor or sourcing from suppliers that do.
The Trump administration in January then banned the import of all cotton and tomato products from Xinjiang. The U.S. House of Representatives has also passed the Uyghur Forced Labor Prevention Act. If the act becomes law, it would require listed U.S. companies to outline in their earnings whether they've unearthed abuse in Xinjiang. That bill, now doing the rounds in the Senate, would also deny entry to products from Xinjiang unless U.S. Customs and Border Protection officials determine they're not made by convict or forced labor.
Chinese state media have been fueling the flames about consumer "netizens' rage" over H&M, Nike and Adidas. The Global Times, often used to convey Beijing's international policy, points out that over 30 Chinese stars now say they won't take any more money from those brands, which sponsored them. Here in Hong Kong, Cantopop singer Eason Chan says he is cutting ties with Adidas. His company My Kan Wonderland said he and the company "boycott any behavior vilifying China."
The sudden ire against the brands has the hallmarks of a coordinated state-sponsored campaign. H&M, for instance, made its comments eight months ago. It has erased that statement although there's a cached version here. In China, H&M has suddenly vanished from apps and the Internet, its stores no longer showing up as map destinations, its goods no longer on e-commerce sites.
The online criticism came only after the United States, the European Union, the United Kingdom and Canada joined forces to punish human-rights violations in Xinjiang by sanctioning Chinese officials. The Western companies are part of the Better Cotton Initiative, which counts a whole host of companies among its members, including 485 suppliers and manufacturers in China itself.
So the timing is suspiciously convenient for political pressure. China's "50 cent army" comprises a legion of online pro-government commentators. The Chinese Communist Party allegedly sponsors participants to stoke patriotic fervor by paying ¥0.50 per post.
It's unclear how long such "anger" will last, particularly if it has been artificially generated. Past boycotts of Apple (AAPL) , Starbucks (SBUX) , and Volkswagen (VLKAF) have done little to dent their popularity in China. But the South Korean department-store operator Lotte (KR:004990) was forced to exit its network of 112 stores in China after it supplied land in Korea for the installation of a U.S.-designed anti-missile defense system.
The one company that should face long and hard questions out of this whole campaign is Hugo Boss (BOSSY). The German menswear maker on Thursday used its social-media account on Weibo to say that "Xinjiang's long-stapled cotton is one of the best in the world. We believe top quality raw materials will definitely show its value. We will continue to purchase and support Xinjiang cotton."
Last September, Hugo Boss told NBC News that it had asked all its suppliers around the world to prove their products do not come from Xinjiang. The German company issued a statement that a major garment company, Lu Thai Textile, that supplies it had "reassured" Hugo Boss that no Xinjiang cotton has ever found its way into Boss brand clothing.
That seemed unlikely since Lu Thai had owned a majority stake in the company Xinjiang Lu Thai for 16 years, before shedding it last August when faced with scrutiny to the general manager of the factory. Lu Thai had been investing to expand the Xinjiang operation with the construction of a 100,000-spindle production line. NBC even tracked down a company press release on WeChat showing the company using a bus to bring minority workers into Lu Thai's fields to pick cotton.
The Hugo Boss claim came in an NBC report indicating that companies such as Hugo Boss, L.L. Bean and Uniqlo were seeking to root out abuse in their supply chains, particularly from Xinjiang. Xinjiang Province produces about 20% of the world's cotton, according to the Center for Strategic & International Studies. The center reported in 2020 that at least 570,000 people in Xinjiang were forced to pick cotton under coercive labor schemes aimed at ethnic minorities.
China is by far the world's largest textiles exporter. It shipped US$119.6 billion in textiles in 2019, double the next-largest source, the European Union, and virtually 10 times the US$13.4 billion in textiles exported by the United States. Of that 20% of global cotton coming from China, some 87% comes from within Xinjiang.
The supply and sales networks of these companies will feel the push and pull of politics for some time to come as a result.