It’s China vs. Walmart, the latest Western brand embroiled in human rights litigation

A New Year’s ointment from Beijing accusing Walmart Inc.

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of “stupidity and short-sightedness” has driven a strong challenge home for Western companies in one of their most promising markets: While governments are raising accusations of human rights violations in China, officials there are pushing foreign companies to take China’s side.

Western companies have suffered under various waves of geopolitical headwinds as they have tried to do business in the world’s most populous country. But the experience of Walmart and the semiconductor giant Intel Corp.

in recent weeks – and consumer opposition to big brands like H&M Hennes and Mauritz AB and Adidas AG

last year – demonstrates a new willingness from Beijing to confront criticism from Western governments with counter-attacks on Western companies.

Beijing is repelling international criticism of its treatment of the Uighurs in Xinjiang with a propaganda campaign on Facebook, Twitter and the big screen. Here’s how China’s campaign against Western brands is aimed at audiences at home and abroad. Photo: Thomas Peter / Reuters

The advance represents a similar geopolitical challenge to that faced by companies following the Tiananmen Square massacre in 1989, said Jörg Wuttke, the Beijing-based head of the European Chamber of Commerce in China. This time, however, the stakes are higher: “China’s importance has increased many, many times,” he said.

At the same time, Western brands are under pressure like never before from their governments, from investors and from consumers at home over a growing wealth of political, social and environmental issues. This makes any perception of complicity in Beijing over alleged human rights violations a major reputational risk.

By going after Intel and Walmart, Beijing is targeting two icons of American business and expanding its network beyond the most European fashion brands it went after last year. Beijing’s new confidence comes like other major US companies, including Coca-Cola Co.

and Airbnb Inc.,

navigate their sponsorship of the Olympics in Beijing next month. Western brands have trampled cautiously on how or whether the games should be used for marketing purposes amid growing American criticism of China over human rights.

Adidas and H&M have faced backlash in China after an industrial coalition promised to stop working in Xinjiang due to forced labor.


Photo:

Roman pilipey / Shutterstock

The recent flashpoint with Beijing centers on Xinjiang, where the United States and others have accused China of committing genocide against the region’s Uighur ethnic minority. Washington has called for a diplomatic boycott of the Olympics – refusing to send official representation but allowing American athletes to compete – over the allegations. Beijing denies allegations of genocide and other human rights violations in the region.

H&M and Adidas both belong to a fashion industry group that raised concerns about the allegations in Xinjiang, a cotton-rich region, in 2020. Both became targets of government criticism and consumer boycott in China last year. H&M was largely deleted from China’s Internet, with its products and store locations deleted from most Chinese shopping and card apps.

Both have lost millions of dollars in sales in what was once one of their fastest growing markets. H&M has stopped making an online statement about its concerns over allegations of forced labor in Xinjiang, but has declined to comment further on the issue. Adidas has said it faces geopolitical challenges in China, but declined to elaborate.

“Many investors have been engaging with their portfolio companies on this Xinjiang issue for some time now,” said Anita Dorett, director of the Investor Alliance for Human Rights, whose members include more than 200 institutional investors managing a total of $ 7 trillion in assets. She said investors are concerned about operational, financial, legal and reputational risks that companies may face if they do not address human rights challenges.

Xinjiang has not been the only controversy for Western companies to navigate. Over the past few years, foreign companies have increasingly found themselves focused on geopolitical issues raised by Beijing, including how companies characterize Taiwan and Hong Kong. Business people in China say that multinational companies are also finding it harder to do business there now due to stronger domestic competition. Recently, the Chinese authorities have tightened their control over several of the economy’s handles, including their grip on data collection.

Last month, the United States passed a comprehensive law banning most of Xinjiang’s imports. Days later, Chinese officials publicly reprimanded Intel for asking suppliers not to pick up goods from the region. Intel said it had written to vendors to comply with US law and that the action did not represent Intel’s position on Xinjiang.

A spokeswoman for Intel declined to elaborate.

Intel is also a major Olympic sponsor. In a hearing of the Congressional Executive Commission on China in July, congressmen asked Olympic corporate sponsors if they would ask the International Olympic Committee to postpone the upcoming Winter Games in Beijing to give China time to address human rights issues. Of the five sponsors at the hearing, only Intel answered yes. “With the IOC, we have stressed the importance of human rights for Intel and have called on them to take these matters most seriously,” said Intel Director Steve Rodgers.

On Friday, the country’s anti-corruption agency Walmart harshly criticized and warned of consumer backlash against it, days after social media users claimed that their China-based Walmart and Sam’s Club stores had stopped storing Xinjiang products. Walmart declined to comment for comment.

Many foreign firms are still thriving in China, and some recent business surveys show that confidence in China’s growth potential among foreign executives is high. Apple Inc.,

has, for example, become China’s largest telephone provider by market share.

Chinese regulators and homemade competitors have sparred with Tesla over the years, but Beijing has generally helped boost growth in the country.


Photo:

Sheldon Cooper / Zuma Press

China is also a critical market for Tesla Inc.,

supplies a quarter of the Austin, Texas-based automaker’s revenue in the first nine months of 2021. Chinese regulators and domestic competitors have sparred with Tesla over the years, but Beijing has generally helped boost its growth in the country.

There have been other big bumps for foreign companies since China opened up to them decades ago. After Chinese troops violently ended a pro-democracy protest in Beijing’s Tiananmen Square in 1989, in the midst of a recession, new foreign direct investment in China plummeted. Companies sought alternative sources of supply in Asia.

In 1993, Levi Strauss & Co. closed. its procurement relations with factories in China because of what they called the country’s widespread human rights abuses. A spokesman for the Chinese government said at the time that the move had nothing to do with human rights and that the country still had tens of thousands of American companies there. The company returned to China five years later, saying it believed it could find responsible business partners there.

In 2010, China’s human rights record again made headlines, this time when search engine giant Google withdrew from China due to concerns about censorship and cyberspying. Beijing called Google’s move “completely wrong”, and a Chinese spokesman said the Google case had damaged the Silicon Valley company’s own reputation more than it had hit China.

Human rights groups have said that from around 2017, Chinese authorities in Xinjiang began detaining as many as one million Uighurs and other predominantly Muslim ethnic minorities in camps and subjecting some to forced labor. The US government last year declared the situation a genocide. Chinese officials call the allegations lies and describe the camps as professional centers that provide economic development and combat religious extremism.

In 2020, the Better Cotton Initiative, an industrial coalition made up of many of the world’s major brands, including H&M and Adidas, said it would stop working in Xinjiang due to forced labor. From March last year, Chinese news media and social media users attacked the coalition and some of its members to highlight the accusations. They called for a boycott of Adidas and Puma SE. Each reported third-quarter sales decline of about 15% in their Chinese markets. The biggest loser was H&M; the latest quarterly report showed that sales in China fell by at least 37%.

Some competitors have taken advantage: The Chinese sportswear giant Anta Sports Products Ltd.

and Muji, a Tokyo-based clothing and housing brand owned by Ryohin Keikaku Co.

, publicly committed to continue to use Xinjiang cotton and win praise in China.

Write to Liza Lin at Liza.Lin@wsj.com and Stu Woo at Stu.Woo@wsj.com

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