Opinion: China is sabotaging economic future by escalating disputes with West over forced Uyghur labor

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CLAREMONT, Calif. (Project Syndicate) —Early last month, China’s Legislative Assembly, the National People’s Congress, officially approved the country’s 14th Five-Year Plan. The strategy was meant to demonstrate that China has a long-term economic vision that will allow it to prosper, despite the country’s geopolitical rivalry with the United States.

But before the ink on the AFN stamp dried, China had already started to sabotage the plan’s chances of success.

Xi is now undermining his own good work, poisoning relationships with critical business partners.

The centerpiece of the 14th Five-Year Plan is the “dual circulation” strategy, according to which China will aim to foster growth based on domestic demand and technological self-sufficiency. This will not only reduce China’s dependence on external demand; it will also increase the dependence of its major trading partners, except the United States, on access to its market and increasingly high-tech manufactures.

Crucial negotiation with the Europeans

China has been preparing the groundwork for this strategy for some time. Notably, at the end of last year, President Xi Jinping concluded the Comprehensive Agreement on Investment (CAI) with the European Union. He had to make some concessions to get there, but it was worth it: the deal had the potential not only to deepen EU-China relations, but also to drive a wedge between Europe and the US.

But Xi is now undermining his own good work, poisoning relationships with critical business partners. In the past two weeks, China has blacklisted several Members of the European Parliament, UK and Canadian lawmakers, as well as academics and research institutes in Europe and the UK.

China announces British sanctions in retaliation

To be sure, the sanctions were retaliation: the EU, UK and Canada had sanctioned a small number of Chinese officials implicated in human rights abuses against the largely Muslim Uyghur minority in Xinjiang province. While these abuses are not new, recent reports that forced Uyghur labor is used to harvest cotton have highlighted them.

China’s hostile response to concerns about the use of forced labor in Xinjiang suggests its leaders believe the Chinese market is simply too lucrative for Western companies or governments to abandon. They can overplay their hand.

China sanctions its detractors to show its outrage at the accusations, which it says are politically motivated lies. But whatever message the sanctions are meant to send, it’s unlikely to be worth the cost.

China’s interests

Canada, Europe and the UK have so far remained relatively neutral in the Sino-US rivalry, and it is in China’s interest that they remain so. China can afford economic decoupling from the United States (although it will be costly). It cannot afford simultaneous decoupling from the rest of the major Western economies.

Already, the CAI is threatened. The deal has yet to be approved by the European Parliament. But, to protest against Chinese sanctions against some of its members, parliament canceled a recent meeting to discuss it. Some lawmakers are now arguing that China should ratify International Labor Organization conventions on forced labor before ratifying the IAC.

Further undermining its economic outlook, China is attacking private companies for expressing concerns over allegations of forced labor. Swedish clothing retailer H&M HNNMY last year,
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announced that he would no longer use cotton from Xinjiang because it was too difficult to conduct “credible due diligence” there.

Bullying tactics

As the conversation about Xinjiang cotton intensified, H&M’s statement resurfaced and drew a deluge of criticism. Major Chinese e-commerce companies have removed H&M products from their platforms, and Chinese celebrities have rescinded deals with the brand. And, encouraged by state media, a movement to boycott H&M – as well as other Western brands that reject Xinjiang cotton, including Nike NKE,
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New Balance and Burberry BRBY,
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– takes steam.

H&M, Nike and other clothing brands boycotted in China over Xinjiang sanctions

China appears confident in the success of its bullying tactics. After all, Western multinationals don’t want to be kicked out of China, a major growth market. And, indeed, H&M has already issued a new statement stressing its “long-term commitment” to China and expressing its commitment to “regaining the trust” of its “customers, colleagues and business partners” there.

However, China can overplay its hand. Just as Western multinationals want to sell their products to Chinese consumers, Chinese companies need these companies to continue sourcing from them. They are interdependent relationships.

At the end of the line

Moreover, if the size of the Chinese market may be attractive enough to draw concessions from multinationals, it is not worth jeopardizing their reputation in the West, which still accounts for the vast majority of their income.

For example, the two main markets for H&M are the United States and Germany; China is its third largest market, but only accounted for around 5% of its total turnover in 2020.

In other words, H&M can afford to lose access to the Chinese market. But its 621 Chinese suppliers may not be able to afford to lose H&M as a buyer. More broadly, an exodus of Western multinationals from China would inevitably force the supply chains that serve them to shift as well, leading to the closure of Chinese factories and the loss of millions of jobs.

There is still time for the Chinese government to back down. This means, for a start, allowing independent experts to investigate the cotton farms in Xinjiang. If China is really not using forced labor, it is the best way to prove it and improve relations with Western companies and governments.

But such a sensible response seems unlikely, not least because Chinese leaders remain convinced that its market is simply too big to be abandoned. They should remember that not long ago they were absolutely certain that the United States could not afford economic decoupling from China. They were wrong then, and maybe they are wrong now. The difference is that this time China also cannot afford decoupling.

This commentary was courtesy of Project Syndicate — China’s Economic Self-Harm

Minxin Pei is Professor of Government at Claremont McKenna College and Non-Resident Senior Fellow at the German Marshall Fund in the United States.


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