China's economy dented as American brands cancel Xinjiang's cotton imports

The US sanctions were prompted by the Chinese government's harsh re-education campaign against Uyghurs, a Turkic ethnic minority. Some Uyghurs detained in internment camps in Xinjiang in recent years have said they were tortured and forced to work in textile factories as a condition of release.

Washington: The US ban on China's Xinjiang cotton yarn makers over the inhuman treatment meted out to Uyghurs is now impacting the economic growth of its cotton companies.

Last month, Chinese cotton yarn maker Huafu Fashion sent a warning to investors. "Multiple American brands have cancelled orders," Huafu said in a Shenzhen stock exchange filing, citing US sanctions. "It's brought negative effects to the company," reported The Washington Post.

Huafu -- which said it lost at least USD 54.3 million last year vs. a net profit of USD 62.5 million in 2019 -- is one of the few suppliers to publicly acknowledge the sanctions' effects, reported The Washington Post.

Thousands of companies worldwide are affected after the United States blacklisted 87 per cent of China's cotton crop -- one-fifth of the world's supply -- citing human rights violations against Muslim Uyghurs in China's northwest Xinjiang region.

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The United States began isolated sanctions last year on Xinjiang textile makers, including Huafu, which didn't respond to a request for comment. On January 13, CBP announced a blanket ban on all Xinjiang cotton.

"Companies can no longer claim ignorance as an excuse," CBP said in a statement to The Post. "CBP's message to the trade community is clear: Know your supply chains."

Cotton picked in Xinjiang winds up in garments cut and sewn across Asia, from Bangladesh to Vietnam, textile industry executives say. The US ban applies to products "made in whole or in part" with Xinjiang cotton, "regardless of where the downstream products are produced," said US Customs and Border Protection (CBP).

Justin Huang, president of the Taiwan Textile Federation, said Taiwanese textile manufacturers received notices in September from Western brands to confirm their cotton sources. He said brands no longer wanted Chinese cotton, since it was difficult to confirm from which region of China it originated, reported The Washington Post.

"US manufacturers are very sensitive," he said, "so before the announcement, US traders had already begun to shift their production lines."

Patagonia announced in July it was "actively exiting the Xinjiang region," and said it told suppliers that Xinjiang fibre and manufacturing was prohibited.

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Gap, which encompasses the Old Navy and Banana Republic brands, said it has prohibited suppliers from sourcing products, components or materials from Xinjiang, directly or indirectly.

Ikea said it "stopped all shipments" to the United States containing Xinjiang cotton after the CBP ban. Ikea and H&M both said their suppliers have stopped new cotton purchases from Xinjiang because of the Better Cotton Initiative's decision last year to discontinue licensing cotton from the region.

Nike said it has confirmed its suppliers were not using textiles or spun yarn from Xinjiang and that it was communicating the new requirements to them.

One of the rare reports of a factory shift directly attributed to the sanctions came in October from the Vietnam Investment Review, a periodical run under Vietnam's Ministry of Planning and Investment.

It said that Hong Kong-headquartered yarn giant Texhong, which has a Xinjiang subsidiary, was shifting some production to Vietnam because of the US sanctions, reported The Washington Post.

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Moreover, there is growing interest in chemical-tracing technologies to determine the cotton origin, though they are not yet in widespread use. Tracing company Oritain is working with a "large number of brands" on gauging their supply chain risk from Xinjiang cotton, chief executive Grant Cochrane said.

Hibbie Barrier, a cotton broker at Avondale Futures in Nashville, said the ban may have contributed to rising demand for US cotton in recent months, and a bump in global cotton prices, from 81 cents a pound in mid-January to over 90 cents a pound last week.

ANI