Guest blog: China and the Xinjiang Region – German Fashion Corporations and their Controversial Cotton Business

This Opinion piece is not from FFI but is a guest blog by Lukas Daniel of Facing Finance, a member of Fair Finance Germany.

Photo credit: Baumwolle (2021) | Bild: Sze Yin Chan - unsplash

The Xinjiang Police Files recently released by international media confirm long-standing accusations against the Chinese government of oppressing the Uyghur Muslim minority in the Xinjiang region.[1] The extensive collection of speeches, images, documents and tables leaked to the anthropologist Adrian Diez provide an insight into the nature and extent of the internment of the Uyghurs and other ethnic minorities in China’s north-western region of Xinjiang.[2]

Previously, the German research team STRG_F, in cooperation with Agroisolab Jülich and Hochschule Niederrhein, had investigated the origin of cotton from textile products and determined by means of an isotope analysis that cotton from the Chinese province of Xinjiang can be detected in the clothing of German brands such as Adidas, Hugo Boss and Puma. This investigation contradicts earlier pledges made by the companies in 2020 that they would no longer use cotton from the Xinjiang region in their textiles.[3]

According to an anonymous auditor interviewed by STRG_F who has investigated Chinese suppliers, it is virtually impossible for Western companies to thoroughly investigate their supply chains in the region because their access is restricted by the Chinese government. For Facing Finance it is clear that this should not be used as an excuse to continue sourcing cotton from the Xinjiang region. If supply chains cannot be clearly identified as free of forced labour, the businesses in question should be refrained from.

The allegations have been known for a long time. The report coincides with Amnesty International’s claims that the Chinese government systematically oppresses the Muslim Uyghur minority in the country’s north western province, forcing them to harvest cotton and sew clothes that is also sold on the European market. On this basis, and in cooperation with other organisations, the European Center for Constitutional and Human Rights filed lawsuits in various countries in 2021 against companies in whose supply chains the cotton from Xinjiang appears.[4] As early as 2020, Facing Finance also reported on forced labour allegations in the region, which is populated primarily by the Muslim Uyghur minority, based on publications by the human rights group Coalition to End Forced Labour in the Uyghur Region and the Australian Strategic Policy Institute.[5]

Who are the banks behind the fashion groups?

The research magazine STRG_F, which belongs to the radio network of ARD and ZDF, identified cotton from Xinjiang in clothing items by Germany-based companies Adidas, Hugo Boss and Puma. Despite the purchase and processing of controversial cotton for textile products, these companies are supported by a wide variety of financial institutions on the German financial services market. Some of the banks and life insurance companies assessed by the Fair Finance Guide finance or invest in the companies whose supply chains are linked to forced labour in the Xinjiang region.[6]

Deutsche Bank, together with its asset manager DWS, has has invested more than one billion euros in shares of the above-mentioned companies. This includes over 766 million euros in Adidas. Deutsche Bank has invested more than 181 million euros in Puma and just under 58 million euros in Hugo Boss.

DZ Bank and its investment company Union Investment hold with 845 million euros the second-largest stake in the companies. Adidas alone accounts for more than 705 million euros. DZ Bank has invested more than 135 million euros in Puma and just under 5 million euros in Hugo Boss.

Allianz also has a stake in these companies in the form of shares. Of the more than 764 million euros invested, Adidas accounts for more than 99 percent. The Deka Group is also invested in the fashion companies with shares and bonds totaling 437 million euros. Of the investments, more than 338 million euros are in shares and bonds of Adidas. The remaining investments in the German fashion companies are divided into Puma with more than 85 million euros and Hugo Boss with more than 13 million euros.

AXA, HypoVereinsbank (UniCredit), LBBW, Triodos Bank, Commerzbank, Alte Leipziger and BayernLB also have stakes in the companies mentioned above, but with significantly smaller amounts in the double-digit million euro range.

However, financial institutions not only invested heavily in the companies, but also provided them with capital to finance their business models, some of which were based on forced labour. In November 2020, Deutsche Bank, together with DZ Bank, Commerzbank, UniCredit (HypoVereinsbank) and other banks, granted a loan of 1.5 billion euros to Adidas. In addition, Deutsche Bank and UniCredit participated in a second loan to Adidas in April of the same year, this time in the amount of 3 billion euros. In 2020, Deutsche Bank, Commerzbank and UniCredit were also among the banks that helped Adidas place bonds worth 1.5 billion euros on the market.

In November 2021, Deutsche Bank, DZ Bank and Commerzbank participated in a loan to Hugo Boss in the amount of 600 million euros. The first two banks also participated in a loan of a similar value (namely 633 million euros) in August 2020.

Deutsche Bank, DZ Bank, UniCredit (HypoVereinsbank), ING Bank, Commerzbank, and also BayernLB were among the banks that granted loans totalling 1.7 billion euros to the Puma fashion group in 2020.

Among the financial institutions assessed in the Fair Finance Guide, Allianz, Commerzbank, Deutsche Bank, Deka Group, DZ Bank and UniCredit (HypoVereinsbank) therefore have the greatest potential to influence the three companies. As investors, financiers and profiteers, financial institutions have a responsibility to advocate for better human rights due diligence in corporate supply chains. If the textile companies do not eliminate the use of cotton in their fabrics in cases where the region of origin cannot be clearly identified, financial institutions must cease their financial relationships with Adidas, Hugo Boss and Puma.

The failed fairytale of change through trade

As the human rights violations in the Xinjiang region originate primarily from the Chinese state, there is the need for political and economic responses by Western governments, especially at the institutional level.

Leading the way is the US, which, after previously banning imports of cotton and other products from the Xinjiang region, enacted the Uyghur Forced Labour Prevention Act, to sanction Chinese coercive measures against the Uyghur minority in western China.[7] The European Union committed in February 2022 to introduce an legislative instrument to prevent the import of forced labour products into the EU.[8] A proposal in this regard is expected after the summer. The Coalition to End Forced Labour in the Uyghur Region, a coalition of several human rights organisations advocating on behalf of Uyghurs in Xinjiang, calls for the EU instrument to be designed to effectively address the exploitation of Uyghur forced labour by EU companies and urges other governments to adopt similar regulations.[9]

Facing Finance shares the demands of the Coalition to End Forced Labour in the Uyghur Region. For Germany, it remains to be seen how effective the Supply Chain Act will be, which will oblige larger companies to audit their supply chains from 2023.

On June 9, 2022, the European Parliament also adopted a resolution calling for a ban on imports of products made using forced labour.[10] The import bans also apply to products from a specific region if it is state-sponsored forced labour, such as in Xinjiang. The criteria for determining which goods are considered to be products of forced labour should, according to the will of the European parliamentarians, be measured against indicators of the International Labor Organization (ILO), which include abuse of defencelessness, restriction of freedom of movement, withholding of identity documents, and debt bondage.

In this context, the decision of the German Federal Ministry of Economics and Climate Protection (Bundesministerium für Wirtschaft und Klimaschutz) gives cause for cautious optimism. In an interview with the German newspaper Welt am Sonntag, Federal Minister Habeck mentioned that a certain company was being denied the extension of investment guarantees for various projects in China because Germany, as a liberal democracy, would be in systemic conflict with China, as an authoritarian state. According to research by the news magazine Der Spiegel, the company in question is Volkswagen, whose involvement in China, including in the Xinjiang region, has long been the subject of criticism.[11]

Nevertheless, as a member of Initiative Lieferkettengesetz, Facing Finance appeals for an extension and tightening of the Supply Chain Law, especially in the area of the financial sector, at national and European level. Companies, including banks, must finally live up to their social responsibility on an international level. They must not simply accept such inhumane practices and violations of core human rights.

Author: Lukas Daniel

[1] https://www.spiegel.de/thema/xinjiangpolicefiles/

https://www.br.de/radio/br24/sendungen/der-funkstreifzug/china-uiguren-xinjiang-100.html

[2] https://www.xinjiangpolicefiles.org/

[3] https://www.theguardian.com/global-development/2020/jul/23/virtually-entire-fashion-industry-complicit-in-uighur-forced-labour-say-rights-groups-china

[4] https://www.ecchr.eu/en/press-release/forced-labor-uyghurs-german-textile-brands/

[5] https://www.facing-finance.org/de/2020/07/internationale-lieferketten-verdacht-auf-zehntausende-uigurinnen-in-zwangsarbeit/

https://enduyghurforcedlabour.org/news/402-2/

https://www.aspi.org.au/report/uyghurs-sale

[6] All data retrieved from Refinitiv Eikon in June 2022

[7] https://www.dw.com/de/usa-erh%C3%B6hen-druck-auf-firmen-mit-xinjiang-verbindungen/a-60248053

[8] https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1187

[9] https://enduyghurforcedlabour.org/news/coalition-calls-for-government-action-to-end-corporate-complicity-in-forced-labour-in-uyghur-region-of-china/

[10] https://corporatejustice.org/news/european-parliament-asks-to-ban-forced-labour-products/

[11] https://www.zeit.de/politik/ausland/2022-05/lieferkettengesetz-abhaengigkeiten-handelsbeziehungen-china-habeck-vw