Impact of H&M's Xinjiang statement on fiber industry

First of all, as a global third-party information consultancy organization, CCFGroup firmly supports sustainable development.

In fact, whether it is an official or a non-government organization, China has made the fastest progress in sustainability worldwide in recent years. General Secretary Xi Jinping put forward the goal of "carbon emission peaking and carbon neutrality" at the 2020 UN General Assembly. This goal is not only to catch up, but can even become one of the world's leading sustainable goals. Of course, China's current sustainability efforts are definitely not limited to carbon emissions. With regard to the 17 sustainable development goals announced by the United Nations, China has made amazing progress in recent years.

H&M recently published an announcement on its official website that due to "reports from civil society organizations and media that include accusations of forced labor and discrimination of ethnoreligious minorities in Xinjiang," the company does not work with any garment manufacturing factories from Xinjiang and does not source products from there.

The statement was strongly refuted by the Chinese Communist Youth League immediately after it was published. Following the spread of social media, the national sentiment in China was quickly ignited. Non-governmental organizations immediately organized activities to boycott H&M. Major e-commerce sites have pulled products related to retailer H&M and a search for "H&M" even returns zero results through China's navigation software.

A search for "H&M" returns zero results on China's e-commerce site

Subsequently, many Chinese clothing brands announced their withdrawal from the BCI system, and some mainstream media began to announce other brands that were boycotting Xinjiang cotton.

H&M issued a clarifying statement later, stating that the company's supply chain management is in compliance with the "OECD Guidelines for Responsible Business Conduct" and does not represent any political position. This statement is obviously a bad public relations treatment, which can neither prove the brand's responsible business practices nor prove that its previous statement is apolitical.

In the statement it said that: "H&M Group has always managed our global supply chain in an open and transparent manner, ensuring that our suppliers worldwide comply with our sustainability commitments such as the OECD Guidelines for Responsible Business Conduct and do not represent any political position. H&M Group purchases more sustainable cotton through a globally certified third party. The purpose is to support cotton farmers around the world to adopt more sustainable methods to grow cotton. H&M does not source cotton directly from any supplier. H&M Group respects Chinese consumers and we are committed to long-term investment and development in China. Now we have cooperation deals with more than 350 manufacturers in China to provide Chinese and global consumers with apparel products that comply with the principle of sustainable development."

The reason is so obvious that Xinjiang's industrial chain has been operating stably for many years, and if problems really existed before, why H&M had not managed its own supply chain until 2020? However, after the European and US governments announced sanctions on China's Xinjiang, H&M hastily issued a statement with huge divergence without responsible investigation. And from the perspective of sustainability, such unfounded discriminatory procurement policies pose a huge threat to sustainable goals such as poverty eradication, sustainable agriculture, and full employment.

We can understand that some brand owners are forced to make statements out of their own commercial interests, or may be oppressed by the country's policies, coerced by public opinion, and even induced by some NGOs. But in any case, those statements cannot be regarded as sustainable efforts, unless those brands themselves can obtain the proof that Xinjiang cotton has sufficient and credible "forced labor" and "ethnic discrimination" policies. In fact, considering the current commercial landscape of brand owners in China, it is not difficult to seek to prove the above matters.

Returning to the industry, we firstly pay attention to the impact of the incident on the fiber industry. Disregarding political stance and national sentiment, the strengthening of sanctions on Xinjiang cotton by Europe and US has indeed brought uncertain risks to brand owners in the region. As a commercial organization, it is a highly probable choice to actively avoid these risks. It is foreseeable that for a considerable period of time in the future, Xinjiang cotton will still be rejected by European and US clothing brands.

For Xinjiang cotton, the current annual output is just above 5 million tons, accounting for slightly more than 20% of the global production, and China's population is also about 20% of the world's total. At present, China's per capita fiber consumption is above the global average. Regarding some emerging economies and some non-European and US international brands, the consumption of Xinjiang cotton will still be maintained. Macroscopically, Xinjiang cotton can be digested through those ways. It is just when some European and US markets are lost and during the expansion of domestic and emerging markets, the bargaining position of Xinjiang cotton may be weaker.

For European and US brands, considering that China takes up a large proportion in the long industrial chain from cotton to apparel, if Xinjiang cotton cannot be used as raw material, some traditional textile companies cannot guarantee to fully obtain cotton from other sources. At the same time, other sources of cotton may not ensure enough intermediate processing capability, then the global fiber-apparel industry chain may be discordant for a long time.

It is apparently a good opportunity to non-cotton fibers. China's non-cotton fibers have developed well in recent years with continuously improved quality. Some functional and differential non-cotton fibers keep emerging on the market. At the same time, China's textile industry also needs to maintain production and operation. Some traditional cotton textile enterprises that process Xinjiang cotton may have the following responses with reducing export orders.

1. Increase the procurement of imported cotton and continue to provide products to traditional customers by meeting BCI requirements.
2. Develop new cotton customers to replace the companies that flew to Europe and US before, and continue to use Xinjiang cotton as raw material.
3. Develop new products and use more non-cotton fibers as raw materials, which can maintain the previous supply chain system and obtain sufficient fiber supply.

There will be some resistance in the three ways, but the third change will undoubtedly increase the market space for non-cotton fibers. After the COVID-19 outbreak in 2020, the growth of non-cotton fibers has slowed down in some stages. If new demand increases, the supply and demand relationship of non-cotton fibers is likely to improve further. We estimate that the proportion of non-cotton fibers in China's textile market will further increase in the future.