Do you believe in Bigfoot?
For investors, China is a bit like Bigfoot.
It’s mysterious, seems ominous and pinpointing where it is at any given time is exceptionally difficult. However, if you can ever find it, you’ll probably make a lot of money.
Unlike Bigfoot, we know China exists, however. We’re just not sure that we want to run into it and it seems like a bad idea to make it angry.
Yet, making it angry is exactly what a lot of western countries and businesses are doing right now when it comes to the issue of Xinjiang cotton.
If you’re unaware, Xinjiang is a region of China that produces a lot of cotton. It is primarily made up of an ethnic minority, the Turkic Uyghur. China is accused of essentially treating the Turkic Uyghur like slaves to harvest the cotton and, as a result, they can produce cheaper clothing.
As this relates to business and investing, a group called the Better Cotton Initiative – which includes industry giants like H&M, Nike and Adidas — is calling on the Chinese government to improve working conditions for the Turkic Uyghur and has suspended doing business there until they are satisfied that there is no “forced labour” happening in the region.
China has reacted to this in exactly the way you’d expect a left-wing totalitarian government to react. Badly and with force. Human rights groups are suggesting that Turkic Uyghur are probably worse off than before H&M started moralising and now China is using its massive propaganda capabilities to try and attack the companies behind the Better Cotton Initiative.
They’ve gone so far as to blur out western logos on clothing that appears on Chinese television and to pay Chinese influencers to promote domestic alternatives to Air Jordans as being just as cool. China also, with some degree of truth, points out that the western business world is hardly without its own labour concerns.
We effectively have dueling boycotts. The question is, does any of it matter from an investing standpoint.
Before we go any further, let’s be clear. Slave labour is bad. I’m unequivocally against slavery. I just don’t know how much difference my, or your, consumer choices make.
The mere fact that the Chinese government is blurring out western logos on TV tells you that there are a lot of Chinese people wearing western logos. The cool factor for those brands isn’t going to go away no matter how much the government tries to make it so. So, the Chinese efforts to hurt the brands aren’t really working.
As for the Better Cotton Initiatives’ efforts to reduce investment in China, it’s unclear what they can accomplish with that either. If one were to take a look at the biggest Chinese stocks on the NYSE today would we see a hit to their price as a result of the action?
Alibaba Group Holding Ltd (BABA), which has operations in the retail space, closed at 230.57 USD yesterday. Although it’s down from the all-time high ($317.14) it hit on Oct 27, 2020, it’s unclear whether that’s from the boycott or if it’s just a normal market correction. Since it was at $198 a year ago, I lean towards the latter.
I suspect the Better Cotton Initiative understands that their action isn’t going to do much when it comes to actually making the lives of the Turkic Uyghur people any better. Their motivations are likely more marketing and competition driven than humanitarian.
So when it comes to making your own ethical determinations about whether to invest in China, I wouldn’t be taking my lead from a bunch of western companies with their own labour issues.
As always, trade with caution and make your own choices.