China said it will investigate US apparel maker PVH Corp. for suspected boycotting of cotton sourced from its Xinjiang region, a probe that could lead to punishment for the parent company of Tommy Hilfiger and Calvin Klein.
The Ministry of Commerce asked PVH to submit a written response in 30 days on whether it has adopted “discriminative measures” against Xinjiang-related products in the last three years, according to a statement posted on the ministry’s website on Tuesday.
If found at fault, PVH could be added to an “unreliable entity list” that prevents offending foreign companies from trading with China, subjects them to fines or revokes their staff’s work permit, according to a 2020 order.
In a separate statement, the ministry said the company is suspected of “boycotting Xinjiang cotton and other products for no reason,” accusing it of damaging Chinese companies’ rights and interests as well as China’s sovereignty, security and development interests.
PVH said in an email that it is in contact with China’s Ministry of Commerce and “will respond in accordance with the relevant regulations.” The company said it strictly complies with laws in all countries where it operates and declined to comment further. A 2022 supply chain report from PVH said that it didn’t source from Xinjiang either directly or indirectly.
Tommy Hilfiger and Calvin Klein both have a presence in China, and PVH still sees the country as “an important growth engine,” executives said on a recent earnings call.
But its sales growth has suffered “a trajectory change” in China, falling to the high-single digits in the May quarter after a more than 20% rise during the fiscal year ending just a few months before, as weakening consumer sentiment persisted. In the most recent quarter, sales turned to a 1% decline.
Tommy Hilfiger’s official store on e-commerce platform Tmall posted annual sales of about 310 million yuan ($44 million) for the 12 months ended August — dropping 12 percent on-year — according to data provider Hangzhou Zhiyi Tech. Calvin Klein posted annual sales of 578 million yuan on its Tmall store for same period, up 12 percent from the year earlier, according to the data. Tmall is owned by Alibaba Group Holding Ltd.
Under Pressure
US and European companies have been under pressure to pull away from factories that make clothes and other products in China’s Xinjiang region, where labor groups have documented alleged forced labor camps and other poor working conditions. China disputes these claims.
The US enacted the Uyghur Forced Labor Prevention Act in 2021, which bars imported goods partly or wholly made in Xinjiang unless companies can prove the products have no ties to forced labor. In August, the US expanded the list of Xinjiang-linked entities to 73 as worries over forced labor in China hang over the apparel industry.
China has so far publicly sanctioned five American companies using the entity list including Lockheed Martin and Raytheon Technologies over their arms sales to Taiwan, but such moves are largely symbolic as these firms don’t do business in the country.
PVH, on the other hand, owns brands that have a large retail presence in the world’s second-largest economy.
“This investigation may target the textile sector but now this door has been opened, companies in every sector are looking at this case and doing risk assessments of their own,” said Sean Stein, chair of the American Chamber of Commerce in China and the co-chair of Covington and Burling’s China public policy practice.
By Bloomberg News
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Banned Chinese Cotton Found in 19% of Products, Study Shows
Traces of cotton from Xinjiang were found in nearly a fifth of samples from American and global retailers, highlighting the challenges of complying with a US law aimed at blocking imports that could be linked to forced labour in China.
