This is the web version of Eastworld, Fortune’s newsletter focused on business and technology in Asia. Subscribe here to get future editions in your inbox.
Hong Kong’s South China Morning Postreported Monday that Chinese efforts to mobilize a nationwide boycott against Nike and Adidas already seem to be “losing steam.”
The two Western sports apparel giants were among the slew of global brands targeted for condemnation—on China’s social media, in state-owned press, and by dozens of Chinese celebrities—last week after the Communist Party’s youth wing blasted Swedish retailer Hennes & Mauritz for stating last year that it would no longer purchase cotton from China’s northwestern province of Xinjiang because of concerns about forced labor.
The Communist Youth League’s post, published Wednesday, triggered a tsunami of nationalist outrage—and quickly engulfed other international fashion brands that have made similar statements. Among the victims: Burberry; Calvin Klein; Spain’s Inditex, owner of Zara; Swedish home furnishings giant IKEA; and Japan’s Fast Retailing, the parent company of Uniqlo.
State broadcaster China Central Television stoked consumer ire: “For enterprises that touch the bottom line of our country, the response is clear: don’t buy!”
H&M products promptly disappeared from China’s major e-commerce platforms including Alibaba and JD.com. The locations of H&M’s more than 500 retail outlets in China were erased from map services offered by Alibaba and Baidu, China’s leading search engine. Landlords in at least six lower-tier cities forced H&M to close their stores.
And yet in the major cities, H&M stores remain open. And by Sunday, the Post reports, Nike and Adidas products were widely available on all major Chinese e-commerce platforms. Meanwhile, China’s premier, Li Keqiang proceeded as scheduled with a visit to the plant of a German-Chinese joint venture that makes chemicals used by both brands.
Nike, like H&M, has said it doesn’t source cotton from Xinjiang. Michael Schuman argues in Bloomberg that the U.S. sportswear maker is getting lighter treatment than H&M because its products are so popular—accounting for more than a fifth of the Chinese sportswear market. He suggests the controversy over Xinjiang cotton will eventually blow over.
“The reality on the ground,” Schuman writes, “is that Beijing can’t afford to toss so many foreign companies out of China over Xinjiang cotton or anything else. The leadership still likes to appear open to foreign investment, and the employment, capital and technology it brings, and can’t risk scaring off the international business community at a time when global attitudes towards China are already souring.”
There’s some precedent for that view. In 2016, China tried to strong-arm South Korea into rescinding a decision to deploy a U.S. missile defense system China considered a security threat by punishing Korean businesses. Beijing orchestrated a boycott of autos, electronics, tourism—and even scuttled tours of popular K-Pop bands. China eventually abandoned the campaign, though a primary corporate target, the Lotte Group, was forced to retreat from the China market.
Similarly, Japanese auto and electronics manufacturers were swept up in Chinese consumer boycotts—and a wave of violent anti-Japanese protests—in 2012 after a series of confrontations between the two nations involving disputed islands in the East China Sea. Eventually tensions eased, and Japan’s largest manufacturers, including Toyota, Nissan, and Sony[/hotline], continue to operate large and successful joint ventures in China. (Notably, Japan is the only member of the Group of Seven nations not to call for sanctions against China over human rights violations in Xinjiang.)
And then there’s the case of the National Basketball Association, which provoked nationwide indignation in 2019 after the Houston Rockets then-general manager Daryl Morey tweeted—then deleted—a picture expressing support for Hong Kong democracy protestors. NBA games were yanked from Chinese television, and NBA merchandise disappeared from Chinese stores, jeopardizing the league’s $4 billion business in the country. A year later, CCTV announced that it had resumed streaming NBA games.
As Schuman argues: “The NBA is simply too popular, and too lucrative, to obliterate over a tweet.”
But a similar argument could be made for the West’s economic dependence on China. Editors at the Economist contend the notion of the West fully disengaging with China is a fantasy because it would impose steep price increases on Western consumers and depress crucial U.S. and European industries including tech, autos, banking, and luxury goods. “Engagement with China is the only sensible course,” editors conclude, “but how does it avoid becoming appeasement?”
Increasingly CEOs and investors, not just politicians, must grapple with that question. In an opinion piece for the Wall Street Journal, Matthew Pottinger, former deputy national security adviser in the Trump administration, concurs that “wholesale decoupling” of the U.S. and China is impossible. Instead, he advocates a “selective decoupling” focused on the technology sector—and urges U.S. CEOs to get with the program.
“The Communist Party’s leaders are right about one thing,” Pottinger warns. “American CEOs, their boards and their investors have to decide which side they want to help win.”
More Eastworld news below.
Clay Chandler
– clay.chandler@fortune.com
This edition of Eastworld was curated and produced by Eamon Barrett. Reach him at eamon.barrett@fortune.com
EASTWORLD NEWS
Zoonotic
The World Health Organization has concluded that the COVID-19 virus most likely transferred from animals to human, based on the organization’s closely-watched—and surveilled—investigation in Wuhan in January. The report, which is due to be released Tuesday, says it is “extremely unlikely” that the novel coronavirus accidentally escaped the Wuhan virology lab. AP
Olympic
Having decided to ban foreign spectators from the Tokyo 2020 Olympics, due to commence this July, organizers are now in a standoff with ticket merchants over who should cover the administrative costs of refunding the hundreds of thousands of invalidated tickets. Those costs run into the millions of dollars. Already billions over budget, Tokyo is reluctant to take on more losses. In the end, consumers could bear the extra costs. WSJ
Floated
Salvage workers on the Suez Canal succeeded in completely refloating the Ever Given Monday, seven days after the gargantuan freight liner parked itself diagonally across the width of the waterway. While many vessels had already diverted course and sailed off around the Cape of Good Hope, over 400 remained in line along the Suez and have now begun moving through the thoroughfare. CNN
Polluted
More than half of the coal used to generate electricity last year was burned in China, according to a new report from London-based energy research group Ember. China was the only G20 nation to increase coal-generation last year, notching up consumption 2%. China’s increased reliance on coal comes despite President Xi Jinping pledging the country will be carbon neutral by 2060. The government appears keen to push plans to reduce emissions into the future. Fortune
Severed
The U.S. cut trade ties with Myanmar on Monday, nearly two months after the Burmese military launched a coup that has been met with resolute protests from a defiant public. The Tatmadaw—Myanmar’s military—has waged an increasingly bloody crackdown on civilians, leaving hundreds dead, including children as young as 5. The U.S. had signed a trade pact with the democratizing nation in 2013. Cancelling the agreement could make imports from Myanmar—such as garments—more expensive and threatens the legality of Internet companies, like Facebook, to operate in Myanmar. TechCrunch
Connected
Facebook will lay two undersea Internet cables connecting Indonesia to the U.S. for the first time, facilitating faster web traffic between the two countries—as well as elsewhere in Asia. Facebook is currently building a $1 billion data center in Singapore, which will benefit from the greater connectivity. Facebook’s previous undersea cable plan to connect the U.S. and Asia was blocked by the U.S. last year because the line proposed tying in Hong Kong, which the Trump Administration considered a security risk. Nikkei
MARKETS AND MOVERS
Bilibili — Chinese video streaming site Bilibili fizzled in its secondary listing in Hong Kong Monday. The Nasdaq-listed company raised $2.6 billion in its Hong Kong debut but shares closed 1% down at HK$800 per share. The share price remained flat on Tuesday.
Citigroup — Citi is seeking to hire an additional 1,700 staff in Hong Kong as the bank seeks to capitalize on the tremendous wealth of South China’s “Greater Bay Area.” The hiring spree is a vote of confidence for Hong Kong’s future as a financial hub—a role jeopardized by Beijing’s recent interference in the city’s legislature.
Bytedance — The Chinese parent of popular short video app TikTok gained a valuation of $250 billion in private trades, Bloomberg reports—making the company more valuable then Exxon or Coca-Cola.
Air Asia — Malaysia-based low cost carrier Air Asia posted $1.23 billion in losses last year, as air travel was grounded by the pandemic. The budget airline is currently raising funds to sustain skeletal operations as the company holds out for vaccination schemes to restart international travel.
Evergrande — Real estate developer Evergrande raised $2.1 billion through selling a stake in its online home and car sales platform. The platform is owned by an Evergrande subsidiary called FCB Group, which is reportedly planning for an IPO in the U.S. this year.
Didi — China’s ride hailing leader Didi is seeking to raise $500 million in funding for its autonomous driving unit to finance vehicle and chip production.
Sputnik — Russia’s sovereign wealth fund, RDIF, has signed an agreement with a Shenzhen-based company to produce over 60 million doses of the Sputnik V COVID vaccine in China.
FINAL FIGURE
The sudden liquidation of family office Archegos led to a massive $20 billion sell off of assets across Wall Street last week, as banks sought to minimize losses tied to the suddenly sunk hedge fund. While most of the American banks involved escaped early, Japan’s Nomura announced Monday that it faced “highly significant” losses due to its involvement with Archegos. Nomura’s share price tumbled 16% on Monday, when the Japanese bank estimated it could lose $2 billion in finance loans given to Archegos. On Tuesday, the bank's share price closed a further 1% below Monday's value.
