Why China is investigating US companies Calvin Klein and Tommy Hilfiger

The move marks the first investigation into the matter by China, who has now gone beyond simply denying allegations of human rights abuses, and acted against companies for not using Xinjiang’s cotton. The decision also comes amid the US and China increasingly targeting sectors of the other’s economy over trade, security and strategic concerns. Here’s what to know.

What is the investigation about?

In late September, the head of the Bureau of Safety and Control of China’s Ministry of Commerce said relevant agencies had reported PVH to the Unreliable Entity List (UEL) working mechanism.

China’s Commerce Ministry established the UEL four years ago, allowing it to respond to unfavourable actions taken by enterprises or individuals from a foreign country. Under its provisions, if a foreign entity endangers China’s “national sovereignty, security or development interests”, suspends normal transactions with a Chinese enterprise or individual, or applies “discriminatory measures” against them and causes “serious damage to their legitimate rights and interests”, they can come under the UEL list.

Being on the list allows the Chinese government to restrict or prohibit the foreign entity from engaging in China-related import or export activities, investing in China, entering China, restricting their work permit, or imposing a fine.

So far, a few American defence companies are on the list, although they were already barred from dealing with China by the US government.

What are China’s complaints against PVH?

The head of the Bureau of Safety and Control said PVH was “suspected of violating normal market transaction principles and boycotting Xinjiang cotton and other products for no reason without any factual basis, seriously damaging the legitimate rights and interests of relevant Chinese companies, endangering China’s sovereignty, security and development interests.”

PVH has banned the sourcing of raw materials from Xinjiang. It said in an earlier statement that the company follows the US government’s policy regarding Xinjiang.

Under the Biden administration, the US banned the import of cotton and tomatoes from Xinjiang in 2021 under the Uyghur Forced Labor Prevention Act, citing forced labour and human rights abuses. A report from The New York Times noted then, “The area is a major source of cotton, coal, chemicals, sugar, tomatoes and polysilicon, a component in solar panels, that are then fed into factories around China and the world.”

Western brands such as H&M, Adidas, Nike and others made statements condemning the possible usage of forced labour at the time and faced an immediate backlash on Chinese social media websites. Pro-government accounts further demanded boycotts and evoked nationalist sentiments, leading to temporary removals of the brands’ products from Chinese e-commerce sites.

What could have prompted the investigation now?

Why China has specifically acted against PVH, and why now, is unclear.

On being asked if China’s attitude towards foreign investment has changed, the head of the Bureau said, “The Chinese government will unswervingly promote high-level opening up to the outside world”, adding, “China has always dealt with the unreliable entity list issue prudently, targeting only a very small number of foreign entities that disrupt market rules and violate Chinese laws. Foreign entities that are honest and law-abiding have nothing to worry about.”

But foreign companies have been wary of the business climate in China for a few months now. In 2023, China’s amended security law was flagged by US authorities for making foreign entities’ business operations difficult, with vague grounds for companies being inspected over espionage suspicions.

Citing security concerns, the US also said in 2023 that it planned to “de-risk” its economy from China or reduce its dependence on it for specific materials like semiconductors, which are critical to manufacture almost all electronic devices.

The two global economic giants’ rivalry has given way to major disagreements in multiple areas. Under Xi Jinping as president, China has further taken assertive stances on issues such as the treatment of Uighurs, making global cooperation difficult. Even as the Chinese economy sees a period of slump, a doubling down against US companies is being witnessed.

Former US President Donald Trump also frequently criticised China over trade practices during his term, and later imposed tariffs on its products, which added to the lack of trust in their bilateral ties. Biden has largely continued the stance of being tough on China.

Critical resources and products have been restricted since, such as China curbing the exports of germanium and gallium, metals used in manufacturing critical semiconductors. This year, the US imposed tariffs on importing semiconductors from China.