Electronic Supply Chain industry research from the Z2Data Team

Implications of Labor Camps in Xinjiang, China

Background on the potential labor and human rights violations in Xinjiang, China and additional example of a currently banned entity.
by
Chase Correll
Published
August 10, 2021

The U.S. Department of State, along with other agencies involved in U.S. national security and trade policy, updated the Xinjiang Business Advisory (XBA) on July 13th. The advisory served as a warning for multinational companies that conduct business (directly or indirectly) with the People's Republic of China (PRC).

In the advisory, the U.S. acknowledged that human rights violations are occurring in the Xinjiang region of China and potential sanctions will be given to companies that do not sever connections with the ongoing human rights violations.

Background on Alleged Labor Camps

The alleged forced labor programs are traced back to the PRC's state-backed plan to eradicate poverty across China. The plan primarily targeted members of Muslim minority groups and, according to the XBA, "used discriminatory social control, pervasive surveillance, and a large-scale internment program." The internment programs have shown evidence of forced labor, which the U.S. says is hidden under the guise of "vocational training."

Abusive practices such as threats, force, detention, debt bondage, and more are used at the internment camps, large industrial parks, and even at PRC companies outside of the Xinjiang region.

Warnings Issued

Companies with any ties to Xinjiang were warned by the advisory that the U.S. will continue to crack down on companies connected to the human rights abuses against Uyghurs, ethnic Kazakhs, ethnic Kyrgyz, and other members of Muslim minority groups throughout China.

The advisory warns businesses and individuals to immediately sever any connections to the Xinjiang region, stating: "...businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law."

Industries Connected to Xinjiang

The U.S. government has identified multiple industries with connections to the forced labor camps in Xinjiang. The list of industries includes:

What Are Banned Entities?

A banned entity has been banned by either the Office of Foreign Assets Control (OFAC), the Bureau of Industry and Security (BIS), or has been issued a Withhold Release Order (WRO).

Banned Entities include companies that operate in the Xinjiang region and companies that have been accused of working with the region whether through forced labor transfer, technology, or other connections.

More to Follow

Companies could become subject to enforcement actions and restrictions if they are conducting business with entities that are banned by the Office of Foreign Assets Control (OFAC), the Bureau of Industry and Security (BIS), or have been issued a Withhold Release Order (WRO).

These enforcement actions and restrictions could include:

  • Import detentions
  • Imposed sanctions
  • Prosecutions under the Trafficking Victims Protection Act (TVPA)
  • Note: the TVPA could be invoked because of suspected trafficking of workers from Xinjiang internment camps to Chinese company campuses.

Example of a Banned Entity's Impact on Supply Chains

According to Reuters, one example of a banned entity is the Hoshine Silicon Industry Co (HSIC), which operates within the Xinjiang region and specializes in the production of metallurgical-grade silicon: a material that is critical to solar panel production.

The key to the bans placed on HSIC is that the company's supply chain is far-reaching. A couple of tier-1 customers of HSIC have also received bans. These companies are the following:

  • Daqo New Energy
  • GCL-Poly

Additional companies that are tier-1 customers of HSIC and have not yet received any import/export bans are:

  • Xinte Energy Co.
  • East Hope Group
  • Tongwei Solar Co.
  • Asia Silicon Company
  • Dongyue Group Ltd.
  • Emerson Electric Co.
  • OCI Company Ltd
  • Wacker Chemie AG

And the list doesn't end there. Companies like OCI Company Ltd. serve tier-2 customers like AU Optronics Corp—which supplies tier-3 customers that are some of the biggest consumer tech corporations in the world.

As you can see, there is an extensive rabbit hole to navigate when a large company like HSIC is named in U.S. import bans.

An example of an entity not located within the Xinjiang region but banned due to forced labor trafficking is O-Film Technology Co. Ltd. In 2017, from late April to early May, an estimated 700 Uyghurs were reportedly transferred from Xinjiang to O-Film's factory in Nanchang.

A look at O-Film's supply chain highlights the far-reaching effects of the company being banned by the U.S.

Source: ASPI ICPC

Challenges and What's Next:

As of now, the U.S. is ramping up its crackdown on Xinjiang human rights violations. New companies are sure to be added to ban lists from OFAC and BIS, while WROs are to be updated as well. The challenge for companies is staying up to date and conducting consistent due diligence of supply chains for newly banned corporations.

This leads to a second challenge—understanding the complex supply chains of newly banned entities. The entities being added to U.S. import/export bans are not small, tier-4 suppliers. They are global manufacturers with extensive tiers of customers.

A third challenge is perhaps the most difficult to navigate: information availability. Chinese authorities have designated their forced labor practices with more amicable terms like "vocational training" and "worker re-education." Maneuvering around information concealed by Chinese authorities will only lengthen the process of assessing banned entities and their respective supply chains.

Additional Resources:

https://www.mondaq.com/unitedstates/export-controls-trade-investment-sanctions/1095310/trade-compliance-flash-us-agencies-issue-warnings-chinese-government-actions-in-xinjiang-and-hong-kong-create-risks-for-global-businesses

https://www.state.gov/wp-content/uploads/2021/07/Xinjiang-Business-Advisory-13July2021.pdf

https://www.cnbc.com/2021/07/13/us-warns-businesses-with-investment-ties-to-chinas-xinjiang.html

https://www.reuters.com/world/us/us-state-department-warns-business-risk-linked-chinas-xinjiang-2021-07-13/

https://respect.international/wp-content/uploads/2020/06/Uyghurs-for-sale-‘Re-education’-forced-labour-and-surveillance-beyond-Xinjiang-.pdf

https://www.mondaq.com/unitedstates/export-controls-trade-investment-sanctions/1095310/trade-compliance-flash-us-agencies-issue-warnings-chinese-government-actions-in-xinjiang-and-hong-kong-create-risks-for-global-businesses

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