Dear business colleagues,
I write to bring your attention to an important advisory from the U.S. government. On July 1, the Departments of State, Treasury, Commerce, and Homeland Security together published the “Xinjiang Supply Chain Business Advisory,” a clear statement of concern for the attention of U.S. companies, investors, and their business partners around the world. As Secretary of State Pompeo stated when he announced this advisory, U.S. businesses with potential supply chain and investment exposure to the Xinjiang Uyghur Autonomous Region (Xinjiang) or to facilities outside Xinjiang that use labor or goods from Xinjiang should consider the reputational, economic, and legal risks of involvement with entities that engage in human rights abuses, including forced labor in the manufacture of goods intended for domestic and international distribution.
The People’s Republic of China (PRC) government is perpetrating in Xinjiang some of the most serious acts involving mass human rights abuses since the Second World War. Since at least April 2017, the PRC government has detained for long periods over one million Uyghurs, ethnic Kazakhs, ethnic Kyrgyz, and members of other Muslim minority groups in internment camps. The aim of the internment has been to force members of these minority groups to renounce their ethnic identity and religion, and to embrace the ideology of the Chinese Communist Party. There are many other egregious human rights abuses also reported to be occurring in Xinjiang, including torture, forced sterilization, and sexual abuse.
It is critical that U.S. companies and individuals be aware of the large-scale human rights abuses perpetrated by the PRC government in Xinjiang. Businesses should evaluate their exposure to the risks that result from partnering with, investing in, and otherwise providing support to companies that operate in or are linked to Xinjiang. Four primary types of exposure involve (1) assistance in the development of surveillance tools for the PRC government in Xinjiang, (2) reliance on labor or goods sourced in Xinjiang, or from companies located elsewhere in China that may be implicated in forced labor in their supply chains, and (3) aid in the construction of internment facilities used for the detention of Uyghurs and members of other minority groups, and/or in the construction of manufacturing facilities near forced labor camps, (4) provide financing, directly or indirectly, to any entities that enable the above. U.S. businesses with supply chains linked to the behaviors outlined above may be vulnerable to applicable U.S. enforcement actions or other legal actions.
Now, let me write to you as a former businessman. In Silicon Valley, we say, “Corporate responsibility is social responsibility.” Today, this means refusing to participate in human rights violations and deals that, in the words of Secretary of State Mike Pompeo, “tighten a regime’s grip of repression.” This is particularly true when it comes to doing business with the People’s Republic of China (PRC) given the rapid and insidious expansion of its authoritarian surveillance state and egregious human rights abuses.
Citizens around the world are waking up to the truth about the Chinese Communist Party’s (CCP) three-prong strategy of concealment, co-option, and coercion. They now understand that the pandemic is a result of the concealment of the virus, the crackdown in Hong Kong is a co-option of a free and autonomous region, and access to the Chinese market is a form of seduction and coercion for U.S. companies that results in technology transfer to Chinese companies. This is why I now tell my fellow CEO’s, “Corporate responsibility is also national security.”
What I have come to learn through running economic diplomacy for the State Department is that nowhere is the CCP doctrine more pronounced than the mass internment camps of Xinjiang, which started out as the proving grounds for the CCP’s big brother surveillance state strategy on two million Uyghurs and other Muslim minority groups.
These facilities have turned into expressions of concealment and deception for the PRC’s efforts to eradicate ethnic identity and religious beliefs of Uyghurs and other Muslims. These overcrowded Gulag-like camps have gone beyond the CCP’s traditional coercive tactics and have morphed into human rights abuses of epic proportions.
Up to this point, the CCP has succeeded in co-opting U.S. companies by entangling them in Xinjiang supply chains and concealing the forced labor and other human rights violations. What makes matters worse is that the average U.S. investor in companies that do business with China has been unknowingly funding the CCP’s authoritarian machine. And American technology has been transferred, bought, or stolen by the CCP to create a dystopian surveillance state that history’s most repressive dictators could have only dreamed of.
It may seem hopeless, but it is not. It’s true that civil rights lawyers can’t help in a country that has no respect for the rule of law. Who then? U.S. companies, financial institutions, and citizens can make a difference with help from the government. It starts with the most fundamental business principle: transparency is visibility, and visibility is accountability. Any leader knows that is magical.
To help shine the light of transparency, the United States Department of State has issued this business advisory for investment supply chain exposure to entities engaged in forced labor and other human rights abuses in Xinjiang. This is a start when coupled with the recent identification of 33 Chinese firms and institutions put on the entity list with sanctions.
This light of transparency will help U.S. manufacturing and technology companies that do business anywhere in China ensure their commerce and investments do not enable or perpetuate the PRC’s human rights abuses. It is incumbent on the board of directors for each company to conduct a detailed analysis of the supply chain to reveal who their company is buying from and who it is selling to.
U.S. financial institutions have a duty to establish governance principles when it comes to investing in entities that directly or indirectly facilitate human rights abuses. Hard currency is the lifeblood of the CCP authoritarian regime, and the average American bondholder has historically financed the CCP’s surveillance state, which is now being exported around the world.
The board of governors of these institutions have a moral duty and perhaps even a fiduciary duty to divest from companies that contribute to human rights violations. Pension funds, university endowments, indexes, mutual funds, insurance companies, venture capital firms, institutional investors, and particularly emerging index funds, at a minimum, should disclose to their constituents the Chinese companies they invest in.
Chinese companies’ financial practices are opaque for a reason. Chinese companies on U.S. stock exchanges do not comply with Sarbanes-Oxley transparency provisions, which puts all investors at risk.
I am confident that our business community will reject any involvement or association with the oppression in Xinjiang—first, because it is the right thing to do, and second, because of the significant legal and business risks involved. For more information, please visit: Xinjiang Supply Chain Business Advisory.
With respect and appreciation,
Under Secretary for Economic Growth, Energy, and the Environment