There is a principle in economics: when a manufacturer relies heavily on a single customer, that customer often has greater bargaining power over the goods. This principle is expressed in the Chinese proverb, “the customer is bullying the store”. In recent years, China has been killing and sanctioning Australia because it feels that it is the first and second buyer of Australian iron ore and coal, and since your country’s products rely heavily on our market, let’s play a game of customer bullying and see if you finally surrender. Unexpectedly, because of the Xinjiang Uyghur issue, there will be H&M and other companies follow the practice of sanctions against Australia, refusing to buy cotton in Xinjiang; then there is Nike and other joined, a Time of hilarity.
The tense situation in the Indo-Pacific, the Chinese figure behind the turmoil in Myanmar, plus the Xinjiang issue, finally made the former U.S. Secretary of State Kissinger, now 97 years old, worried about the world’s situation, publicly expressed hope: the United States and Western allies need to reach an understanding with China on a new global order, or face the dangers of the pre-World War I.
Where does China’s strength come from?
This new global order is actually one: China must have a voice equal to, or greater than, that of the United States. China’s confidence comes from two things: first, the economic dependence of countries around the world on China; and second, the fact that the sun is setting on the West. Both points have some basis in reality. At the Alaska talks, Yang Jiechi’s confidence came from these two points.
Back to the world market, any market has its ups and downs, sometimes it is a seller’s market where demand exceeds supply, and sometimes it becomes a buyer’s market where demand exceeds supply. The so-called economic sanctions, to put it bluntly, is the international community in the financial dominance, market supply, resource supply and other dominant countries, the use of their own largest buyer or seller advantage, to force those in the three of their own dependence on the country to obey their own. The sanctions imposed by the West on China briefly after June 4 and later on the Burmese military government were all of this type.
During the years of China’s rapid economic development, when its foreign exchange reserves exceeded three trillion dollars, China was indeed the first and second largest buyer of products from all over the world. Then China was extremely keen to see that this economic dependence could be turned into a tool for political blackmail, and started playing with sanctions. The first one used was South Korea, followed by Australia, and it even went so far as to use Australia’s economic dependence on China to develop a unified war effort in that country, using democracy to destroy democracy. I wrote about the whole process in “Countries’ Economic Dependence on China Ends Up as Tools for Beijing‘s Political Blackmail”, so I won’t repeat it here.
This trick of turning other countries’ economic dependence on itself into political blackmail is a trick that China tried to repeat in its “muzzle diplomacy” in 2020, but had to abandon it because countries were too disgusted.
However, the international economy also has a theory of comparative advantage, talking about the economic and industrial development of each country, which is supposed to complement each other’s strengths. China alone forgets that its advantages are like sand castles, one is that about 90% of its foreign exchange reserves come from foreign trade with the United States, and the second is that there are times when China acts as a seller, such as this time behind the Xinjiang cotton issue.
BCI: China encountered the “big store east”
Xinjiang cotton – China encountered is the largest customer of the buyer sanctions, and Australia encountered the same nature of China’s refusal to buy.
Currently, the global average annual production of cotton is about 25 million tons. Of this, India produces 26.1 percent, China 24.4 percent and the United States 13.2 percent. For China, cotton is an important industry of 100 billion yuan level. China is also the world’s largest textile producer, in addition to its own production of cotton end-products export, there are many is cotton intermediate exports to third-party countries. In a word, cotton in China is a hundred billion dollars in a large industry.
So where does this H&M come in, and why does its boycott make Beijing furious? Beijing knows this very well: behind H&M’s ban on cotton from Xinjiang, there are also brands such as Nike, Gap, ZARA, UNIQLO, etc., behind which the dominant player is actually the BCI, which stands for Better Cotton Initiative. “BCI stands for Better Cotton Initiative, and China is its biggest customer, with a Chinese webpage dedicated to Chinese customers. In short, BCI is a supply chain alliance, holding the pricing power. 5 categories of BCI members are: 1) retail brand members, that is, buyers, such as H&M, Nike, etc.; 2) supplier manufacturers, mainly cotton merchants, yarn mills; 3) grower organizations; 4) other categories, mainly for the supply chain to provide technology companies; 5) social groups, mainly for cotton-related non-profit organizations.
BCI’s supply volume accounts for about 30% of the world, and its organization’s procurement and supply volume is second to none in the world, controlling the standard and pricing power of cotton. In the face of such a large store owner who holds the supply chain dominance, pricing power and product standards, China, which has always spoken as a large buyer, is considered to have met its match.
China’s problems go beyond cotton, as most Chinese apparel brands face business risks as 400 billion yuan evaporates from China, the world’s largest apparel market, in 2020, according to a report released not long ago by Orwell Consulting.
In this case, these few BCI members’ boycott of Chinese cotton from Xinjiang in the name of forced labor is tantamount to grabbing China’s weakness and beating it up. With the BCI behind the scenes, this Xinjiang cotton fire may be prolonged for a while. The latest news is: the Italian brand Benetton and OVS to defend human rights refused to use Xinjiang cotton; Hugo Boss (Hugo Boss) issued an official statement, withdrawing its earlier statement in support of Xinjiang cotton.
China and BCI nature is different, the risk of responsibility is very different
China is a country, the country’s economy is good or bad directly affects tax revenue, employment. BCI is only a monopoly of the cotton industry supply chain, pricing power, product standards NGO, annual membership fees, the supply side, the demand side of the win and loss of its direct relationship. China’s Xinjiang cotton can not be sold, BCI will find alternative products, membership fees are still charged. This different status of the subject brings different consequences of responsibility, the Chinese government is destined to be in a disadvantageous position at the beginning. In the post-globalization world, no government has been able to cope with 9/11 in the United States, or with the subsequent counter-terrorism in various situations, or with the caravan of immigrants without borders, and government-to-government diplomacy, interest sanctions, and military threats do not apply. What’s more, BCI also holds a moral Trump card: the Chinese government’s genocidal policy against the Uighurs in Xinjiang.
Business is like war, and it is difficult to plan for everything
Even with government-to-government economic sanctions, such as China dealing with Australia’s desire to take away pricing power as the world’s largest buyer of iron ore, accounting for 65 percent of global demand, China thus believes it can gain greater bargaining power by virtue of Australia’s dependence on Chinese orders. But on the issue of iron ore, China missed a point: two-thirds of China’s iron ore imports come from Australia, whose iron ore miners had to cut production after China reduced its purchases; but Brazil, the world’s second-largest iron ore producer, was unable to become a supply substitute, with the result that Australian iron ore prices soared due to a shortage of ore supply. on December 11, 2020, China The price of iron ore futures on the Dalian Commodity Exchange rose by nearly 10 percent, with Chinese buyers calling out Australia for its lack of martial virtue. In this situation, China has now quietly abandoned several of its refusal to buy from Australia, including coal.
The establishment of a new international order is often accompanied by the tossing and turning of economic and political battles between countries, which will not easily give way to protect their own interests. Faced with China’s aggressive advancing posture, the West has been taking an understanding posture, the end is the current state of affairs. Under such circumstances, Mr. Kissinger’s “mutual understanding” may not be the solution.
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