US Cotton Machinery Sales To China May Be Dampened As Sanctions Loom

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US Cotton Machinery Sales To China May Be Dampened As Sanctions Loom

US Farm Brand John Deere at forefront of surging cotton machinery sales to Xinjiang, as human rights sanctions loom.

Sales of hi-tech US cotton-harvesting machinery to be used in Xinjiang rose by more than 4,000% in April from a year earlier, a Post investigation shows
John Deere has a heavy presence in the western Chinese region, where dominant
entities face US sanctions over alleged human rights abuses

At a Chinese government-owned John Deere showroom in the Xinjiang Uygur autonomous region - the heartland of China's cotton industry - manager Hu worries that coming US sanctions over human rights abuses will cut him off from the "impeccable, super-efficient" cotton-harvesting machines he sells to industrial-scale farms across the region. Halfway across the world, farm-equipment dealers in the American South describe a jet-setting Chinese buyer who criss-crosses that region with a translator and buys up all the used John Deere cotton-picking machines he can find. Their stories - combined with extensive investigations of customs data, shipping records and dozens of interviews with cotton-industry employees and experts in both countries - reveal how America's most iconic farm brand has quietly established itself as a key player in Xinjiang's immense cotton industry, even as industry and human rights groups warn that the supply chain there is laced with the forced labour of Uygurs and other Muslim ethnic minority groups. Trade records show that the United States has sold nearly half a billion dollars' worth of heavy-duty cotton-harvesting equipment to Xinjiang since 2017, helping the region produce one-fifth of the world's cotton. Chinese cotton picking machines exist in the market, but are marked with high error rates and much lower efficiency. Most of the machines were delivered this past spring, adding to a spike in exports from the US to Xinjiang over the first half of 2020. This year's trade has already surpassed the total value of exports in 2019, which was a record year for US shipments of cotton-picking equipment to China.

A record spike in China's purchases of cotton-harvesting machinery occurred just before the Xinjiang sanctions were announced.

In April alone, US and Chinese customs data shows a 4,355.7% increase - to US$ 117.8 million - in shipments of cotton-picking machines, compared with US$ 2.65 million in April 2019. This past May, China imported a further US$ 94 million worth of the machines. Apparel companies have faced huge pressure to divest from supply chains linked to forced labour in Xinjiang. But so far, the firms making and selling the equipment used in Xinjiang's vast cotton country have flown under the radar. The spike in sales came as US lawmakers were readying landmark legislation to require investigations into human rights abuses in Xinjiang, and continued after that law was passed, an exclusive analysis of customs data shows. Data reviewed by the South China Morning Post shows that the day after the Senate passed the Uygur Human Rights Policy Act of 2020 on May 14, more than 1,800 tonnes of premium grade John Deere cotton-picking machinery left US ports for China, exported by John Deere (Tianjin) International, the wholly-owned Chinese subsidiary of the storied American company.

Detailed customs data from the first seven months of the year - provided by Datamyne - shows that 19 of a total of 25 shipments of cotton-picking machinery from the US to China contained John Deere harvesters, with the remaining six containing miscellaneous spare machinery parts. Corresponding Chinese customs data shows that the vast majority of this cargo wound up in Xinjiang.

CNH Industrial-the parent company of Case IH, another well-known American farm brand-also runs a 10,000 sqm (107,639 sq ft) cotton-picking-machine factory in Xinjiang. The sales of American equipment help power the giant farming operations of the Xinjiang Production and Construction Corps (XPCC), which operates one-third of the cotton farms in the region. The XPCC - also known as the Bingtuan - was established in the 1950s, drawing mostly from decommissioned military personnel, and developed into a quasi-governmental entity controlled by China's central government. The XPCC has played a key role in developing agriculture and infrastructure in the sparsely populated far northwest region. Now, the XPCC is the latest entity in the crosshairs of US lawmakers, hungry to take action on China's alleged human rights violations in Xinjiang. The opaque organisation's dominance makes it impossible to participate in Xinjiang's labyrinthine cotton industry without engaging with it in some way, experts say. "It is not just in the fields, XPCC controls the irrigation and power systems too," said Lianchao Han, vice-president at the Citizen Power Initiatives for China, a Washington-based lobby group. "The irrigation system was built by forced labour, and they are still using forced labour to strengthen this. This is why you can't separate it: XPCC irrigated the entire region. I would argue that everything is tainted for this reason." Before and after the cotton is picked, the XPCC oversees other parts of the textile supply chain too: irrigating the fields (a necessity in arid northwestern China); running the cotton through a gin, which separates cotton fibres from their seeds; spinning it into yarn; and sewing it into clothes. "It is very difficult to be involved in not just cotton, but any kind of agricultural or industrial-scale activities in Xinjiang now without the XPCC," said Michael Clarke, an associate professor at the Australian National University in Canberra and an expert on the political history of Xinjiang. "This is not just any other state-linked organisation in China." China's Ministry of Foreign Affairs spokesman Wang Wenbin said that US allegations regarding Xinjiang were nothing but "rumour-mongering and mudslinging". "The XPCC has made important contributions to promoting Xinjiang's development, ethnic unity, social stability and border security - living in harmony with all ethnic groups as a friendly and supportive companion," Wang said. The dominant XPCC has jurisdiction over seven cities in Xinjiang, including Beitun and Shihezi, where there are multiple John Deere dealerships. On July 31, citing the Global Magnitsky Act, the US Treasury Department slapped sanctions on the XPCC for human rights abuses, giving companies until September 30 to "wind down" "transactions involving any entity in which the XPCC owns, directly or indirectly, a 50% or greater interest". Jernigan Global, which publishes a weekly report considered the cotton industry bible, called the sanctions "a major move into the heart of Xinjiang cotton". "We've told US businesses to take a real, deep look into their supply chains," Secretary of State Mike Pompeo said after the sanctions were announced. "I don't think companies - some brand names here in America - want to be connected to what's taking place there." Asked if the firm would stop trading with XPCC, John Deere spokeswoman Jen Hartmann said: "John Deere has conducted business in China for more than 40 years, providing equipment solutions to increase agricultural output, improve food security, and support rural development. We take compliance seriously and monitor sanction developments closely." Less than two weeks earlier, the US Commerce Department added 11 companies to its 'entity list' - essentially blocking them from selling their products to the US - alleging the use of forced labour involving Uygurs and other Muslim minority groups in Xinjiang. Wang said that sanctions against the XPCC were a "gross interference in China's internal affairs, and a grave violation of basic norms governing international relations". Until late 2018, Chinese officials had denied the existence of arbitrary detention centres and enforced political re-education, then mounted a counter-attack on the criticism of its policies in Xinjiang. According to some US industry sources, "We feel like the Huawei of the apparel industry," he said. "Taking Xinjiang cotton out of your supply chain is like telling a company not to use oil from the Middle East." Human rights groups, other industry executives and experts said it is impossible to know which cotton, which yarn, and which textiles coming out of Xinjiang may be linked to forced labour. "Who's moving the irrigation pipe? Who's been hand-hoeing? Who's doing the hard labour?" said Darren Hudson, a cotton expert at Texas Tech University in Lubbock. "That's how they're utilising a lot of that labour. Either that or in processing, in gins. Just hot, heavy, hard labour." Typically, auditing firms would go in, inspect and give businesses a verdict on whether their supply chain is linked to any human rights abuses. But experts said those rules do not apply to Xinjiang: any interaction with the workforce there would almost certainly be conducted under intense government monitoring, and therefore not submittable in an audit, they said. In March, the Better Cotton Initiative, the world's largest cotton-supply-chain watchdog - used by brands such as Gap, Nike and Levi Strauss - said it was "suspending its assurance activities" in Xinjiang for the coming cotton season, "based on the recognition that the operating environment prevents credible assurance and licensing from being executed". Whether John Deere and other companies end up pulling out of Xinjiang may be seen as a test of the cotton industry's malleability. To date, the firm has shown little public interest in distancing itself from the region. A potential unravelling of the cotton industry may also end up being seen as a test case for the push to decouple supply chains from China in many other integrated sectors, particularly for firms like John Deere that have gone all-in on the world's second-biggest economy. The XPCC boasts that more than 80 per cent of its cotton picking is now mechanised. Experts said that using a state-of-the-art cotton-picking machine, such as a John Deere CP690, was like going "from DOS to Windows 10.0" in terms of efficiency. Even used, such harvesters sell for hundreds of thousands of US dollars - more than US$ 750,000 for 2019 models, in some auctions. John Deere says it does not condone the use of forced labour in any form in its supply chain, directly or indirectly. "When these machines are in the field, there is no need for harvesting by hand," said Hartmann, the John Deere spokeswoman. "Farm mechanisation is a key to improving the livelihoods of both the farmers and the rural communities." But numerous experts say that the industrial upgrade does not equate to a reduction in forced labour. "Mechanisation is not a silver bullet," said Allison Gill, the senior cotton campaign coordinator at the International Labour Rights Forum. "It's not that they're just going to free the Uygurs. They're going to move them to the factories. If the demand in the fields is less, then they'll move them farther downstream." Johnson Chin-yin Yeung, urgent appeals coordinator at the Clean Clothes Campaign in Hong Kong, added that the evolution of forced labour in Xinjiang has seen Uygurs forced to spin yarn or make garments.