China trade: Xinjiang exports to US doubled in first quarter, even as cotton ban and sanctions kicked in

Exports from Xinjiang to the United States surged 113 per cent from a year earlier over the first three months to US$64.4 million, albeit off a low base due to the coronavirus impact
The US has effectively banned cotton products from Xinjiang, while the European Union last month issued its first sanctions against Beijing since 1989

China trade

Finbarr Bermingham

Published: 12:45pm, 22 Apr, 2021

Why you can trust SCMP

Despite American bans on key products and sanctions on major companies, Xinjiang’s direct exports to the United States more than doubled in the first quarter of 2021 - a trend that has baffled analysts.

Exports from the western Chinese region surged 113 per cent from a year earlier over the first three months to US$64.4 million, according to detailed data released by China’s customs agency.

While shipments are coming off a low base due to the coronavirus pandemic ravaging Chinese and international supply chains last year, the data showed that Xinjiang’s exports are also up 46.5 per cent compared with the first quarter of 2019.

The year-on-year figures are part of a wider trend of surging Chinese exports, with the economy having recovered from early coronavirus-related shutdowns to provide the goods needed to fight the pandemic and support lockdowns around the world.

Xinjiang cotton ban uncertainties weigh on Chinese farmers, smaller textile firms

Xinjiang’s exports are a minuscule fraction of the total Chinese exports to the US, which totalled US$119.2 billion in the first quarter, but come even as its dominant cotton industry was frozen out of US markets due to allegations of the widespread use of forced labour.

A withhold release order issued by US customs authorities effectively banned cotton products from Xinjiang should the importer be unable to prove that they were made without using forced labour.

Human rights groups have alleged that 1 million Turkic-speaking Muslim Uygur people have been interned in re-education centres and subjected to indoctrination, torture and forced labour – charges vigourously denied by Beijing.

But cotton products are largely absent from the first quarter list of exports to the US, save for a few hundred thousand US dollars worth of garments. Exports were a mixture of chemical and industrial products and lacked any big-ticket items.

Xinjiang’s top export to the US in the first quarter was a form of heterocyclic compounds – chemical ingredients widely used in cancer drugs, while the second was amino acids.

A series of analysts were puzzled by the trend but suggested that there could be a number of issues at play.

The low level of exports overall means that “things can grow and fall at rapid rates”, said Louis Kuijs, Asia-Pacific economist at Oxford Economics.

“The absolute magnitude of shipments is so small that this could reflect something as trivial as e-commerce drop shipments or private imports rather than reflecting sustained corporate activity,” added Chris Rogers, a supply chain analyst at Panjiva.

It at least demonstrates that as tensions mount over Xinjiang, and if trade restrictions multiply, it’ll be a painful process for a lot of US-based customers to meaningfully ‘de-Xinjiangise’ their supply chains

Nick Marro

It could also signal low levels of front-loading ahead of what is expected to be a broader US ban on Xinjiang products, with legislation pending in the US Senate.

This bill would mean “all goods manufactured and/or produced in Xinjiang would be prohibited from importation into the United States unless [US Customs and Border Patrol] determines that the importer of record has fully complied with as-yet written guidance on forced-labour due-diligence measures”, wrote lawyers from US firm Faegre Baker Daniels in a recent legal note.

The spurt in small-level trade emphasises the challenges faced in ridding supply chains of goods originating in Xinjiang, said Nick Marro, global trade lead at the Economist Intelligence Unit.

“It at least demonstrates that, as tensions mount over Xinjiang, and if trade restrictions multiply, it’ll be a painful process for a lot of US-based customers to meaningfully ‘de-Xinjiangise’ their supply chains,” Marro said.

01:08

Xinjiang, China’s top cotton producer

Xinjiang’s overall exports rose 33.75 per cent in the first quarter from a year earlier, with neighbouring Kazakhstan accounting for more than half of shipments. They were down, however, 6.1 per cent compared with the first quarter of 2019.

Imports dropped by 33 per cent from the first quarter of last year, with a 40 per cent slump in shipments from its biggest trading partner Kazakhstan, a major energy supplier, to US$653 million.

European firms are also trading less with Xinjiang, for the most part. The European Union last month issued its first sanctions on China since an arms embargo in 1989 following the Tiananmen Square crackdown, and firms have been under pressure from human rights groups and European Parliament members to cut ties with the region.

Everything you need to know about China trade

Shipments to Xinjiang from Germany, the EU’s biggest economy, were down 74 per cent in the first quarter compared with pre-Covid figures in 2019.

Finland remained Xinjiang’s third-largest supplier in the first three months of the year, although its U$28.9 million worth of shipments were down 20 per cent on the level in 2019.

A recent investigation by the South China Morning Post revealed Finnish companies’ involvement in Xinjiang’s viscose industry, another prong of its giant textiles industrial complex.