U.S. and European retail brands in China are suddenly facing a dilemma: Embrace cotton from the contentious Xinjiang region and come under attack in the West, or reject it and risk a boycott in the world’s second-biggest economy. Investors are getting spooked by that prospect, sending shares lower on Thursday.
Hennes & Mauritz AB was blasted by the Communist Youth League and the People’s Liberation Army Wednesday after social-media users dug out an undated company statement about accusations of forced labor in Xinjiang. Calls to boycott the Swedish retailer, which gets 5.2% of its global revenue in China, quickly spread to include Nike Inc., which has previously said it won’t source products from the region due to labor concerns. Brand ambassadors in China for both firms cut ties with the companies in recent days.