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Li-Ning’s Xinjiang Link Sends World’s Largest Sovereign Fund Fleeing

The world’s largest sovereign wealth fund has sold off its stake in Chinese sportswear giant Li-Ning, citing the “unacceptable risk that the company contributes to serious human-rights violations” in the Xinjiang Uyghur Autonomous Region of northwestern China, where reports of genocidal crimes against local Muslim minorities continue to proliferate.

Norges Bank Investment Management, which operates the $1.3-trillion chest for the Norwegian central bank, made its decision following warnings over the forced-labor pitfalls in Li-Ning’s operations, it said last week.

Its ethics advisory council, in particular, pointed to the “well-documented” risks of sourcing cotton and textiles in Xinjiang, along with Li-Ning’s cooperation agreement with suppliers such as Xinjiang Jinfujie Clothing Co., which public information indicates manufactures inside an internment camp and employs workers through a controversial government-run labor-transfer scheme that targets Uyghurs and other ethnic minorities. Li-Ning has itself stated that it buys and will continue to buy cotton from the region.

“The council does not have information indicating that Li-Ning has investigated or addressed this risk, and the company has not answered the council’s requests for information,” it said. “The council, therefore, concludes that the risk of the company contributing to serious human rights abuses is unacceptably high.”

The fund held roughly $168 million in shares amounting to 0.59 percent of the company at the end of 2021, though this itself was a drop from the $206-million, or 1.2 percent, stake it possessed the year before. Sometimes known as the oil fund, it owns some 1.5 percent of listed stocks, which it manages using ethical guidelines that include human-rights criteria.

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Li-Ning, which did not respond to a request for comment, has seen its profits soar in the wake of a nationalism-fueled movement against Western brands that distanced themselves from Xinjiang cotton.

At the height of the consumer backlash last spring, China Lining, Li Ning’s upmarket fashion subsidiary, experienced a 92 percent boost in its Tmall sales, while those of Adidas and Nike’s crashed by more than half, according to data from Morningstar. In the third quarter, Li-Ning’s sales at physical stores increased by more than 20 percent, and its e-commerce business registered a “mid-thirties [percent] growth” on a year-on-year basis, the company wrote in an investors’ note in October.

Norges Bank isn’t the first to walk away from Li-Ning. In June, just a month before the Tokyo Summer Games, the Indian Olympic Association revealed it was dropping the label as its official uniform sponsor, although this was more due to strained relations between China and India following a Himalayan border altercation that led to the death of 20 Indian soldiers the year before.

In the United States, lawmakers have been urging members of the National Basketball Players Association to rethink their ties with brands that knowingly and willingly use Xinjiang cotton, including Li-Ning, which maintains endorsement deals with CJ McCollum, Evan Turner, Michael Carter-Williams and others. Retired player Dwyane Wade, who signed a lifetime contract with the brand, runs his footwear company, Way of Wade, with Li-Ning. They opened a U.S. webstore in August.

Retired NBA star Dwayne Wade is one of Li-Ning's biggest endorsers
Retired NBA star Dwyane Wade is one of Li-Ning’s biggest endorsers Kevin Reece via AP

“We believe that commercial relationships with companies that source cotton in Xinjiang create reputational risks for NBA players and the NBA itself,” wrote Senator Jeff Merkley of Oregon and Representative James McGovern of Massachusetts, chair and co-chair of the Congressional-Executive Commission on China, in June. “The NBA and NBA players should not even implicitly be endorsing such horrific human-rights abuses.”

Li-Ning is the fourth-largest sportswear purveyor after Anta Sports, another globally contentious homegrown label, Adidas and Nike. But whether it can maintain its high remains to be seen. Li-Ning’s stock tumbled 9.4 percent after Norges Bank’s announcement over fears that other long-term investors may follow suit.

Norway sovereign fund’s offloading Li-Ning is triggering some worries about the attitude over Chinese and Hong Kong stocks in the future,” Castor Pang, head of research at Core Pacific Yamaichi, told Bloomberg News.

Cotton and cotton products from Xinjiang have been outlawed by U.S. customs since last January. The Uyghur Forced Labor Prevention Act, which was signed into law in December and will take effect in June, will take that prohibition further by creating a  “rebuttable presumption” that all products from Xinjiang are made with forced labor unless “clear and convincing” evidence proves otherwise.