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August 25, 2005
Human Rights Site Spotlights Bank Investment in Chinese Manufacturer Linked to Forced Labor
    by William Baue

The Business & Human Rights Resource Centre posts an article alleging Chinese firm Henan Rebecca uses forced labor, as well as responses from banks implicated through investment for their clients.


On August 17, 2005, the South China Morning Post (SCMP), Hong-Kong's English-language newspaper, printed an article alleging that mainland China wig manufacturer Henan Rebecca Hair Products employs the forced labor of prisoners in Xuchang. The company's half-year financial statement reveals that Deutsche Bank (ticker: DB), HSBC (HBC), ING (ING), Merrill Lynch (MER), Morgan Stanley (MS), and UBS (UBS) are amongst its top ten investors. The banks access the Chinese market through the Qualified Foreign Institutional Investor (QFII) mechanism and are likely functioning not as direct investors but as intermediaries buying shares for clients, according to article writer Jamil Anderlini.

As this story unfolds, a much different kind of intermediary has stepped into the fray. The Business & Human Rights Resource Centre posted the SCMP article on its website, but it did not stop there: it contacted Henan Rebecca for its side of the story, the banks for their perspectives, and even the writer for his take. The nonprofit takes a staunchly impartial stance, finding greater value in providing access to information from all sides than in choosing sides.

"Our sole purpose is to promote respect for human rights--we do this by providing increased recognition for positive initiatives by companies, and increased public accountability for abuses," says Chris Avery, director of the Business & Human Rights Resource Centre. "We ourselves do not criticize or praise companies--we post on our website materials authored by others, offering a broad range of views." The website receives 1.5 million hits a month.

As with peering into a kaleidoscope shifting from side to side, the story changes depending on which angle you look at it from.

Unsurprisingly, Henan Rebecca professes its innocence. First, it points out that wig-making requires specialized equipment ("How can it install the production system in the prison?" says a Henan Rebecca statement. "It cannot!") Second, it requires skilled workers trained for six to twelve months ("So it is impossible that Henan Rebecca Hair Products Inc. trained the inmates.") Third, it requires the use of sharp tools such as scissors ("So it is impossible to make the hair products by the inmates.")

The article's writer provides some specifics that cast doubt on the company stance.

"The company itself acknowledged that about a quarter of its workforce are 'part-time' out-sourced workers who carry out low-skilled tasks such as sorting of new hair shipments, hair washing, and hair plaiting," writes Mr. Anderlini in a statement to the Business & Human Rights Resource Centre. "None of these tasks require sharp instruments or complicated machinery."

Mr. Anderlini also cites evidence from his primary research visiting Henan Number Three Labour Re-education Camp, the Xuchang County Labour Re-education Camp, and one other such camp, all of which detain inmates arbitrarily without a court trial.

"On visits to three of the 'laojiao' (labour re-education) camps, four separate guards and low-level camp officials explicitly confirmed that inmates are engaged in low-skilled processing work for Henan Rebecca," writes Mr. Anderlini. "I even managed to extract a short written confirmation from one guard."

Skeptical readers might doubt this evidence, or require verification by a more official body than a journalist.

The banks all sing practically the same song, deflecting responsibility from themselves to their clients (except Merrill Lynch and Morgan Stanley, both of which have remained silent.)

"HSBC has not purchased shares in the company mentioned in the reports to which you refer," states the company. "Our name appears on the list of shareholders because we hold these shares, as nominees only, on behalf of a client."

"While HSBC makes judgments about its own direct dealings with other organisations and individuals in accordance with its social, ethical, and environmental policies and practices, we would not wish to police the shareholding decisions of any third party," continues the statement. "This would be undesirable and almost impossible to implement."

Only ING takes a next step.

"In this particular case ING has passed on all relevant information about the alleged controversial activities of the company to all clients invested in the company and has been informed that the clients are now urgently reviewing the situation," writes M.G.J.C. de Wolff-Janssen, head of corporate responsibility at ING.

Posting the explanations of all the story's relevant actors allows readers to draw their own inferences and conclusions.

"I think the QFII explanation is a thin veil, and inadequate for banks that have otherwise pledged to operate according to widely recognized international standards, which absolutely prohibit forced labor," says Mila Rosenthal, director of the business and human rights program for Amnesty International. Amnesty helped found the Business & Human Rights Resource Centre, and provides funding for the organization, but the two entities are otherwise independent of one another. "The investment risks are clear, both legally and financially, to the owners and shareholders--for example, if the products of the company are blocked from import into a major market."

"And of course the reputational damage is potentially huge--precisely because the investors aren't named, the banks themselves have been publicly associated with these reported human rights abuses," Ms. Rosenthal told SocialFunds.com. "You would want to see all of the banks take a strong stance--to condemn the violations, to express concern for their possible, even if inadvertent, relationship to the violations, and to pledge to address the issue with their clients."

 

 
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