By Edmund Xu and Robert Kim
May 4, 2023
A chemical company based in Xinjiang is increasing its production capacity of a key chemical used in the manufacturing of textiles, electronics, and household goods that it exports through intermediaries into global supply chains.
Also known as sodium hydroxide or commonly as lye, caustic soda is widely used in basic textile manufacturing processes, including scouring, mercerizing, and dyeing, and in the making of varied products including cleaning agents and printed circuit boards (PCBs).
China was the world’s largest producer and exporter of caustic soda in 2021, producing approximately 38 million metric tons and exporting 387,806 metric tons, with Vietnam, Indonesia, and Nigeria its leading export markets, according to World Bank data. Among Chinese regions, Xinjiang was the fourth leading producer of caustic soda as of last year, according to China’s National Bureau of Statistics.
Caustic Soda Exports Through Hong Kong to Vietnam
Xinjiang Zhongtai Chemical Co., Ltd. – a state-owned company based in the Xinjiang Uyghur Autonomous Region (XUAR) capital of Urumqi – accounted for 1.375 million tons of China’s caustic soda production in 2021. Currently, Xinjiang Zhongtai is expanding its production capacity with a new caustic soda plant under construction in XUAR that is expected to add 800,000 tons of capacity.
Caustic soda manufactured by Xinjiang Zhongtai enters global supply chains through intermediaries in Hong Kong that supply manufacturers in the textiles, electronics, and household goods industries, Kharon found. Two of these intermediaries are Excel Leader Development Co. and Meiyang Industry Co., both of which export caustic soda made by Xinjiang Zhongtai to Vietnam.
Excel Leader Development sold caustic soda made by Xinjiang Zhongtai to a company in Vietnam named Anbinhgiang as recently as February 2023. Anbinhgiang also purchased caustic soda from Meiyang Industry as of December 2022. Anbinhgiang supplies caustic soda to customers in Vietnam, including a fabric manufacturer that uses the chemical as a dye additive. Trade data shows that this manufacturer in turn sells fabrics to the Vietnamese subsidiary of a U.S.-based multinational clothing company, whose brands include numerous American household brands.
The fabric manufacturer purchased caustic soda from Anbinhgiang and sold fabric to the American company’s Vietnamese subsidiary through February 2023, after the effective date of the Uyghur Forced Labor Prevention Act (UFLPA), according to trade data.
Electronics manufacturers have also acquired caustic soda from Xinjiang Zhongtai through similar supply chains. As recently as January 2023, Vietnam-based Tan Thanh Produce Co., Ltd. purchased Xinjiang Zhongtai-manufactured caustic soda from Meiyang Industry and other Hong Kong distributors, trade records show. One of Tan Thanh Produce’s largest customers of caustic soda is the Vietnamese subsidiary of a South Korean maker of PCBs, boards that connect electronic components together that are a critical part of many consumer electronic goods.
U.S. purchases of caustic soda from Xinjiang Zhongtai’s Hong Kong-based intermediaries continued after the effective date of the UFLPA. As recently as February 2023, a U.S. cleaning products manufacturer received shipments of caustic soda from Meiyang Industry, trade records show.
Forced Labor Indicators
Xinjiang Zhongtai has engaged in practices similar to those flagged as indicators of forced labor identified in the U.S. Government’s Xinjiang Supply Chain Business Advisory.
Xinjiang Zhongtai has conducted ideological, political, cultural, and linguistic training for employees transferred to the company through a government-sponsored poverty alleviation program, according to a 2018 Chinese government press release. The parent company of Xinjiang Zhongtai has also conducted activities that are indicators of forced labor, described in a Kharon Insight in November.
Detained Imports From Third Countries
As of March 2023, a majority (64%) of the 3,269 import shipments detained by U.S. Customs and Border Protection (CBP) for suspected violations of the UFLPA have originated outside of China, as have 30% of the shipments that were ultimately denied entry after CBP review, according to CBP statistics on UFLPA enforcement.
QUICK TAKE: UFLPA Enforcement Targeting New Commodities and Sectors
These statistics reinforce guidance on UFLPA compliance. CBP’s recently issued FAQs on UFLPA enforcement encourage companies to “closely examine their supply chains to ensure goods imported into the United States are not mined, produced, or manufactured, wholly or in part” with forced labor. Guidance issued in 2022 stated CBP’s expectation that forced labor due diligence “extends throughout the entire supply chain, to include goods that may be shipped from elsewhere in the PRC and to third countries for further processing.”
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