Volkswagen Group is assessing the future of its joint venture in the Xinjiang region of northwest China, and another German industrial giant is starting to sell its shares there after renewed international investigations into forced labor by predominantly Muslim ethnic groups.
Volkswagen said last week that it was in talks with one of its key joint venture partners in China, state-owned Shanghai Automotive Industry Corporation, following allegations of human rights abuses at its joint venture in Xinjiang.
The companies are reviewing “the future direction of the JV’s business activities in Xinjiang,” VW said, adding that “various scenarios are currently being intensively examined.”
Germany's BASF, the world's largest chemical company, said on February 9 that it began selling its stakes in two manufacturing joint ventures in Xinjiang late last year.
BASF said that while its audits did not find any human rights violations at either facility, “recent reports related to the joint venture partner contain serious allegations indicating activities that are inconsistent with BASF's values.” .”
The Chinese government has strongly opposed any attempt by multinational corporations to distance themselves from commercial activities in Xinjiang, a sparsely populated region four times the size of California.
In a written response to a question about Volkswagen and BASF, the State Department on Sunday called allegations of forced labor in Xinjiang “a lie of the century concocted by anti-Chinese forces to discredit China” and cut off the Chinese economy from foreign markets. The ministry added: “We hope that the affected companies will respect the facts, recognize right from wrong, and value the opportunity to invest and develop in Xinjiang.”
VW and BASF, which have invested and sold heavily in China for decades, are among the companies increasingly finding themselves in a quandary between Beijing on the one hand and Western governments, shareholders and human rights groups on the other. Watching German companies is particularly keen now as European governments wrestle with how to become less dependent on China.
Pressure on multinational companies has increased in recent months as American customs officials gain experience investigating whether imports from China violate the Uyghur Forced Labor Prevention Act of 2021. The law prohibits the import of goods from China made with forced labor. particularly goods produced in Xinjiang using forced labor. Uighurs, who are predominantly Muslim, are the largest ethnic group there, making up 45 percent of the population, according to a 2020 census.
It is becoming increasingly difficult for companies to know whether their suppliers and joint venture partners are using components or materials that come from northwest China and may have been made with forced labor. China does not allow independent supply chain audits in Xinjiang and has even detained employees of foreign due diligence companies working in far less politically sensitive places such as Beijing and Shanghai.
Volkswagen said there were delays in delivering some imported vehicles to dealers in the United States because of “a customs issue” at American ports. The company said a small electronic component needed to be replaced, but did not say how many cars were affected.
VW did not say the component came from Xinjiang, but noted: “When we receive information about human rights risks or possible violations, we strive to address them as quickly as possible.”
Nathan Picarsic, co-founder of Horizon Advisory, a supply chain geopolitical analysis firm in Washington, said that hundreds and possibly thousands of Audis and other Volkswagen Group vehicles, mostly equipped with four-cylinder engines, were stopped at five American ports in recent weeks , because they contain an ingredient from Xinjiang that cannot be easily replaced. VW will try to deliver the cars by the end of March and will notify customers of any delays. The Financial Times initially reported that the cars had been stopped at American ports.
Multinational companies are also under pressure from shareholders. Union Investment, a major German asset management company, backed investing in Volkswagen last December after a report found no forced labor. But last week the fund changed course, saying the latest findings meant investing in VW was inconsistent with the company's sustainability goals.
Stephan Weil, Prime Minister of Lower Saxony and Volkswagen board member, described the latest findings as “worrying”.
China has taken extensive action in Xinjiang over the past decade to combat what it describes as extremism among predominantly Muslim ethnic minorities there. The raid followed a series of attacks by militants in 2014, including attacks on two train stations and a morning market, in which a total of 71 people were killed and over 300 injured, according to official reports.
Under China's leader Xi Jinping, Xinjiang has imprisoned hundreds of thousands of Uighurs, Kazakhs and other Muslims in huge re-education camps, especially since 2017. Chinese officials presented these transfer projects as an attempt to lift Uyghurs out of poverty and integrate them into the economic mainstream. However, according to investigations by The New York Times, other news outlets and human rights researchers, the job transfers involved coercive pressure, quasi-military discipline and restrictions on movement.
Adrian Zenz, director of China studies at the Victims of Communism Memorial Foundation, a nonprofit anti-communist group in Washington, found evidence in recent months of forced labor at a chemical company in Xinjiang that also has joint ventures with BASF. He then found evidence of forced labor at the Volkswagen joint venture.
He first shared the BASF evidence with the German news magazine Der Spiegel and the public television station ZDF. He initially shared the VW information with the German newspaper Handelsblatt.
The VW information included a photo of Uyghur workers in military uniforms who had helped build a desert track in Xinjiang to test cars in extremely hot weather.
BASF and VW each said they began establishing joint ventures in Xinjiang in 2013. At the time, the Chinese government encouraged investment in its impoverished far west, but before it began cracking down on ethnic minorities.
VW said its joint venture in Xinjiang's capital Urumqi had 650 employees before the pandemic and is now much smaller.
BASF said one of its joint venture factories, in which it has a majority stake, employs about 40 people and produces a key ingredient in spandex. The other factory, in which BASF has a minority stake, employs 80 people who produce a chemical with broader uses, from pharmaceuticals to plastics.
BASF said it decided to sell its shares in both factories last year after concluding they did not meet its goals to combat climate change. Factories in Korla, another large city in Xinjiang, use a lot of coal. But BASF said it would now speed up the process of exiting the ventures.
China's Foreign Minister Wang Yi claimed on Saturday that the government's policies in Xinjiang have improved the lives of Uighurs by creating jobs. “The so-called forced labor is just a baseless accusation,” Mr. Wang said during a question-and-answer session at the Munich Security Conference.
Another problem could arise for VW and other car manufacturers in China. Human Rights Watch released a report on February 1 highlighting the widespread use of forced labor by companies in Xinjiang that produce over 15 percent of China's raw aluminum. The group accused automakers of not wanting to know where their suppliers of many aluminum parts actually source the metal.
The United States already bans imports of products made from Xinjiang aluminum over fears they are made using forced labor.
VW said it was investigating any misconduct by suppliers, adding: “Serious violations, such as: B. Forced labor, may result in termination of the contract with the supplier if remedial action is not taken.”
Christopher Buckley contributed reporting from Taipei, Taiwan, and Melissa Eddy contributed reporting from Berlin.