Companies with deep roots in China are reconsidering their ties with Xinjiang
Volkswagen Group is reviewing the future of its joint venture in northwest China's Xinjiang region and another German industrial giant is beginning to sell its shares there after new international investigations into forced labor by predominantly Muslim ethnic groups.
Volkswagen said last week it was in talks with one of its main 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 exploring “the future direction of the JV's business activities in Xinjiang,” VW said, adding that “several scenarios are currently under intensive investigation.”
Germany's BASF, the world's largest chemical company, announced on February 9 that it began taking steps late last year to divest its stakes in two manufacturing joint ventures in Xinjiang.
BASF said that while its audits found no human rights violations at either operation, “recently published reports regarding the joint venture partner contain serious allegations that indicate activities inconsistent with BASF's values.”
The Chinese government has strongly opposed any move by multinational companies 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 Foreign Ministry on Sunday called the allegations about forced labor in to close foreign markets. The ministry added: “We hope that the enterprises involved will respect the facts, recognize right and wrong and cherish the opportunity to invest and develop in Xinjiang.”
VW and BASF, which have made significant investments and sales in China for decades, are among the companies increasingly caught between Beijing on the one hand and Western governments, shareholders and human rights groups on the other. Scrutiny of German companies is particularly tight as European governments grapple with how to become less dependent on China.
Pressure on multinationals has increased in recent months as U.S. customs officials have gained experience investigating whether imports from China violate the Uyghur Forced Labor Prevention Act of 2021. The law bans the import of goods from China made with forced labor . especially goods made with forced labor in Xinjiang. Uighurs, who are predominantly Muslim, are the largest ethnic group there, making up 45 percent of the population, according to a 2020 census.
Companies are finding it increasingly difficult to find out whether their suppliers and joint venture partners are using components or materials that come from northwest China and may have been produced with forced labor. China does not allow independent supply chain audits in Xinjiang and has even arrested employees of foreign due diligence companies working in far less politically sensitive places like Beijing and Shanghai.
Volkswagen said it had experienced delays in delivering some imported vehicles to dealers in the United States due to “a customs issue” at U.S. ports. The company said it had to replace a small electronic part, but did not say how many cars were affected.
VW did not say the part came from Xinjiang, but noted: “When we receive information about human rights risks or potential violations, we aim to resolve them as quickly as possible.”
Nathan Picarsic, co-founder of Horizon Advisory, a Washington-based geopolitical supply chain analysis firm, said hundreds and possibly thousands of Audis and other Volkswagen Group vehicles, mostly equipped with four-cylinder engines, have been stopped at five U.S. ports in Washington. in recent weeks because they contain a part from Xinjiang that is not easy to replace. VW aims to deliver the cars by the end of March and is notifying customers of delays. The Financial times first reported that the cars had been stopped at US ports.
Multinationals are also under pressure from shareholders. Union Investment, a major German asset manager, had approved investments in Volkswagen last December following a report showing no evidence of forced labor. But the fund changed course last week, saying the latest findings meant investments in Volkswagen were incompatible with the company's sustainability goals.
Stephan Weil, governor of the state of Lower Saxony in Germany and member of Volkswagen's board of directors, called the latest findings “worrying.”
China has carried out an extensive crackdown in Xinjiang over the past decade to combat what it describes as extremism among mainly Muslim ethnic minorities there. The crackdown followed a series of attacks by militants in 2014, including attacks on two train stations and a morning market, that left a total of 71 dead and more than 300 injured, according to official reports.
Under Chinese leader Xi Jinping, Xinjiang has locked up hundreds of thousands of Uighurs, Kazakhs and other Muslims in massive re-education camps, mainly starting in 2017. Xinjiang also began a push to give Uighur villagers and workers jobs in factories. Chinese officials presented these transfer projects as an effort to lift Uyghurs out of poverty and integrate them into the economic mainstream. But the labor transfers were accompanied by coercive pressure, quasi-military discipline and restrictions on movement, according to research by The New York Times, other news media and human rights researchers.
Adrian Zenz, director of China studies at the Victims of Communism Memorial Foundation, a nonprofit anti-communist group in Washington, has 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 BASF's evidence with the German news magazine Der Spiegel and the public television broadcaster ZDF. He first shared the VW information with the German newspaper Handelsblatt.
The VW information featured a photo of Uighur 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 setting up joint ventures in Xinjiang in 2013. That was when the Chinese government was encouraging investment in the impoverished Far West, but before it began its crackdown on ethnic minorities.
VW said the 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, has about 40 employees and makes a key ingredient for spandex. The other factory, in which BASF has a minority stake, has 80 employees making a chemical with broader applications, from pharmaceuticals to plastics.
BASF said it had decided last year to divest its stakes in both plants after concluding they did not fit with its goals of tackling climate change. The factories in Korla, another major city in Xinjiang, use a lot of coal. But BASF said it would now accelerate the process of withdrawing from the businesses.
Chinese Foreign Minister Wang Yi claimed on Saturday that the government's policies in Xinjiang have improved the lives of Uyghurs 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.
There could be another problem ahead for VW and other automakers in China. Human Rights Watch released a report on February 1 allege widespread use of forced labor by companies in Xinjiang that produce more than 15 percent of China's raw aluminum. The group accused car manufacturers of not wanting to know where their suppliers of many aluminum parts actually get the metal from.
The United States already bans the entry of products made from Xinjiang aluminum over concerns it is manufactured with forced labor.
VW said it investigates any misconduct by suppliers, adding: “Serious violations, such as forced labor, may lead to termination of the contract with the supplier if corrective action is not taken.”
Christopher Buckley contributed reporting from Taipei, Taiwan, and Melissa Eddy contributed reporting from Berlin.