Volkswagen and BASF reconsider ties with Xinjiang and China

Volkswagen Group is reviewing the future of its joint venture in northwest China’s Xinjiang region, and another German industrial giant begins selling its stakes there following a new international investigation into forced labor by predominantly Muslim ethnic groups.

Volkswagen said last week it was in discussions with one of its main joint venture partners in China, state-owned Shanghai Automotive Industry Corporation, following allegations of human rights abuses in their joint venture in Xinjiang.

The companies are examining “the future direction of the joint venture’s business activities in Xinjiang,” VW said, adding that “various scenarios are currently being examined intensively.”

Germany’s BASF, the world’s largest chemical company, revealed on February 9 that it had begun divesting its stakes in two manufacturing joint ventures in Xinjiang late last year.

BASF said that while its audits did not reveal any human rights violations in either operation, “recently released reports regarding the joint venture partner contain serious allegations that indicate activities inconsistent with the values ​​of BASF.”

The Chinese government has strongly opposed any steps by multinational companies to distance themselves from business activity 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 allegations about forced labor in Xinjiang “the lie of the century concocted by anti-China forces to discredit China” and shut down the economy. Chinese foreign markets. The ministry added: “We hope that relevant companies 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 companies increasingly caught between Beijing, on the one hand, and Western governments, shareholders and rights groups. man, 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 prohibits the importation of any goods from China that were made with forced labor. particularly products made using forced labor in Xinjiang. The Uyghurs, who are predominantly Muslim, constitute the largest ethnic group there, representing 45% of the population according to a 2020 census.

Companies are finding it increasingly difficult to determine whether their suppliers and joint venture partners are using components or materials from northwest China that may have been produced using forced labor. China does not allow independent audits of the supply chain in Xinjiang and has even arrested employees of foreign due diligence companies who work in far less politically sensitive places like Beijing and Shanghai.

Volkswagen said it experienced delays in delivering some imported vehicles to dealerships in the United States due to a “customs issue” at U.S. ports. The company said it had to replace a small electronic component, but did not say how many cars were affected.

VW did not specify that the component came from Xinjiang, but noted: “When we receive information about human rights risks or potential violations, we strive to address them as quickly as possible “.

Nathan Picarsic, co-founder of Horizon Advisory, a geopolitical supply chain analysis firm in Washington, said hundreds, if not thousands, of Audis and other Volkswagen Group vehicles, mostly equipped with four-cylinder engines, have been stopped at five US ports in recent weeks because they contain a component from Xinjiang that cannot be easily replaced. VW will attempt to deliver the cars by the end of March and is informing its customers of the delays. THE Financial Times first reported that the cars had been stopped at U.S. ports.

Multinationals also face pressure from shareholders. Union Investment, a large German asset management company, approved investments in Volkswagen last December after a report revealing no forced labor. But the fund reversed course last week, saying the latest findings meant investments in VW were incompatible with its sustainability goals.

Stephan Weil, governor of Germany’s Lower Saxony state and Volkswagen board member, called the latest findings “concerning.”

China has engaged in a wide-ranging crackdown in Xinjiang over the past decade to combat what it describes as extremism among predominantly Muslim ethnic minorities. The crackdown followed a series of attacks by militants in 2014, including assaults on two train stations and a morning market that left 71 people dead and more than 300 injured according to official reports.

Under Chinese leader Xi Jinping, Xinjiang has confined hundreds of thousands of Uighurs, Kazakhs and other Muslims in vast re-education camps, mostly starting in 2017. assigning Uyghur villagers and workers to jobs in factories. Chinese officials have presented the transfer plans as an effort to lift Uighurs out of poverty and integrate them into the economic mainstream. But the labor transfers have involved coercive pressure, quasi-military discipline and restrictions on movement, according to investigations by the New York Times, other media outlets and human rights researchers.

Adrian Zenz, director of China studies at the Victims of Communism Memorial Foundation, an anti-communist nonprofit group in Washington, has in recent months found evidence of forced labor at a chemical company in Xinjiang that also has joint ventures with BASF . He then discovered evidence of forced labor within the Volkswagen joint venture.

He first shared BASF’s evidence with German news magazine Der Spiegel and public broadcaster ZDF. He first shared the information about VW with German newspaper Handelsblatt.

THE VW information included a photo of Uighur workers in military uniforms who helped build a track in the Xinjiang desert to test cars in extremely hot weather.

BASF and VW each said they began establishing joint ventures in Xinjiang in 2013. That was when the Chinese government was encouraging 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, has about 40 employees and makes a key ingredient for spandex. The other plant, in which BASF has a minority stake, has 80 employees making a chemical with broader uses, from pharmaceuticals to plastics.

BASF said it decided last year to divest its stakes in the two plants after concluding they did not match its goals on combating climate change. The factories, located in Korla, another major city in Xinjiang, use a lot of coal. But BASF said it would now speed up the process of withdrawing these companies.

Chinese Foreign Minister Wang Yi said Saturday that the government’s policies in Xinjiang have improved the lives of Uyghurs by creating jobs. “So-called forced labor is just a baseless accusation,” Wang said during a question-and-answer session at the Munich Security Conference.

Another problem could arise for VW and other automakers in China. Human Rights Watch released a report on February 1 asserting the widespread use of forced labor by Xinjiang companies that produce more than 15 percent of China’s raw aluminum. The group accuses automakers of not wanting to know where their suppliers of many aluminum parts actually get the metal.

The United States already bans the entry of products made from Xinjiang aluminum, fearing the products are made using forced labor.

VW said it was investigating any misconduct by suppliers, adding: “Serious violations, such as forced labor, may lead to termination of the contract with the supplier if no corrective action is taken.” »

Christopher Buckley contributed reporting from Taipei, Taiwan and Melissa Eddy contributed reporting from Berlin.