Volkswagen and BASF are reconsidering their ties with Xinjiang and China

Volkswagen and BASF are reconsidering their ties with Xinjiang and China

The Volkswagen Group is reviewing the future of its joint venture in northwest China’s Xinjiang region, and another German industrial giant is starting to sell its stakes there following new international scrutiny of forced labor carried out 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 violations at its joint venture in Xinjiang.

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

Germany’s BASF, the world’s largest chemical company, revealed on February 9 that it began taking steps late last year to sell its stakes in two manufacturing joint ventures in Xinjiang.

BASF said that while its audits found no human rights violations in any of the operations, “recently published reports related to the joint venture partner contain serious allegations indicating activities inconsistent with BASF’s values.”

The Chinese government has strongly opposed any moves by multinational corporations to distance themselves from commercial 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 “a lie of the century invented by anti-China forces to discredit China” and isolate China’s economy. of foreign markets. The ministry added: “We hope that interested companies will respect the facts, recognize right and wrong, and appreciate the opportunity to invest and develop in Xinjiang.”

VW and BASF, which have had 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 on German companies is particularly acute now as European governments grapple with how to become less dependent on China.

Pressure on multinationals has increased in recent months as US customs officials have gained experience investigating whether imports from China violate the Uyghur Forced Labor Prevention Act of 2021. The law prohibits the import of any product from China that was manufactured with forced labor. particularly products made with forced labor in Xinjiang. Uyghurs, who are predominantly Muslim, are the largest ethnic group there, making up 45 percent of the population according to a 2020 census.

Companies have found it increasingly difficult to determine 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 audits of the supply chain in Xinjiang and has even detained employees of foreign due diligence firms working in much less politically sensitive places like Beijing and Shanghai.

Volkswagen said it had encountered 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 needed to replace a small electronic component, but did not say how many cars were affected.

VW did not say the component was from Xinjiang, but said: “When we receive information about human rights risks or possible violations, we strive to remedy them as quickly as possible.”

Nathan Picarsic, co-founder of Horizon Advisory, a geopolitical supply chain analysis firm in Washington, said hundreds and possibly thousands of Audis and other Volkswagen Group vehicles, mostly equipped with four-cylinder engines, have been detained in five US ports in recent weeks because they contain a Xinjiang component that cannot be easily replaced. VW will aim to deliver the cars by the end of March and is notifying customers of the delays. He Financial times reported for the first time that the cars had been detained in American ports.

Multinationals are also under pressure from shareholders. Union Investment, a large German asset management firm, had backed investments in Volkswagen last December after a report that found no forced labor. But the fund changed course last week, saying the latest findings meant investments in VW were incompatible with its corporate sustainability goals.

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

China has waged 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 in 2014 by militants, 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 China’s leader Xi Jinping, in factories. Chinese officials presented those transfer projects as an effort to lift Uyghurs out of poverty and absorb them into the economic mainstream. But labor transfers have involved coercive pressures, quasi-military discipline and restrictions on movement, according to investigations by The New York Times, other media outlets and human rights investigators.

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 later found evidence of forced labor at the Volkswagen joint venture.

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

He VW information It 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. That was when the Chinese government was encouraging investment in its impoverished far west, but before beginning its crackdown on ethnic minorities.

VW said its joint venture in the Xinjiang capital, Urumqi, had 650 employees before the pandemic and is now much smaller.

BASF said one of its joint 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 uses, from pharmaceuticals to plastics.

BASF said it had decided last year to divest its stakes in both factories after concluding that they were not meeting their targets for tackling climate change. The factories, located in Korla, another large city in Xinjiang, use a lot of coal. But BASF said it would now speed up the companies’ exit process.

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

VW and other automakers in China may face another problem. Human rights observer issued a report on February 1 claiming widespread use of forced labor by companies in Xinjiang that produce more than 15 percent of China’s raw aluminum. The group accused automakers of not wanting to know where their suppliers of many aluminum parts actually get their metal.

The United States already bans the entry of products made with aluminum from Xinjiang over fears that it is made with forced labor.

VW said it investigates any misconduct by suppliers, adding: “Serious violations, such as forced labor, can 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.

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John C. Johnson

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