VW sees no problems in the controversial China plant

Dusseldorf, Beijing, Berlin Volkswagen’s probably most controversial plant is on the outskirts of the Chinese city of Urumchi, which has four million inhabitants and is the capital of the Uyghur province of Xinjiang. Satellite images show a factory in an industrial area, a sushi shop and two clothing stores are nearby, and the mountains begin a few kilometers away.

The impression on site is similarly sparse. A few gray buildings surrounded by fences. A company lettering shows the words Shanghai Volkswagen (Xinjiang). Only a grim-looking security guard in front of the factory gate indicates that visitors are not wanted here. Photos of the buildings – even at a distance – are not allowed. This is shown by on-site research by the Handelsblatt in Xinjiang from 2021. Its reporters were not allowed in at the time. To this day, VW refuses a factory visit.

The plant in the Uyghur province is considered a ticking reputation bomb for the world’s second-largest car manufacturer. There are repeated reports of human rights violations and forced labor in the region. The then UN Human Rights Commissioner Michelle Bachelet accused China of “serious human rights violations” against the Uyghur minority shortly before her term of office ended.

A report speaks of possible “crimes against humanity” against the Muslim ethnic group. Similar reports can be found in the Xinjiang Files here and in the report by Australian think tank ASPI here. The latter assumes that there is a re-education camp just 15 minutes’ drive from the VW plant, in which members of the Muslim minority are interned by the Chinese state.

Volkswagen has been asserting for years that everything at the Xinjiang plant is done according to the rules and that human rights are respected. The group will continue to maintain its local presence. This is sometimes even “positive for people”, as CEO Oliver Blume recently wrote to the World Uyghur Congress (WUC).

VW: China boss certifies plant in Xinjiang mainly positive

China boss Ralf Brandstätter repeated to journalists in Berlin in January that he had “no evidence of human rights violations” at the plant. At that time, the manager announced that he would get an idea of ​​​​the situation. Apparently that happened recently.

As VW reports, Brandstätter was in Urumqi from February 16 to 17, 2023, with him the head of compliance and the head of external relations at Volkswagen in China.

The talks were good, emphasizes Brandstätter, who claims to have spoken to the on-site workforce and to seven employees from different ethnic groups. According to VW, 238 employees are currently employed in Urumchi. Almost a third of them belong to minorities, around 17 percent of all employees are Uyghurs.

Satellite image of the VW-SAIC plant in Urumchi

A few gray buildings surrounded by fences.

In other respects, too, the China board member attests to the plant being primarily positive: “Modern premises, well-kept, high standard” – just as one is used to from VW. There is a halal canteen for the Muslim minority and a gym that the workforce wanted.

The employees from Urumqi could also gain further qualifications in other Chinese plants, says Brandstätter. Almost 200 employees have made use of it since 2015. “The working conditions are comparable to other locations in China.” He therefore sees no contradictions to what has been reported to him internally about the plant in Xinjiang.

VW only has a limited right of access in Urumqi

The information cannot be verified. VW rejected a request from the Handelsblatt in advance to be able to be part of the trip. The group itself only has a limited right of access in Urumqi. Formally, VW is neither the sole owner nor the operator of the factory.

Rather, the plant is divided into a joint venture between VW and the Chinese partner SAIC. 50 percent belong to VW, 50 percent to SAIC. The plant is operated by a subsidiary of the VW-SAIC joint venture. VW does not control the participation, everything has to be coordinated with SAIC.

In order to keep an eye on working conditions, there are whistleblower systems and a code of conduct. Experts consider such systems to be waste. After all, anyone who expresses even the slightest criticism of the Chinese state or state institutions in a police state like Xinjiang can be locked up in a forced labor camp for years.

Volkswagen’s China boss Brandstätter

“No evidence of human rights violations.”

(Photo: dpa)

The problem: Without the consent of the Chinese partner, VW cannot make any changes to the construct. At least not without breaking the contract. Consequently, the plant could not simply be closed, even if the carmaker wanted it. According to information from the Handelsblatt, the contract between SAIC and VW will run until the early 2030s.

Until then, the group is in a dilemma: either it annoys the Chinese side or it sticks to the controversial work – even if this is accompanied by uncomfortable questions.

>> Also read: Volkswagen boss Blume on a difficult mission in China

VW’s general representative for external relations, Thomas Steg, emphasizes that the group is not currently thinking of withdrawing from Urumqi. You respect the contracts that you have entered into with the joint venture partner. “From a global company that wants to conclude contracts worldwide, you expect contract loyalty and reliability.”

Keeping contracts is one thing. However, VW has even downplayed the problem, especially in the past. In 2019, then-VW boss Herbert Diess said he knew nothing about re-education camps in Xinjiang. This is hard to believe in view of the comprehensive reporting situation.

VW’s employee side is therefore also demanding a clear edge from the group: “Although the plant in Urumchi, which is part of the Volkswagen production network, may not be in the direct control area of ​​​​VW AG in purely formal terms and with a view to our group structure,” explains a spokesman for the group works council on request. However, that does not release VW from “confronting and actively positioning itself” about issues such as human rights violations in the region. IG Metall boss Jörg Hofmann, who is also deputy chairman of the supervisory board at VW, openly questioned the investments in the plant in the summer and called for a withdrawal from Xinjiang.

Limited economic benefit of VW’s Xinjiang plant

China is by far the most important market for Volkswagen. In the Covid crisis, the number of sales in the Far East weakened. In decent years, however, the automotive group sold more than four million cars there. The contribution from the plant in Urumchi, on the other hand, comes across as a tiny little thing from an economic point of view.

Cars that are largely finished now only come to Xinjiang for a final check. 10,000 vehicles were recently put into operation in the controversial factory and delivered to local dealers. The capacity used to be 50,000 – the number of employees has also more than halved since the Covid crisis. The employees have either been accommodated at other locations or have received severance packages, says VW.

The group is not trusted within the international Uyghur diaspora. “So far there are no signs of a turning point at Volkswagen,” says Haiyuer Kuerban, head of the Berlin WUC office. VW kept a low profile when Brandstätter visited the site. “We have no further information.”

China takes action against Muslim population

Since an attack in the southwest Chinese city of Kunming in 2014 that killed 34 and for which the Chinese government blamed Uyghur separatists, the Chinese government has taken repressive action against the Muslim population. Police presence and surveillance in Xinjiang have since been massively increased. Mass arrests and internments followed. The report by the UN Human Rights Commissioner speaks of a “large-scale arbitrary deprivation of liberty”. Reports of torture and sexual violence in the camps are “credible”. China denies the allegations and speaks of “anti-terrorist measures”.

The situation in Xinjiang is now an enormous risk for VW, also with a view to the capital market. In November, the US financial services provider MSCI issued a warning to its ESG rating for VW because of its activities there. Some funds then shifted their portfolios and threw out the VW shares.

>>Read also: Blackrock and Co. – “Don’t say ESG”

The warning has a high level of escalation, says Ingo Speich, head of sustainability at Deka. This could also have a direct impact on bonds and stock positions at VW. “The human rights situation at VW in China is a black box for the capital market. In Xinjiang, VW is caught in its own reputational risk.”

The federal government is much more critical of the involvement of German corporations in the region than it was a few years ago. For foreign companies operating in Xinjiang, the “possibilities of influence and control” are extremely limited, according to the Ministry of Economic Affairs.

The federal government therefore no longer provides investment guarantees for projects in China from companies that are either active in Xinjiang or maintain business relationships with entities operating there. This also includes extensions of existing guarantees.

According to information from the Handelsblatt from government and corporate circles, the ministry did not extend investment guarantees for Volkswagen for the first time in the summer of 2022 for this reason. VW declined to comment further on the incident. Business representatives say behind closed doors that no company would decide to locate in Xinjiang today.

More: IG Metall calls for VW to withdraw from the Xinjiang Uighur region

First publication: 02/28/2023, 06:00 a.m.

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