China: Volkswagen withdraws from Xinjiang under fire

Europe's largest carmaker Volkswagen announced on Wednesday that it plans to cease operations in China's Xinjiang region, which has drawn criticism over accusations of human rights abuses by Beijing.

The group justified its decision by “economic reasons” in a statement, but it comes in a context of growing criticism against the group on ethical grounds.

“VW is bowing to public opinion in a certain way,” one of the leading experts in the sector in Germany, Ferdinand Dudenhöffer, director of the Center Automotive Research in Bochum, told AFP, while the media, investors and human rights defenders have been pointing the finger at the leading European car group for years because of its presence in Xinjiang.

– Forced labor allegations –

Volkswagen is in the spotlight because of its plant in Urumqi, the capital of Xinjiang, which opened in 2013 and in which it holds a stake through its local partner SAIC.

German bank Deka already removed Volkswagen shares from its “sustainable” portfolio in March 2023, after US rating agency MSCI raised the red flag over allegations of forced labor at the Urumqi plant.

The controversial site, along with a test track in Turpan, is now to be sold to China's Shanghai Motor Vehicle Inspection Center (SMVIC), Volkswagen said in a statement.

Pressure had mounted in February after German chemicals giant BASF announced it was speeding up its withdrawal from two joint ventures in the region.

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An external audit commissioned by Volkswagen last year found no evidence of forced labour among the plant’s 197 employees, but several media outlets, including the Financial Times, in September reported flaws in the report’s methodology.

Beijing is accused of detaining more than a million Uighurs and other Muslim minorities in a network of detention centres across Xinjiang.

Activists and Uighurs living abroad have said a range of abuses are being carried out in the centres, including torture, forced labour, forced sterilisation and indoctrination politics.

A 2022 United Nations report found “credible” evidence of torture, forced medical treatment, and sexual and gender-based violence, as well as forced labor, in the region.

– Sales down in China –

The group is purely highlighting a “strategic realignment” in the context of the transition to electric cars. In China, its main market where it delivers a third of its cars, sales fell by 15% in the third quarter.

The group's flagship brand, VW, lost ground there and fell behind local competitors, losing its title of best-selling car brand to BYD. The region in northwest China is home to several suppliers to multinational companies, including major European and American brands.

Volkswagen also denounced the increase in customs duties on cars imported from China into the European Union, decided by Brussels this summer, fearing repercussions from Beijing that could impact its sales in China.

The announcement on Xinjiang comes as the group is going through an unprecedented global crisis and is currently negotiating a savings plan that could lead to thousands of layoffs or even plant closures in Germany.

In this context, Germany “needs a reasonable relationship with China”, explained Mr. Dudenhöffer. It “has become a country in crisis and China is an important cornerstone to get out of it”, he added.

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