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Big firms operating in China reviewing future over Xinjiang

February 20, 2024 11:18 AM

Beijing : Several firms with deep roots in China are reviewing their future and reconsidering their ties in the Xinjiang region following new international scrutiny of forced labour using predominantly Muslim ethnic groups, the New York Times reported.

According to the report, Volkswagen Group is reviewing the future of its joint venture in the Xinjiang region of northwestern China and another German industrial giant is starting to sell its stakes there.

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

The companies are examining "the future direction of the Joint venture business activities in Xinjiang," VW said, adding that "various scenarios are currently being examined intensively."

BASF of Germany, the world's largest chemical company, disclosed on February 9 that it began moving late last year to divest its stakes in two manufacturing joint ventures in Xinjiang.

BASF said that while its audits had not found human rights violations at either operation, "recently published reports related to the joint venture partner contain serious allegations that indicate activities inconsistent with BASF's values."

Meanwhile, the Chinese government has strongly opposed any move by multinational corporations to distance themselves from commercial activity in Xinjiang, the NYT reported.

To a question about Volkswagen and BASF, the Chinese foreign ministry in a written statement, called allegations about forced labour in Xinjiang "a lie of the century" concocted by anti-China forces to "discredit" China and to "cut off" Beijing's economy from foreign markets.

"We hope that the enterprises concerned will respect the facts, recognize right and wrong and cherish the opportunity to invest and develop in Xinjiang," the ministry added.

VW and BASF, which have had extensive investments and sales in China for decades, are among the companies increasingly caught between Beijing on one side and Western governments, shareholders and human rights groups on the other. The scrutiny on German companies is particularly sharp now as European governments grapple with how to become less reliant on China, the report stated.

Pressure on multinationals has increased in the past few months as American customs officials have gained experience in investigating whether imports from China violate the Uyghur Forced Labor Prevention Act of 2021.

The law bars the import of any goods from China that were made with forced labour, particularly goods made with forced labour in Xinjiang. Uyghurs, who are predominantly Muslim, are the largest ethnic group there, making up 45 per cent of the population according to a census in 2020.

As a result of this, companies have found it increasingly difficult to figure out whether their suppliers and joint venture partners are using components or materials that are from north-western China and may have been produced with forced labour. China does not allow independent supply chain audits in Xinjiang and has even detained employees of foreign due diligence companies who work in far less politically sensitive places like Beijing and Shanghai.

Nathan Picarsic, a co-founder of Horizon Advisory, a supply chain geopolitics analysis firm in Washington, said that hundreds and possibly thousands of Audis and other Volkswagen Group vehicles, mostly equipped with four-cylinder engines, have been stopped at five American ports in recent weeks because they contain a component from Xinjiang that cannot easily be replaced, as reported by NYT.

Notably, China has engaged in 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 assaults on two train stations and a morning market that left a total of 71 dead and over 300 injured, NYT reported citing official reports.

Under President Xi Jinping, Xinjiang confined hundreds of thousands of Uyghurs, Kazakhs and other Muslims in vast re-education camps, starting mainly in 2017.

Xinjiang also embarked on a drive to allocate Uyghur villagers and labourers to jobs 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 the labour transfers have involved coercive pressure, quasi-military discipline and restrictions on movement, according to investigations by the New York Times, other news outlets and human rights researchers.

Adrian Zenz, director of China studies at Victims of Communism Memorial Foundation, a non-profit anti-communist group in Washington, found evidence of 'forced labour' at a chemical company in Xinjiang that also has joint ventures with BASF. He then found evidence of forced labour at the Volkswagen joint venture.

Meanwhile, VW said its joint venture in Xinjiang's capital, Urumqi, had 650 employees before the pandemic and is now much smaller.
BASF said that one of its joint venture factories, in which it holds a majority stake, has about 40 employees and makes a key ingredient for spandex. The other factory, in which BASF holds a minority stake, has 80 employees who make a chemical with broader uses, from pharmaceuticals to plastics.

On the other hand, Chinese foreign minister, Wang Yi has asserted that the government's policies in Xinjiang have "improved" the lives of Uyghurs by providing jobs.

"The so-called forced labor is only a groundless accusation," Wang said during a question-and-answer session at the Munich Security Conference.

According to NYT, another problem may lie ahead for VW and other automakers in China. Human Rights Watch issued a report on February 1 asserting widespread use of forced labour by companies in Xinjiang that produce over 15 per cent of China's raw aluminium. The group also accused automakers of not wanting to know where their suppliers of many aluminium parts actually obtain the metal.

The US already prohibits the entry of products made from Xinjiang aluminium because of concerns that it is manufactured with forced labour.

VW said that it investigates any misconduct by suppliers, adding, "Serious violations, such as forced labour, can lead to termination of the contract with the supplier if no remedial action is taken."

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