Volkswagen said on Wednesday that it was disposing of its ownership stakes in facilities in northwestern China’s Xinjiang region, exiting an area now known for the country’s crackdown on predominantly Muslim ethnic groups there.
Volkswagen had a joint venture assembly plant in Urumqi, the capital of Xinjiang, as well as two test tracks in the region, maintaining the largest and most visible presence in Xinjiang of any multinational company. That drew condemnation from human rights groups. The United States and a growing number of European countries bar imports from Xinjiang because of evidence of forced labor there.
The Chinese government, which denies the accusations of forced labor, has put heavy pressure on global companies to keep doing business in Xinjiang. In September, the Ministry of Commerce began investigating whether PVH, the corporate parent of the Calvin Klein and Tommy Hilfiger clothing brands, had taken “discriminatory measures” by not buying products from Xinjiang.
BASF, the German chemicals giant, has been trying for a year to obtain Chinese government permission to dispose of its stakes in two manufacturing joint ventures in Xinjiang.
For Volkswagen, the assembly plant in Urumqi did not just become a political liability — it was also a money loser, because it was designed to make gasoline-powered cars. China has swiftly adopted electric vehicles in the last four years, and half the cars sold in China are now either battery-electric or plug-in hybrid cars.
That has left manufacturers like Volkswagen Group, which also includes Audi and Porsche, with considerable unneeded production capacity. Volkswagen was China’s market leader from 1983 through last year, but BYD, a Chinese maker of electric cars, has passed it in sales this year.
The Urumqi assembly plant has not built cars since 2019 and is heavily guarded and closed to visitors. During a weekday visit last month to the factory’s perimeter, there was no sign of activity inside the complex, where industrial buildings extend for hundreds of yards.
Volkswagen and its state-owned joint venture partner, SAIC Motor, now employ 175 workers who do the final preparation of cars at the Urumqi complex for delivery to dealerships in western China. The Shanghai municipal government owns SAIC Motor, which also makes the MG brand of cars and has been rapidly expanding exports.
Volkswagen said that ownership of the assembly plant and test tracks was being transferred by the joint venture to the Shanghai Motor Vehicle Inspection Center, which is owned by a different arm of the Shanghai government. No price was disclosed for the transaction.
Exporting from Urumqi is impractical: Nearby Central Asian countries buy few cars, and the plant is 1,800 miles from the coast, too far for seaborne shipments.
Volkswagen has been looking for factories to close this year, not just in China but also in Germany, where higher-cost plants have stayed open for years partly because of the company’s large profits in China.
The company faces intensifying competition around the globe from Chinese automakers, which are expanding exports of both electric and gasoline-powered cars. Volkswagen responded by setting up a 3,000-engineer complex in central China to develop electric cars.
Volkswagen said that through 2040, it would continue its broader cooperation with SAIC in China, including the introduction of at least eight new electric models by 2030.
Volkswagen and SAIC built the assembly plant in Urumqi in 2012 and 2013 to make inexpensive cars to sell in western China. Volkswagen had made a point of hiring numerous Uyghurs, a predominantly Muslim ethnic group in Xinjiang. Uyghurs have long faced discrimination from Chinese employers, and difficulties facing Uyghurs deepened after deadly attacks by Uyghur militants from 2008 to 2014.
Beginning in 2014, China cracked down on Uyghurs and other predominantly Muslim ethnic groups in Xinjiang. As many as a million ethnic Uyghurs, Kazakhs and other minorities were sent to indoctrination camps, detention centers and prisons. Associated forced-labor programs that sent rural Uyghurs to factories and to do other urban jobs also drew heavy criticism from human rights groups, and they have prompted the United States and some European countries to restrict imports from Xinjiang since 2021.
Volkswagen has denied accusations by overseas activists that it used forced labor by Uyghurs to build its test track near Urumqi. But when it hired an auditing firm last year to review its compliance in Xinjiang with international labor standards, the audit was criticized overseas for not sufficiently protecting the anonymity of the workers who participated.
Since February, Volkswagen had been saying it was in “advanced talks” to decide the future of its activities in Xinjiang. China’s foreign ministry publicly urged Volkswagen and BASF in February not to leave the region, saying that they should “cherish the opportunity to invest and develop in Xinjiang.”
But with sales of gasoline-powered cars in China dwindling further, and with MG cars and SAIC Motor also starting to encounter criticism from human rights activists over ties to Xinjiang, Beijing’s hostility to withdrawal began to ebb.
BASF had no immediate comment on Wednesday regarding its effort to exit Xinjiang. China’s foreign ministry did not comment about Volkswagen at its daily briefing.
The post Volkswagen to Exit China’s Xinjiang Region After 12 Years appeared first on New York Times.
