VW Under Fire for Ongoing Operations in Xinjiang

 

VW Under Fire for Ongoing Operations in Xinjiang

Volkswagen continues to operate a factory in the heart of Xinjiang, despite massive criticism from human rights activists. The factory is largely meaningless from a business perspective. Is the company trying to prove its loyalty to the Chinese government?

By Christoph Giesen, Simon Hage und Frederik Obermaier

27.05.2022, 18.13 Uhr

Artikel zum Hören•17 Min

The Communist Party has divided the city into precise quadrants, just like a chessboard. Across the city of Ürümqi, signs with numbers are posted on lampposts and fences. The cross street just behind the factory gate lies in Sector 65,793, while the east side is part of Sector 65,605.

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The numbering system helps state authorities to intervene immediately if necessary. A single call suffices: Within a minute, officers from surrounding police stations will turn up in their vans, brandishing assault rifles. And this despite the fact that there really isn’t much to protect in this corner of this city of 4 million in western China, the capital of the Xinjiang region. Except for a single automobile factory. But that factory appears to be so important to the People’s Armed Police that they maintain a barracks virtually right next door.

"Shang Qi Dazhong" – SAIC Volkswagen – read the four, large Chinese characters on the factory’s roof. Otherwise, it would be virtually impossible to tell that cars are built at the facility. The factory, located here in the arid solitude of sparse northwestern China, seems almost deserted. No workers can be seen rushing through the factory gates and no trucks are driving in loaded with supplies. There are just fences, cameras and road barriers. A police car is parked on the intersection in front of the factory, its blue light flashing.

Behind the walls, a German automaker is continuing to build cars as if Ürümqi were a totally normal industrial city like Wolfsburg, Zwickau or Ingolstadt. Volkswagen has operated a factory here since 2013, in partnership with the Chinese state-owned company SAIC. The region feels very much like part of a police state, but the carmaker seems unmoved. When contacted, the company said in a statement that the Ürümqi plant is "an integral part of SAIC Volkswagen’s strategic direction in China." When asked if "possible internment camps" were located within 25 kilometers of the factory, which satellite images seem to indicate, Volkswagen responded: "We don’t know." The company said that "to the best of our knowledge," there is no such camp in the immediate vicinity of the plant.

A SAIC Volkswagen site in Beijing: The future of the carmaker "will be decided in China."

A SAIC Volkswagen site in Beijing: The future of the carmaker "will be decided in China." Foto: Andy Wong/ dpa

The head-in-the-sand policy followed by Volkswagen in the region is typical of leading Germany companies, many of which have factories in this corner of China. BASF operates a factory in Xinjiang, as do Bosch and Siemens. All of them insist that they care about human rights and have no indications that forced laborers work in their factories or in those of any of their suppliers. But are they really able to control that kind of thing? And do they even want to?

Ever since bloody unrest gripped the region almost 13 years ago, the Chinese government has been seeking to maintain control through a strategy of maximum surveillance. The authorities have locked away hundreds of thousands of Muslim Uyghurs, whose homeland is Xinjiang, in internment camps . The U.S. State Department has begun referring to the Chinese approach in the region as "genocide," as have the parliaments of Canada and the Netherlands. But even as China continues down the path of surveillance and oppression, German industry leaders remain primarily focused on the gigantic growth possibilities represented by the country.

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DER SPIEGEL 22/2022

The article you are reading originally appeared in German in issue 22/2022 (May 28th, 2022) of DER SPIEGEL.

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Volkswagen sells around 40 percent of its cars in the People’s Republic. The future of the company, VW CEO Herbert Diess once said, "will be decided in China." The Chinese Communist Party would view the closure of the VW factory in Ürümqi as a hostile act, says Ferdinand Dudenhöffer, director of Center Automotive Research, an industry research facility with close ties to VW and to Chinese carmakers. "No German company should affront China."

Increasingly, the company’s problematic involvement in Ürümqi is creating difficulties for Volkswagen. "Any company making things in #China is business partners with a genocidal regime," tweeted Republican Senator Marco Rubio following the publication of the Xinjiang Police Files , which include thousands of photos taken by Chinese officials of Uyghurs who have been locked away in camps and prisons.

The fact that VW, a company with a dark history from the Nazi era, seems to be lacking in sensitivity and transparency in China, isn’t just a concern for politicians and human rights activists. Fund managers and shareholders have also been critical. "We demand a clear declaration from the entire VW leadership against the oppression of minorities by the Chinese government," says Ingo Speich, head of sustainability for the Sparkasse subsidiary Deka Investments. Such a declaration, he adds, has thus far not been forthcoming.

The German Economy Ministry has already taken steps to reign in its China policy and has denied the company guarantees for new investments in China. "For human rights reasons," the ministry has declined to approve "four applications from a company for the extension of investment guarantees," said a spokeswoman for German Economy Minister Robert Habeck of the Green Party. The reference is clearly to Volkswagen, with the company confirming that it had submitted such applications and saying it was still waiting for a response from the government. "A rejection is, of course, a possible outcome," VW said.

The investments in questions are apparently not linked to the controversial plant in Xinjiang, but to other factories in China. But the ministry has nevertheless declined to back the project. The applications were linked to other facilities in the Xinjiang region, the ministry said, or at least such a link could not be excluded. Which means that in the future, VW will have to shoulder the risks associated with its engagement in China by itself.

The company finds itself facing pressure on the legal front as well. Starting in 2023, the Act on Corporate Due Diligence in Supply Chains will go into effect, which makes companies responsible for human rights violations, even if they occur at facilities belonging to suppliers or sub-contractors. According to a 128-page assessment produced by the Research and Documentation Services department of the German parliament in 2021, it will be almost impossible for German companies to do business in Xinjiang. A cessation of business ties with Chinese suppliers, the paper determined, seems "almost unavoidable." Penalties for violation include monetary fines and even potential criminal consequences for executives responsible.

The clear violations of human rights in Ürümqi have also put VW’s supervisory board in a tough spot, especially the politicians who are members of the board. The state of Lower Saxony, governed by a coalition pairing the center-left Social Democrats (SPD) with the center-right Christian Democrats (CDU), owns a 20 percent stake in the company. The Volkswagen Act even gives the two state representatives on the supervisory board veto power over significant strategic decisions, such as the construction of new factories. Thus far, though, Ürümqi was apparently too far away to trigger significant controversy on the board.

Lower Saxony Governor Stephan Weil of the SPD, who has been a member of the VW supervisory board since 2013, hasn’t even found it necessary to visit the controversial plant. According to the governor’s office in the state, previous trips have taken Weil to the partner provinces of Anhui and Shandong in addition to the two metropolises of Beijing and Shanghai.

Yet in his own party platform, it reads: "We condemn the serious human rights violations committed against minorities, particularly the Uyghur Muslims." Following the publication of the Xinjiang Police Files on Tuesday, Frank Schwabe, the SPD’s parliamentary point man on human rights issues and humanitarian aid, demanded that German companies suspend operations in Xinjiang.

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The governor’s office in Lower Saxony justified its restraint by saying that foreign policy is first and foremost "the responsibility of the federal government." The statement said that "should the opportunity arise, the issue can also be broached in discussions by state politicians." But Weil doesn’t appear to be particularly eager to search out such opportunities. His office says there have been no meetings between state government representatives and human rights organizations regarding the situation in Xinjiang. And Weil currently has no plans to visit Ürümqi. The Lower Saxony government and the VW supervisory board declined to comment further on the factory there, referring to the "confidentiality obligation" that applies to members of the VW supervisory board.

The company’s reticence, and that of its most powerful shareholder, has generated no small amount of criticism. "When a company in which the Lower Saxony state government has a significant say doesn’t more clearly position itself on the situation of the Uyghurs, I think that’s rather problematic, even negligent," says Gyde Jensen, deputy floor leader for the business-friendly Free Democrats (FDP) in the federal parliament.

From a purely economic perspective, VW could close down the factory at any time. The company operates a total of over 40 production facilities with partners in China, with some of them able to churn out 600,000 cars per year. Ürümqi, by contrast, was planned from the very beginning to have a limited annual production capacity of just 50,000 vehicles. That represents a tiny share of the 3-4 million vehicles the company produces each year in the People’s Republic.

The fact that VW continues to cling to the production site seems to have just one single reason: It is proof of the company’s loyalty to the Chinese government.

A suspected internment camp in Xinjiang: The head-in-the-sand policy followed by Volkswagen in the region is typical of leading Germany companies.

A suspected internment camp in Xinjiang: The head-in-the-sand policy followed by Volkswagen in the region is typical of leading Germany companies. Foto: GREG BAKER/ AFP via Getty Images

In order to secure Beijing’s goodwill, VW accepted a rather dubious deal 15 years ago. The company was to be granted permission to build half a dozen new factories in the eastern part of the country, but in return, VW agreed to build a new factory in the structurally weak province of Xinjiang, which was consumed by ethnic violence. Should they not have known at the time what the future might hold?

Even before the plant in Ürümqi was opened, human rights activists blasted the plan. It had already long been known that the Uyghurs in Xinjiang were being oppressed by the Chinese government. Critics argued that by building a factory in the region, VW was essentially allowing itself to be used by the government in Beijing. But the company’s leadership at the time brushed off the criticism. "Volkswagen didn’t want to hear anything about it," says Ulrich Delius, the longtime head of the Society for Threatened Peoples, based in Göttingen, Germany. He tried to establish contact with the company at the time.

Instead, the company posed as a promoter of peace and prosperity in the restless region. Then CEO Martin Winterkorn said that by building a factory in Ürümqi, Volkswagen was taking "a leading role in the industrialization of the country." The company, he said, wouldn’t just build cars, but would also integrate local minorities. Today, VW says: "All of our decisions are based on economic considerations and forecasts." The factory in Ürümqi, the company says, was established "to cover the growing demand for high-quality vehicles in western China." But the anticipated economic miracle never materialized.

Former German Chancellor Angela Merkel with ex-VW CEO Martin Winterkorn during a visit to a factory in Chengdu

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Former German Chancellor Angela Merkel with ex-VW CEO Martin Winterkorn during a visit to a factory in Chengdu Foto: Xiao Bo / picture alliance / dpa

The SAIC Volkswagen factory in Ürümqi: "The company makes itself liable when it closes its eyes to the obvious.”

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The SAIC Volkswagen factory in Ürümqi: "The company makes itself liable when it closes its eyes to the obvious.” Foto: Stephan Scheuer/ picture alliance / dpa

Production at the VW partner factory in Ürümqi. The plant doesn't seem to be particularly vital from a business point of view.

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Production at the VW partner factory in Ürümqi. The plant doesn't seem to be particularly vital from a business point of view. Foto: ChinaFotoPress / Visual China Group via Getty Images

In 2019, only 20,000 cars were produced by the joint VW-SAIC factory in Ürümqi, and production was also low in the pandemic year of 2020, with the lack of semiconductors proving to be a significant hurdle. The number of employees sank from a high of 600 to around 400.

And most of the cars completed there are pre-produced in eastern China. In Ürümqi, pieces are merely unpacked and screwed together, not unlike a Billy shelf from IKEA. The only relevant value added at the site is the painting of the vehicles. "The original business case no longer exists," says a source from company headquarters in Wolfsburg who is familiar with the situation.

Of particular note: When the factory was opened, a press release noted that the company had struck a deal with the People’s Armed Police, according to which the force would provide military and "patriotic training" to plant workers. In exchange, the police force was given two vehicles. VW and its Chinese partner bequeathed those vehicles to the police force that is today considered to be the driving force behind the mass internments and arrests in the region.

When reached for comment, the company stated that prior to the opening of the factory, its partner SAIC had presented two vehicles to neighboring People’s Armed Police stations. The tradition, VW insisted, is rooted in the 1980s and "is widespread throughout China." The company did not reply to the question as to how those vehicles are currently being used.

Thus far, the nadir of VW’s inauspicious involvement in Ürümqi came in 2019, when CEO Diess told a BBC reporter that he knew nothing about internment camps in Xinjiang. The company, to be sure, quickly backpedaled and claimed that Diess is "of course aware" of the situation, but the damage had been done. Media outlets around the world reported on Diess’ comments, with British historian Timothy Garton Ash writing in the Guardian  of a "moral car crash."

The company has yet to find a way out of its awkward predicament. When VW sales numbers in China began to crater during the pandemic, the relatively small factory in the Uyghur region began looking more useless than ever. Sources in Wolfsburg say that company executives began discussing a possible closure. But agreement was quickly reached to keep it in operation. A rapid scrapping of the plant, it was feared, could look like an admission that not everything was kosher from a human rights standpoint. VW says claims that such a factory closure was considered mere speculation. The company says that production facilities cannot simply be closed from one day to the next. Diess also defended his company’s operations in Xinjiang this week, saying that a VW withdrawal would have negative consequences for the region.

So the VW factory in Ürümqi is continuing operations. Uyghur representatives and human rights activists are not impressed. "A company that is partially state owned and which employed forced laborers in World War II is again making itself culpable," says Dolkun Isa, president of the World Uyghur Congress. "The company makes itself liable when it closes its eyes to the obvious."

The mere suspicion that Volkswagen could be profiting from slave labor is a disaster for the company. During the Nazi era, some 20,000 forced laborers were made to assemble vehicles and landmines for the Wehrmacht in VW factories. The company has affirmed that no Ürümqi employees are forced to work under coercion, that they all have a direct contract with SAIC Volkswagen and that they are hired based on qualification "independent of age, religious conviction or ethnic affiliation." But such claims cannot be independently verified.

Not a single journalist has thus far visited the factory. And politicians haven’t made much of an effort to closely examine the production facility. The last, and only, German parliamentarian to visit the factory – aside from former Lower Saxony Governor David McAllister of the CDU – was Green Party politician Viola von Cramon, and that was way back in 2012. Local management did their best to show her a model factory. Security officials, though, were on alert during her visit and a leading VW representative was arrested immediately after Cramon’s departure. The Chinese authorities were apparently not particularly pleased that a critical lawmaker from Germany had been invited to the site.

The Green Party politician still has significant doubts as to whether human rights are really guaranteed in the factory, as claimed by the company. "I haven’t yet seen VW present proof that there is no forced labor at the site," says Cramon. She says that the company’s supervisory board is guilty of "total failure."

Green Party politician Viola von Cramon speaks of a "total failure" of the VW supervisory board.

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Green Party politician Viola von Cramon speaks of a "total failure" of the VW supervisory board. Foto: IMAGO/Christoph Hardt / IMAGO/Panama Pictures

Even an urgent letter from Uyghur representative Isa was greeted with little more than a shrug of the shoulders by VW executives. In the letter from April 2019, Isa reported that the treatment of Uyghurs in China had "worsened dramatically," and he wrote of "arbitrary mass arrests." Volkswagen stands for honorable principles, Isa noted, but does so primarily on paper. VW’s top executive in China, Stefan Wöllenstein, responded with a letter full of platitudes: "We stand by our responsibilities in all business areas over which we have direct control."

It is a proviso that raises questions. What can Volkswagen really control? What does the company actually want to control?

VW insists that that the joint-venture companies it is part of in the People’s Republic are "non-controlled companies of the Volkswagen Group." Which is why the Volkswagen social charter apparently does not apply to Ürümqi. The company’s partner SAIC holds a majority stake, which also applies to the factory in Ürümqi. It has control over personnel decisions.

Volkswagen isn’t even able to say precisely how many Uyghurs work at the factory. The company will only say that "Uyghurs and other minorities" make up 27 percent of the workforce, which reflects the population makeup in the Ürümqi region. But the percentage is not "broken down by specific ethnicities." That means: Nobody can really say how many Uyghurs work at the factory, not even VW itself.

"Other minorities" working at the factory could include Kazakhs, who are well represented in Xinjiang, or Hui Chinese, who practice Islam but are considered to be relatively well-integrated in the country. It seems rather implausible that Uyghurs are treated equally in the SAIC Volkswagen factory in Ürümqi, given that they are otherwise systematically oppressed in the region.

The company does, at least, seem to have finally recognized just how significant is the threat posed to its reputation by the factory in Ürümqi. Following his clumsy interview, CEO Diess announced plans to visit the site. VW says the trip will take place as soon as the coronavirus situation allows for it.

It seems unlikely, though, that the situation for the workers in the factory there will change much as a result of Diess’ visit. VW isn’t apparently planning any significant investments in the factory in Ürümqi, with the company not intending to build electric cars in the Uyghur region in the foreseeable future.

"The internal combustion vehicles produced there," VW said in a statement, "will remain relevant outside the mega-cities for quite some time to come." 

Der Spiegel