On Wednesday, German auto manufacturer Volkswagen (VW) announced that it would sell its operations in Xinjiang. The move comes after years of pressure from rights groups that have documented the Chinese government’s grave abuses—including forced labor—against Uyghurs and other ethnic groups in the region, and the attendant complicity of Western corporations that operate there. However, based on the company’s statements, economics rather than human rights may have been the primary motivation for its recent decision-making. Reuters first reported on VW’s exit from Xinjiang and the extension of its partnership agreement with SAIC in China:

The carmaker made the announcement at the same time as saying it would extend its partnership with Chinese partner SAIC by a decade to 2040, a major move by the German carmaker in its biggest market, where sales have been flagging.

[…] VW and SAIC will sell their plant in Xinjiang to Shanghai Motor Vehicle Inspection Certification (SMVIC), a unit of state-owned Shanghai Lingang Development Group, which will take on all its employees, they said.

Under the terms of the deal, for which financial details were not disclosed, SMVIC will also take over SAIC/VW’s test tracks in Turpan, Xinjiang, and Anting in Shanghai. Volkswagen will then no longer have a presence in Xinjiang. Beijing has denied any abuses there.

[…] Volkswagen has denied reports that it kept the plant open as a condition from Beijing to keep producing across China. It said on Wednesday the decision to sell the plant was made for economic reasons. [Source]

German outlet Die Zeit reported that VW’s China boss Ralf Brandstätter would have liked to sell the Xinjiang plant earlier, but talks dragged on and a sudden unilateral exit would have been considered a breach of contract and severely curtailed VW’s market access. Dana Heide, a correspondent for German outlet Handelsblatt who was previously stationed in Beijing, added that VW’s decision may also have been motivated by the fact that political pressure would have continued to grow from the U.S. market and particularly Donald Trump, whose incoming administration has been critical of Germany’s economic dependence on China. Highlighting other factors, Patricia Nilsson and Edward White from The Financial Times described the likely calculus from VW’s Chinese partner and the Chinese government:

SAIC, VW’s largest JV partner in China, had long opposed selling the plant. But one person familiar with the decision said growing domestic competition was forcing Chinese carmakers to shift focus to their expansion in Europe, where a presence in Xinjiang might affect sales because of human rights concerns.

[…] Shaun Rein, founder of Shanghai-based China Market Research Group, said he did not expect the withdrawal from Xinjiang to trigger consumer boycotts similar to those faced by retail brands H\&M and Adidas in 2021, after they pledged to avoid cotton sourced from the region.

Rein said any backlash towards the VW brand would probably be “more muted because consumers will see that Volkswagen is being forced rather than proactive”, pointing to the pressure from its investors.

“I actually think the government will try to underplay the closure because they want Volkswagen and German industry to keep investing in China,” he added. [Source]

Indeed, VW has economic incentives to expand its presence in the Chinese market. On Wednesday VW also announced plans to launch 18 new car models in China by 2030, including eight electric vehicles (EVs). “China has taken on a pioneering role in the field of electromobility and important technological advances are being made in the country. Volkswagen must, therefore, maintain a presence in China in order to participate in this technological progress,” said Pal Skirta, an auto analyst at Metzler Bank. While EVs and hybrid cars are now dominant in China, VW’s Xinjiang plant was designed to make gasoline-powered cars. VW’s slow transition to EVs has proved costly. In October, it announced that it would close “at least” three German plants and lay off thousands of workers, marking the first domestic factory closures in VW’s 87-year history.

Last year, after VW released a summary of an audit of its Xinjiang facility that appeared to absolve the company of any human rights violations, all 20 staff members of the consultancy hired to conduct the audit publicly distanced themselves and claimed only two executives were involved. In September, a leaked copy of the full audit showed that VW actually failed to meet international accountability standards. Reacting to the news of VW’s exit from Xinjiang this week, Sophie Richardson, former China director at Human Rights Watch, wrote: “@VW⁩ and all the other companies complicit in #China govt #humanrights abuses incl #forcedlabor and no #duediligence should have left long ago.” Yaqiu Wang, director for China research at Freedom House, wrote: “Instead of innovating, Volkswagen chose forced labor and kowtowing to CCP as its business model. End results: getting crushed by cheaper Chinese cars, massive job cuts in Germany, and a soiled global human rights reputation.”