Volkswagen sells controversial Xinjiang plant to Chinese partner

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Volkswagen is withdrawing from its controversial involvement in the Chinese Uyghur region of Xinjiang. The plant in Urumqi, which was operated with the Chinese state-owned company Saic as a partner, has been sold, the Group announced today. The buyer is the Chinese state-owned company SMVIC, which is active in the used car business.

The Urumqi site in the autonomous region of Xinjiang has long been criticized because the Chinese state is accused of human rights violations against Uyghurs there. Volkswagen investigated the allegations with its own investigation.

Volkswagen had operated the plant together with the car manufacturer Saic as a joint venture. Economic reasons were given as the reason for the sale. The future of the plant had been negotiated for months. No more cars have been built in Xinjiang since 2019.

"Human rights are non-negotiable"

Shareholder representatives welcomed the decision. "VW is putting an end to the controversial discussions," said Ingo Speich from the investment company Deka Investment. "This is a long overdue step that shows that human rights are not negotiable," emphasized Janne Werning from Union Investment. However, weaknesses in corporate governance remain "VW's Achilles heel".

The state of Lower Saxony, which holds a stake in VW, expressed its satisfaction with the decision: "The state government of Lower Saxony welcomes the sale of the joint venture site in Urumqi and the test tracks in Turpan and Anting," said a spokeswoman. The state of Lower Saxony holds 20 percent of the voting rights in VW. Minister President Stephan Weil (SPD) and his deputy Julia Willie Hamburg (Greens) sit on the Supervisory Board.

Contract with Saic extended

Volkswagen also extended its cooperation agreement with Saic on Tuesday by a further ten years until 2040. However, there is no connection between the withdrawal from Xinjiang, which was sealed a few days ago, and the contract extension, according to Volkswagen.

VW intends to launch a new product offensive in China from 2026 and bring 18 new models from the core Volkswagen brand and Audi onto the market with Saic by the end of the decade. Of these, 15 will be exclusive to the Chinese market. The Group aims to sell four million cars a year by 2030 and thus achieve a market share of 15 percent in China. According to the company's own figures, last year's share was 14.5 percent.

The accusations in Xinjiang

Volkswagen had opened the plant in the provincial capital of Urumqi in 2013 with Saic – with a planned contract term until 2029. According to VW, Saic had the controlling majority at the site, where vehicles were once assembled for sale in western China. However, the project failed in the weaker than expected market.

Instead, serious allegations of human rights violations due to forced labor at the plant have been made in recent years. Xinjiang is home to many Uyghurs – a Muslim minority. According to human rights activists, hundreds of thousands of them have experienced years of oppression, have been forced to work or have been sent to re-education camps. China denies the allegations.

Extremists in the region, as well as other parts of China, have carried out deadly terrorist attacks over the years. From 2014, Beijing finally cracked down on Muslim minorities in resource-rich Xinjiang.

Difficult to come to terms with

Following the allegations in the summer of 2023, VW commissioned a company to investigate the working conditions at the plant with regard to the allegations. In December, the auditors announced that they had found no evidence or proof of forced labor among the employees. Critics complained that the anonymity of the employees questioned in the investigation had not been adequately protected.

In February, Volkswagen finally declared that it was in talks with Saic about the future direction of its business activities in Xinjiang. However, the withdrawal from the province proved difficult, as Saic also had to agree to this.

VW's partner in China

Volkswagen founded a joint venture with the Shanghai Automotive Industry Corporation (Saic) back in the 1980s. This joint venture laid the foundation for Volkswagen's expansion into the Chinese market. This was later followed by the establishment of another joint venture with China First Automobile Works (FAW). In 2017, VW also founded a joint venture with Anhui Jianghuai Automobile (JAC). This company focuses on the development and production of electric vehicles. Volkswagen has also entered into a strategic partnership with the Chinese electric vehicle manufacturer Xpeng.

For a long time, foreign car manufacturers in China had to produce their vehicles exclusively through joint ventures with local partners. This regulation made it possible to gain access to the huge Chinese market, but also led to technology transfers. In recent years, Beijing began to relax the regulations until the restrictions were finally lifted completely in 2022. Volkswagen nevertheless held on to its Chinese partners. The VW Group now operates a total of 38 factories in the People's Republic, excluding Urumqi.

Who will take over the Xinjiang plant?

The buyer of the plant in Urumqi and the two test tracks in Turpan and Anting with its remaining 170 employees is a state-owned company from Shanghai. The new owner has promised to take on the remaining employees, it was reported.

The plant had also caused problems for VW due to the weak vehicle market in the region and the Covid pandemic. No cars have been produced there since 2019. Most recently, the workforce, almost a quarter of whom belonged to an ethnic minority according to older VW figures, took care of the technical commissioning of models such as the Passat or Lavida, for example by adjusting the chassis or carrying out further tests. At its best between 2015 and 2019, the plant employed around 650 people, according to VW.

Rumors about the Nanjing plant and others

VW plans to further adapt its production network beyond Xinjiang, according to reports. The sites are to be converted to focus on electrification. According to VW, however, this is not possible for all plants. There have already been rumors in the past that VW could divest its plant in Nanjing in eastern China.

It has recently become clear that VW is in crisis. In Germany, employees are worried about plant closures or redundancies. The situation in China has also deteriorated visibly. The Middle Kingdom guaranteed VW bubbling profits for decades.

According to experts, however, the Group failed to launch e-mobility in China and had high costs with low capacity utilization. VW followed suit with electric cars built specifically for the Chinese market, but brands such as BYD and Li Auto have so far been able to drive away in the fierce price war between Chinese competitors. According to Volkswagen, 2025 will therefore still be difficult. From 2026 onwards, the trend should then point upwards again.

(fpi)