Multinational firms face significant challenges when operating in autocracies like China, where human rights concerns complicate business practices. Volkswagen, with its extensive history in China, has navigated these complexities, including the controversial establishment of a plant in Xinjiang amid reports of human rights abuses against Uighurs. As the firm shifts away from the region, it reflects broader issues of corporate responsibility and the potential diminishing global focus on local human rights violations.
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Navigating Business in Autocracies
For multinational corporations, operating within autocracies and dictatorships presents a complex challenge. This is particularly evident in China, where the vast size and economic influence compel companies to engage with the nation, despite its human rights practices falling short of Western standards.
Volkswagen’s Experience in China
Few European firms have as deep an understanding of the Chinese market as Volkswagen Group, which initiated its first joint venture with the state-owned SAIC nearly four decades ago. Currently, Volkswagen boasts nearly forty production facilities across China. Historically, these joint ventures were the only means of establishing production in the region.
In partnership with SAIC, VW launched a smaller plant in Urumqi, the capital of the economically disadvantaged Xinjiang province, back in 2013. This factory, situated far from other operations, was rumored to be a concession made by the government, allowing VW to set up a much larger facility 4,000 kilometers away in Foshan. However, the decision to open the plant carried inherent risks, considering the already tense ethnic climate in the province.
Shortly after the factory’s opening, the Chinese government intensified its crackdown on the Muslim Uighurs residing in Xinjiang. Numerous credible reports detailing human rights abuses, including forced labor and re-education camps, began to emerge, putting pressure on businesses operating within the province. This criticism was voiced not only by human rights organizations but also by investors concerned about Volkswagen’s involvement. The Beijing government, however, has consistently denied these allegations.
While the backlash affected Volkswagen’s reputation, withdrawing from Xinjiang against the wishes of its partner SAIC and the government would likely have led to severe repercussions for the company’s operations throughout China. The management repeatedly claimed ignorance of forced labor practices at the plant and asserted that they provided employees with opportunities for prayer and religious observance, even communicating this to NZZ. Nonetheless, the company’s influence appeared to dwindle outside the factory gates.
After the pandemic, the already economically insignificant facility, which employed around 170 workers including approximately 40 Uighurs, lost its relevance. Production ceased in 2019, with the plant serving merely for vehicle commissioning. For VW’s management, the factory became a moral burden. Consequently, selling the plant along with two test tracks in Xinjiang offered a welcomed relief. While the economic rationale for this decision is likely sound, it may also serve as a strategic maneuver to appease Beijing.
Similarly, BASF, another German corporation, recently opted to divest its interests in two joint ventures based in Xinjiang. With Volkswagen’s exit, this marks the departure of a second significant Western entity from the region. For these companies, this withdrawal may provide a sense of relief, yet it also presents challenges.
The involvement of global corporations in sensitive areas often highlights the prevailing issues faced by local populations. This was particularly true regarding the documented human rights abuses in Xinjiang. As these businesses withdraw, there is a tangible risk that global attention on these critical issues may diminish or even vanish entirely.
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