Partnership with Saic: VW in China separates from controversial plant in Xinjiang

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

The Urumqi location in northwest China has long been criticized for human rights violations against members of the Uighur minority. VW investigated the allegations with an investigation.

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

At the same time, on Tuesday, the Wolfsburg-based company extended its cooperation agreement with Saic by another 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, Volkswagen said.

VW wants to start a new product offensive in China from 2026 and bring 18 new models from the core Volkswagen and Audi brands onto the market with Saic by the end of the decade. Of these, 15 are exclusive to the Chinese market. By 2030, the VW Group wants to sell four million cars a year and thus have a market share of 15 percent in China. Last year, according to VW, the share was 14.5 percent.

The allegations in Xinjiang

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

Instead, in recent years there have been serious allegations of human rights violations caused by forced labor at the plant. Many Uighurs – a Muslim minority – live in Xinjiang. According to human rights activists, hundreds of thousands of them had experienced years of oppression, were forced to work or sent to re-education camps. China denies the allegations.

In the region, but also in other parts of China, extremists, among others, had carried out deadly terrorist attacks for years. Starting in 2014, Beijing finally cracked down on Muslim minorities in resource-rich Xinjiang.

A difficult processing

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

In February, Volkswagen finally announced that it was in discussions with Saic about the future direction of its business activities in Xinjiang. But withdrawing from the province was difficult because Saic also had to agree to it.

VW’s partners 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. Another joint venture was later founded with China First Automobile Works (FAW). In 2017, VW also founded a joint venture with Anhui Jianghuai Automobile (JAC). This company focused 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 arrangement 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 still stuck with its Chinese partners. In total, the VW Group now operates 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 just over 170 employees is a state-owned company from Shanghai. It was said that the new owner had promised to take on the remaining employees.

The plant also caused problems for VW because of the weak vehicle market in the area and the corona pandemic. No cars have been produced there since 2019. Most recently, the workforce, of which, according to older VW information, almost a quarter belonged to an ethnic minority, took care of the technical commissioning of vehicles such as the VW Passat or Lavida, for example adjusting the chassis or carrying out further tests. At its peak between 2015 and 2019, the plant had around 650 employees, according to VW.

Other works may be under review

VW wants to further adapt its production network beyond Xinjiang, as it was said. The locations are to be converted to focus on electrification. According to VW, however, this is not possible for all plants. There had been rumors in the past that VW could sell its factory in Nanjing, eastern China.

It recently became clear that VW is in a crisis. In Germany, employees are worried about factory closures or layoffs. The situation has also visibly deteriorated in China. The “Middle Kingdom” guaranteed the people of Wolfsburg bubbling profits for decades.

According to experts, however, the group failed to start e-mobility in China and had high costs and low utilization. VW followed suit with electric cars built specifically for the Chinese market, but brands like BYD and Li Auto have so far been left behind in the bitter price war among Chinese competitors. According to Volkswagen, 2025 will therefore be difficult. From 2026 onwards, the trend should be upwards again.