BERLIN

Volkswagen has announced the sale of its operations in China's controversial Xinjiang region, culminating years of mounting international pressure regarding alleged human rights abuses against the Uyghur population.

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The automotive manufacturer revealed on Wednesday that it would sell its Xinjiang plant to Shanghai Motor Vehicle Inspection Certification (SMVIC), a subsidiary of state-owned Shanghai Lingang Development Group. Simultaneously, the company confirmed an extended partnership with its Chinese collaborator SAIC, prolonging their joint venture until 2040.

The Xinjiang facility, established in 2013 and previously dedicated to assembling Volkswagen's Santana vehicle, had been operating at a significantly reduced capacity in recent years. With approximately 200 employees remaining to conduct final quality checks and vehicle handovers, the plant's annual manufacturing capacity of 50,000 units had remained unused since 2019.

Volkswagen has categorically denied allegations that the plant's continued operation was contingent upon Beijing's requirements for maintaining broader Chinese market access. The company emphasised that the divestment decision was primarily driven by economic rationales.

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The sale has been broadly welcomed by key stakeholders, including Lower Saxony—Volkswagen's second-largest shareholder. Deka Investment, a prominent top-20 shareholder, praised the move as likely to conclude controversial discussions with minimal financial repercussions.

Janne Werning from Union Investment characterised the divestment as "a long overdue step which showed that human rights are not negotiable," highlighting the significant ethical dimension of the transaction.

The announcement arrives against a backdrop of escalating trade tensions between China and Western nations. Recent developments, including the European Union's punitive import tariffs on Chinese electric vehicles and potential United States trade restrictions, have significantly complicated international automotive market dynamics.

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Despite the Xinjiang plant's sale, Volkswagen remains committed to the Chinese market. The extended partnership with SAIC aims to introduce 18 new models by 2030, including two extended-range models specifically designed for Chinese consumers.

This strategic move reflects the evolving landscape of foreign automotive manufacturing in China, where joint venture requirements have been progressively relaxed. Since 2022, foreign companies have been permitted full ownership of passenger car enterprises, though Volkswagen appears to favour maintaining its collaborative approach.

The company's diversified joint venture portfolio—including partnerships with state-owned entities like FAW and JAC Automobile Group, and the emerging EV-focused startup Xpeng—demonstrates a nuanced approach to navigating China's complex automotive ecosystem.

Following the announcement, Volkswagen's shares experienced a marginal decline of 0.5%, aligning with broader market trends. The stock has witnessed a substantial 26% reduction this year, coinciding with the company's aggressive cost-cutting strategy and restructuring efforts.