In a recent development, Volkswagen (VW), the German car manufacturer, is being urged to sever ties with its joint venture partnership with SAIC in China's Xinjiang region due to concerns of forced labor. The call comes after a new report linked VW's facilities in the area directly to the use of forced labor.

According to Adrian Zenz, Director of China Studies at the Victims of Communism Memorial Foundation in Washington, the evidence directly implicates Volkswagen in forced labor. VW has not disputed these allegations but claims to have found no evidence of abuse while pushing SAIC for answers.

In December last year, an audit conducted at the site by VW revealed no indications of forced labor being used at the Xinjiang factory. Although the factory no longer produces cars, it still provides quality control and technical services. However, the recent report has raised concerns about the association between VW and forced labor.

As a consequence of breaching anti-forced labor laws, Volkswagen recently disclosed that it is currently holding several thousand models in U.S. ports. This came to light after the discovery of a small electrical component used in the cars, which is in violation of these laws.

Germany has been urging domestic companies to reduce their exposure to China, and in a recent poll, 44% of German companies revealed that they have taken measures to insulate their Chinese businesses from outside risks. This aligns with Germany's goal to minimize its dependency on China, which constituted 10.3% of its foreign direct investments in 2020, a significant increase from the average of 3% between 2018 and 2020.

Following the latest allegations of VW's involvement in forced labor, Union Investment, the head of one of Germany's largest public investment funds, announced that the carmaker is no longer considered investable for their sustainable public funds.

Volkswagen is currently engaging in discussions with SAIC regarding the future of their joint venture's operations in Xinjiang Province. The company stated that various scenarios are being examined intensively.

The situation raises concerns about automakers' responsibility to ensure the transparency and origin of all components used in vehicles, especially those imported into the United States. Senator Ron Wyden, head of the Senate Finance Committee, expressed his worries, emphasizing the need for automakers to ensure that their sub-suppliers do not employ forced labor in the production of car parts.

As pressure mounts for Volkswagen to address the forced labor concerns and with the potential consequences for its joint venture with SAIC, the future direction of the company's activities in Xinjiang Province remains uncertain.