The German business dilemma in China

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When BASF last week announced it would sell the stakes of its two plants in China’s Xinjiang region, it cited serious allegations of human rights abuse by employees of its local joint venture partner that were “incompatible with its values”.

The move followed German media reports that alleged employees at the company’s joint venture partner, Xinjiang Markor Chemical Industry, had carried out “home visits” to Uyghur families to gather evidence that would be passed on to authorities.

BASF stressed that audits of its Chinese ventures had never found any indication of human rights violations in its operations in Xinjiang — a region where Beijing has committed widespread human rights abuses against Uyghur and other Muslim groups.

But Markor had not tried to hide that its employees were carrying out state-sanctioned home visits to Uyghur families. Quite the opposite: accounts of these visits appear to have been listed in Markor’s corporate social responsibility statements, according to reporting by Der Spiegel.

The incident highlights how western businesses operating in China are increasingly struggling to straddle the growing rift between the values of many investors in their home countries and those of the Chinese government — as well as existing US and upcoming EU legislation targeting Xinjiang supply chains.

Punishment for companies caught up in geopolitical spats over human rights can be swift, as evidenced when brands such as H&M and Nike in 2021 were widely boycotted by Chinese consumers after they acquiesced to pressure from their home regions to stop buying cotton from Xinjiang.

Janne Werning, head of ESG capital markets at Union Investment, argues that BASF — which is building a €10bn petrochemical plant in southern China — was not likely to face boycotts for its decision to pull out of Xinjiang mainly because…