The situation around Taiwan is tense. China is increasing its military maneuvers, while the US assures the island of its support, including militarily. Taiwan’s de facto foreign minister, Joseph Wu, sees his country already at war with China, in a hybrid war. According to Wu, there have been 15,000 cyberattacks in recent months – per second, mind you. Targets include government institutions, critical infrastructure, hospitals and banks.
In an interview with Felix Lee, Wu praises Germany’s role in this conflict. However, he believes that Berlin must now consider the next steps. For example, Wu could envision a meeting with Germany’s Foreign Minister Annalena Baerbock. You can find out what Wu thinks about the upcoming election in Taiwan and the potential impact of Donald Trump’s comeback to the White House on Taiwan in today’s Interview.
Another Chinese focal point of global attention is Xinjiang. The Volkswagen Group is in the midst of it, struggling to maintain its reputation. With new insights from the Xinjiang Police Files, the company is getting closer to state-controlled forced labor structures, writes Marcel Grzanna. While there is still no evidence of human rights violations at VW, it is becoming increasingly difficult for the company to prove otherwise.
Local universities not only purposefully train workers for the automotive industry. Some students transition directly from state internment camps to educational institutions. The company washes its hands of any wrongdoing and points to a hiring freeze. Volkswagen plans to present the results of an independent audit by the end of the year. Whether critical investors will be satisfied remains to be seen.
China regularly threatens Taiwan with military maneuvers. How serious is the situation?
The military threat to Taiwan has increased in recent years. The Chinese seem to be practicing for a potential attack on Taiwan, but so far, we have not seen any concrete military preparations. The Chinese military is following the theories of ancient military philosophers. The supreme principle here is to defeat the enemy without using violence. This is what China is trying to do at the moment. Beijing wants to conduct a hybrid war against us – to the extent that the Taiwanese cannot endure it. They want us to relinquish our power, and that’s it: Taiwan becomes part of China. That is their tactic.
And is China’s tactic working?
If you speak to the people here, you will find that they lead normal lives. Even the business people are calm. They are even investing more in Taiwan, especially foreign investors.
Nevertheless, the hybrid war has already begun. Can you describe that in more detail?
Taiwan is the number 1 target globally for cyber attacks: According to our calculations, there have been 15,000 attacks per second in recent months. The main targets are government institutions, critical infrastructure, hospitals and banks.
What role do disinformation campaigns play?
Taiwan is also the most affected by disinformation campaigns, especially when important events are approaching, such as the upcoming presidential and parliamentary elections in January or during the COVID-19 pandemic. The purpose of these campaigns is to divide society and create distrust towards the public and the government. They are trying to undermine the foundations of democracy.
The world is currently grappling with two major wars: Russia has invaded Ukraine, and the Middle East conflict has escalated again. How has the security situation in Taiwan changed as a result?
When the war broke out in February 2022, there was indeed concern that international attention for peace and stability in the Taiwan Strait would no longer be present, and China could take advantage of this because the world is focused on Ukraine. Over time, however, we have found that support from the US, Europe, Canada and many other countries is even increasing. In every major meeting of world leaders, whether it’s the G7 summit or the EU summit, there is only one topic that never fails – and that is the stability of peace in the Taiwan Strait.
What can Taiwan learn from the resistance of the Ukrainians?
First, their bravery and determination to defend themselves, their freedom and sovereignty. Second, Ukraine is capable of using asymmetric warfare. We are in the process of implementing military reforms that should enable our army to do the same. The third point is the importance of international support. It gives Ukrainians the feeling that they are not alone.
Only twelve countries officially recognize Taiwan as a country. What challenges does that pose?
This is a very serious challenge, but at the same time, we have made tremendous progress in recent years. As you may have read in the news, I have had talks in Washington. But also in Europe, more and more countries are openly supporting Taiwan. I have been to Bratislava twice, Prague twice, Warsaw twice, several times in Brussels, the Baltic States and Denmark. This shows that China cannot prevent me as foreign minister from traveling to like-minded states. These countries may be small to medium-sized, but morally, they are superpowers because they are willing to accept me and speak out very energetically against authoritarianism and the threat to Taiwan.
In March, Education Minister Bettina Stark-Watzinger visited Taiwan and concluded an agreement for scientific cooperation. The Finance and Economy Ministers have not been there yet. Should Germany do more?
That is for the German government to decide. But in the Taiwanese population, there is a great hunger for better relations between Taiwan and Germany. We share the same basic values and see a global dynamic developing between democracy and autocracy. Taiwan is the focal point of aggression and threats from an authoritarian country. The German government has often spoken out for peace and stability in the Taiwan Strait, and that is commendable. But then we also have to think about the next step.
What would be the next step?
In Europe and among the G7 countries, there is a consensus that there is a risk in dealing with China – and I think the German government should consider this in its political decisions. If Germany tries to reduce risks in business relations with China next, Taiwan could indirectly benefit from it.
Should Foreign Minister Annalena Baerbock travel to Taiwan?
That is not my decision alone. Of course, I do not rule out the possibility of a meeting with my counterpart, even in Berlin. Economic relations between Taiwan and Germany are getting closer, such as through our investments in Dresden. We must also consider the possibility of a meeting between government representatives at a higher level to discuss issues that are in our bilateral interest.
You mean the factory that the world’s largest chip manufacturer TSMC will build in Dresden. Taiwan is a leader in semiconductor production. Are chips Taiwan’s shield?
Do you know how small a chip is? Semiconductor production here in Taiwan should be for the benefit of the rest of the world and we want to continue contributing to the economic growth of industrialized countries. But if China invades Taiwan and disrupts the semiconductor supply chain, it will cause many problems for the rest of the world. About 60 percent of the world’s semiconductor production comes from Taiwan, and for high-end products, it is even 90 percent. In addition, 50 percent of all traded goods pass through the Taiwan Strait. A blockade would lead to significant international trade problems.
Wouldn’t China only have to block the Taiwan Strait to break the international community’s solidarity with Taiwan?
I think the international response to a blockade would be very sharp, and the People’s Republic itself would suffer from it. Already, Beijing is trying to drive a wedge between Taiwan and other countries, but it is not working. China’s expansionist ambitions have rather led to more democracies coming together than causing a split. Therefore, I am confident that international support for Taiwan will continue in the future.
It is often said that nobody wants war – even Chinese Party and State Leader Xi Jinping says that. At the same time, the People’s Republic wants to have its army fully modernized by 2027 and be a global power by 2035. Do you believe him when he talks about peace?
Should I believe him? Xi Jinping is said to have told US President Joe Biden at their last meeting two weeks ago that he knew nothing about the 2027 or 2035 timeframe. If he is serious about this, it would be good news for many people, not only in Taiwan but also in China. At the same time, the Chinese military is intensifying its military exercises. So we have to prepare for the worst scenario – and at the same time, try to prevent it.
How is that supposed to work?
First, Taiwan must act and behave as a responsible, moderate actor. Second, we must build up our deterrent capabilities. We are investing in our defense and have extended mandatory military service for men from four months to one year. At the same time, we see important countries like the US, Japan and Australia also strengthening their military preparations in the region. Together, we should be able to prevent a war.
Taiwan will hold elections on Jan. 13. Are you worried that the progress in Taiwan’s international relations achieved by your party, the DPP, is at risk if the China-friendly opposition party KMT wins?
As Foreign Minister, I must be neutral because I work for the interests of the country and not for those of a political party. But I can say the following: Our main approach in the relationship between Taiwan and China is to maintain the status quo in the Taiwan Strait. I do not believe that a new government would deviate from this fundamental political orientation.
The US is Taiwan’s most important supporter. What if Donald Trump is re-elected in the US in November 2024?
Donald Trump would be a different type of leader than Joe Biden. However, we see bipartisan support in both chambers of the US Congress, and therefore, we are of the humble opinion that even if President Trump were to replace President Biden, support for Taiwan would continue.
Felix Lee took part in the interview that Joseph Wu conducted with several German journalists on behalf of Table.Media during a research trip by the Journalists Network e.V.
With an independent plant audit, the Volkswagen Group aims to finally dispel criticism of its involvement in Xinjiang. However, new insights from the Xinjiang Police Files continue to intensify pressure on the German automaker.
Recent investigations by China researcher and anthropologist Adrian Zenz suggest that the joint venture between Volkswagen and the state manufacturer SAIC has close ties to the Xinjiang Industry Technical College in Urumqi. The college is located in the Toutunhe district of the regional capital, an industrial zone where the Volkswagen factory is also situated.
The college reportedly offers a degree in automotive production, listing Volkswagen as one of the companies where graduates can typically find employment. According to Zenz, it is “directly plausible that Volkswagen could have hired Uyghurs who were interned in a reeducation camp”.
The college offers vocational education in collaboration with companies through research integration. Volkswagen is said to be involved, according to the college’s website. The college organized job fairs for graduates, with Volkswagen reportedly participating, as Zenz told Table.Media.
While it is not proven that the Wolfsburg-based company has former inmates of internment camps on its payroll, Volkswagen is getting closer to the structures of state-sponsored, systematic forced labor programs. A spokesperson for the company told Table.Media that they have no knowledge of collaboration with the college.
Instead, the company points to a “hiring freeze at the factory,” which has been in place for many years. In practice, the workforce at the plant has decreased since the outbreak of the COVID-19 pandemic in the spring of 2020. The company could not initially answer further questions about details.
“The new data concretely shows how close Volkswagen is to human rights abuses. Anyone operating a plant in this region has the fundamental problem that it is only a matter of time until directly affected,” says Zenz. In his research, he came across cases suggesting that Uyghurs from internment camps are immediately placed into vocational training, including in educational institutions that train their students directly for work in companies like Volkswagen.
A lot is at stake for Volkswagen. The company aims to convince the US rating agency MSCI to withdraw its “Red Flag”. MSCI had disqualified Volkswagen shares due to its involvement in Xinjiang. Investors such as the fund company Union Investment had urged Volkswagen to clarify the allegations by the end of the year. If the company fails to do so convincingly, Union Investment will remove the company’s securities from its sustainability segment.
The fund company Deka has already excluded Volkswagen shares from its sustainability offering. However, Deka also cited deficiencies in transparency and the composition of Volkswagen’s supervisory board in its decision.
At the company’s Capital Market Day in June at the Hockenheimring, CEO Oliver Blume assured investors of an independent audit. He stated that they wanted to get rid of MSCI’s “Red Flag”. In October, it was announced that an audit firm had been found. However, Volkswagen plans to disclose the name only when the results are published.
The internal police reports that made the Xinjiang Police Files public provide clues to individual fates that must be painstakingly pieced together to recognize possible patterns. Researcher Zenz became aware of the case of a Uyghur named Adiljan Hashim, who entered a reeducation camp in October 2017. After his release, he immediately began his studies.
According to the police report, Hashim was “released” (担保释放人员) on guarantee. This means someone has vouched for him. This type of release is very specific. The government retains control over the person’s whereabouts and activities; in this case, vocational training, according to Zenz.
The Xinjiang Vocational University in Urumqi also maintains close contacts with local companies. In an article from October, the university describes its close cooperation with companies for practical vocational training. According to Zenz, this article also mentions Volkswagen. The university also offers degrees in automotive technology. Therefore, Volkswagen is mentioned as one of the usual employers for graduates, although, according to the spokesperson, no new employees have been hired for years.
A police report from December 2017 states that a Uyghur named Ekpar Ablet was arrested in July of the same year and sent to a reeducation camp. Ablet was a student at Xinjiang Vocational University. It is unclear whether and when he was released. “But a significant number of Uyghurs were released into forced labor after one to three years of reeducation, including in further education,” says Zenz.
Two specific cases, where Uyghurs were placed directly from reeducation camps into vocational training schools in Hotan, are also documented in internal government documents. The Hotan Vocational Skills College offers training in automotive mechanics. This degree was developed in collaboration with the so-called Pairing Assistance Program, where regions in East China are paired with minority regions in Xinjiang and Tibet.
Several research reports have shown a close connection between this program and forced labor. Cooperation with the Hotan Vocational Skills College went through Tianjin. According to media reports, more than 20 companies from Tianjin have technical cooperation with vocational training institutions in minority regions like Hotan, including the FAW-Volkswagen joint venture in Tianjin.
In the two decades since China’s State Council officially classified the real-estate sector as a “pillar industry,” the sector has undergone rapid development, propelling GDP growth and inspiring in millions of Chinese the dream of owning their own home. But the sector is now plagued by problems, from high prices to massive debts, and threatens to undermine growth at a time when China can ill afford it.
Though there is no private land ownership in China, households are eager to own their own homes, both to improve their living conditions and to accumulate wealth. Chinese cannot easily purchase foreign assets, owing to capital controls, and Chinese stock exchanges have not been performing strongly. China does not tax residential real estate, capital gains, or inheritance – and promises major gains in value. As a result, property becomes the most attractive asset form to own.
From 2005 to 2021, the real price index for residential property in China increased by 28.5 percent, from 87.95 to 112.99. While the price index has fallen a few times over the years, it has always rebounded strongly, giving Chinese the impression that, when it comes to wealth accumulation, home ownership is practically a sure thing.
But as expectations of rising housing prices and speculation cause actual prices to increase at a far higher rate than growth in household disposable income – homes have become increasingly unaffordable for young Chinese people, let alone migrant workers, who do not enjoy the same rights as permanent city residents. In some first-tier cities, housing units cost more than 40 times the average income.
China’s government has repeatedly attempted to rein in housing prices, such as by restricting the number of real-estate purchases a single household can make and even imposing administrative controls on house prices. But such measures have proved largely ineffective and sometimes even counterproductive. While this is partly because buyers and sellers find ways to circumvent the restrictions, the fundamental reason is that the real-estate sector has effectively hijacked the Chinese economy.
The real-estate sector has a very long value chain, so whatever happens there has far-reaching effects, both upstream and downstream. Slower growth in housing prices leads to slower growth in real-estate investment. Since such investment and related activities account for a major share of Chinese GDP – more than 10 percent, on average, over the last decade – this drags down overall economic growth.
For years, whenever this happened, China’s government would respond by loosening or reversing whatever measures were impeding price growth, opening the way for a powerful recovery in both real-estate investment and property prices. After the 2014-15 crash, housing prices surged – and continued to increase for the next six years, in what amounted to the longest (mostly) uninterrupted price rise since 2003.
So, in 2021, China’s government again intervened, introducing three “red lines” for real-estate developers. If any developer had a liability-to-asset ratio of more than 70 percent, a net gearing ratio of more than 100 percent, or a cash-to-short-term-debt ratio of more than 100 percent, it would lose access to bank credit. Not surprisingly, the housing price index soon started to fall, followed by growth in real-estate investment.
What was surprising was the magnitude of the fall: in 2022, real-estate investment plummeted by 10 percent year on year. And even though the government soon loosened its restrictive policy significantly, the familiar rebound never materialized. On the contrary, in the first ten months of 2023, growth in real-estate investment fell by another 9.3 percent year on year, and the amount of unsold floor space increased by 18.3 percent.
Today, a growing number of real-estate developers are teetering on the brink of default, owing to the combination of high liability-to-asset ratios and a liquidity shortage. And some – most notably Evergrande, China’s second-largest developer – have already fallen over the edge. While the Chinese regulatory authorities insist that Evergrande’s default is a one-off event that will have little impact on the market, there is no denying the rising risks in the property sector. In the past, China always managed to muddle through, but this time may well be different.
To be sure, defaults among real-estate developers, even very large ones, are unlikely to cause a systemic financial crisis in China. At the end of the third quarter of this year, outstanding bank loans in China totaled 234.5 trillion yuan (33 trillion dollars), with mortgage loans accounting for just 39 trillion yuan (16.6 percent of the total), and credit to real-estate developers stood at 13 trillion yuan (5.6 percent of the total). Given high standards for borrowers and large down-payment requirements, the quality of mortgage loans in China is high.
The problem facing banks is not the prospect of large-scale borrower delinquency, but rather a growing desire among borrowers to repay their mortgage loans early. While Chinese banks’ non-performing-loan ratio is currently very low – below 2 percent – it could rise sharply if the government fails to address the deteriorating finances of developers (and their upstream and downstream firms).
Beyond the liquidation and restructuring of failed real-estate developers, China’s government can contain the financial risks by putting real-estate developers that are at risk of insolvency under greater government control, whether through conservatorship or temporary nationalization. It could also provide liquidity to solvent developers that need it and purchase the (financial or physical) assets of developers that are under pressure to offer “fire sales“.
With a relatively strong fiscal position and a central bank with space to adopt a more expansionary monetary policy, China should be able to facilitate solutions to the real-estate industry’s debt woes. One hopes the Chinese government will muddle through yet again.
Yu Yongding, a former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, served on the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006.
Copyright: Project Syndicate, 2023.
www.project-syndicate.org
Four judges and many, many students of an elementary school in Zaozhuang, Shandong Province, hold the Constitution of the People’s Republic of China in their hands. It is the revised version from Dec. 4, 1982, which was ceremoniously showcased yesterday. The original version of the constitution dates back to 1954.
The situation around Taiwan is tense. China is increasing its military maneuvers, while the US assures the island of its support, including militarily. Taiwan’s de facto foreign minister, Joseph Wu, sees his country already at war with China, in a hybrid war. According to Wu, there have been 15,000 cyberattacks in recent months – per second, mind you. Targets include government institutions, critical infrastructure, hospitals and banks.
In an interview with Felix Lee, Wu praises Germany’s role in this conflict. However, he believes that Berlin must now consider the next steps. For example, Wu could envision a meeting with Germany’s Foreign Minister Annalena Baerbock. You can find out what Wu thinks about the upcoming election in Taiwan and the potential impact of Donald Trump’s comeback to the White House on Taiwan in today’s Interview.
Another Chinese focal point of global attention is Xinjiang. The Volkswagen Group is in the midst of it, struggling to maintain its reputation. With new insights from the Xinjiang Police Files, the company is getting closer to state-controlled forced labor structures, writes Marcel Grzanna. While there is still no evidence of human rights violations at VW, it is becoming increasingly difficult for the company to prove otherwise.
Local universities not only purposefully train workers for the automotive industry. Some students transition directly from state internment camps to educational institutions. The company washes its hands of any wrongdoing and points to a hiring freeze. Volkswagen plans to present the results of an independent audit by the end of the year. Whether critical investors will be satisfied remains to be seen.
China regularly threatens Taiwan with military maneuvers. How serious is the situation?
The military threat to Taiwan has increased in recent years. The Chinese seem to be practicing for a potential attack on Taiwan, but so far, we have not seen any concrete military preparations. The Chinese military is following the theories of ancient military philosophers. The supreme principle here is to defeat the enemy without using violence. This is what China is trying to do at the moment. Beijing wants to conduct a hybrid war against us – to the extent that the Taiwanese cannot endure it. They want us to relinquish our power, and that’s it: Taiwan becomes part of China. That is their tactic.
And is China’s tactic working?
If you speak to the people here, you will find that they lead normal lives. Even the business people are calm. They are even investing more in Taiwan, especially foreign investors.
Nevertheless, the hybrid war has already begun. Can you describe that in more detail?
Taiwan is the number 1 target globally for cyber attacks: According to our calculations, there have been 15,000 attacks per second in recent months. The main targets are government institutions, critical infrastructure, hospitals and banks.
What role do disinformation campaigns play?
Taiwan is also the most affected by disinformation campaigns, especially when important events are approaching, such as the upcoming presidential and parliamentary elections in January or during the COVID-19 pandemic. The purpose of these campaigns is to divide society and create distrust towards the public and the government. They are trying to undermine the foundations of democracy.
The world is currently grappling with two major wars: Russia has invaded Ukraine, and the Middle East conflict has escalated again. How has the security situation in Taiwan changed as a result?
When the war broke out in February 2022, there was indeed concern that international attention for peace and stability in the Taiwan Strait would no longer be present, and China could take advantage of this because the world is focused on Ukraine. Over time, however, we have found that support from the US, Europe, Canada and many other countries is even increasing. In every major meeting of world leaders, whether it’s the G7 summit or the EU summit, there is only one topic that never fails – and that is the stability of peace in the Taiwan Strait.
What can Taiwan learn from the resistance of the Ukrainians?
First, their bravery and determination to defend themselves, their freedom and sovereignty. Second, Ukraine is capable of using asymmetric warfare. We are in the process of implementing military reforms that should enable our army to do the same. The third point is the importance of international support. It gives Ukrainians the feeling that they are not alone.
Only twelve countries officially recognize Taiwan as a country. What challenges does that pose?
This is a very serious challenge, but at the same time, we have made tremendous progress in recent years. As you may have read in the news, I have had talks in Washington. But also in Europe, more and more countries are openly supporting Taiwan. I have been to Bratislava twice, Prague twice, Warsaw twice, several times in Brussels, the Baltic States and Denmark. This shows that China cannot prevent me as foreign minister from traveling to like-minded states. These countries may be small to medium-sized, but morally, they are superpowers because they are willing to accept me and speak out very energetically against authoritarianism and the threat to Taiwan.
In March, Education Minister Bettina Stark-Watzinger visited Taiwan and concluded an agreement for scientific cooperation. The Finance and Economy Ministers have not been there yet. Should Germany do more?
That is for the German government to decide. But in the Taiwanese population, there is a great hunger for better relations between Taiwan and Germany. We share the same basic values and see a global dynamic developing between democracy and autocracy. Taiwan is the focal point of aggression and threats from an authoritarian country. The German government has often spoken out for peace and stability in the Taiwan Strait, and that is commendable. But then we also have to think about the next step.
What would be the next step?
In Europe and among the G7 countries, there is a consensus that there is a risk in dealing with China – and I think the German government should consider this in its political decisions. If Germany tries to reduce risks in business relations with China next, Taiwan could indirectly benefit from it.
Should Foreign Minister Annalena Baerbock travel to Taiwan?
That is not my decision alone. Of course, I do not rule out the possibility of a meeting with my counterpart, even in Berlin. Economic relations between Taiwan and Germany are getting closer, such as through our investments in Dresden. We must also consider the possibility of a meeting between government representatives at a higher level to discuss issues that are in our bilateral interest.
You mean the factory that the world’s largest chip manufacturer TSMC will build in Dresden. Taiwan is a leader in semiconductor production. Are chips Taiwan’s shield?
Do you know how small a chip is? Semiconductor production here in Taiwan should be for the benefit of the rest of the world and we want to continue contributing to the economic growth of industrialized countries. But if China invades Taiwan and disrupts the semiconductor supply chain, it will cause many problems for the rest of the world. About 60 percent of the world’s semiconductor production comes from Taiwan, and for high-end products, it is even 90 percent. In addition, 50 percent of all traded goods pass through the Taiwan Strait. A blockade would lead to significant international trade problems.
Wouldn’t China only have to block the Taiwan Strait to break the international community’s solidarity with Taiwan?
I think the international response to a blockade would be very sharp, and the People’s Republic itself would suffer from it. Already, Beijing is trying to drive a wedge between Taiwan and other countries, but it is not working. China’s expansionist ambitions have rather led to more democracies coming together than causing a split. Therefore, I am confident that international support for Taiwan will continue in the future.
It is often said that nobody wants war – even Chinese Party and State Leader Xi Jinping says that. At the same time, the People’s Republic wants to have its army fully modernized by 2027 and be a global power by 2035. Do you believe him when he talks about peace?
Should I believe him? Xi Jinping is said to have told US President Joe Biden at their last meeting two weeks ago that he knew nothing about the 2027 or 2035 timeframe. If he is serious about this, it would be good news for many people, not only in Taiwan but also in China. At the same time, the Chinese military is intensifying its military exercises. So we have to prepare for the worst scenario – and at the same time, try to prevent it.
How is that supposed to work?
First, Taiwan must act and behave as a responsible, moderate actor. Second, we must build up our deterrent capabilities. We are investing in our defense and have extended mandatory military service for men from four months to one year. At the same time, we see important countries like the US, Japan and Australia also strengthening their military preparations in the region. Together, we should be able to prevent a war.
Taiwan will hold elections on Jan. 13. Are you worried that the progress in Taiwan’s international relations achieved by your party, the DPP, is at risk if the China-friendly opposition party KMT wins?
As Foreign Minister, I must be neutral because I work for the interests of the country and not for those of a political party. But I can say the following: Our main approach in the relationship between Taiwan and China is to maintain the status quo in the Taiwan Strait. I do not believe that a new government would deviate from this fundamental political orientation.
The US is Taiwan’s most important supporter. What if Donald Trump is re-elected in the US in November 2024?
Donald Trump would be a different type of leader than Joe Biden. However, we see bipartisan support in both chambers of the US Congress, and therefore, we are of the humble opinion that even if President Trump were to replace President Biden, support for Taiwan would continue.
Felix Lee took part in the interview that Joseph Wu conducted with several German journalists on behalf of Table.Media during a research trip by the Journalists Network e.V.
With an independent plant audit, the Volkswagen Group aims to finally dispel criticism of its involvement in Xinjiang. However, new insights from the Xinjiang Police Files continue to intensify pressure on the German automaker.
Recent investigations by China researcher and anthropologist Adrian Zenz suggest that the joint venture between Volkswagen and the state manufacturer SAIC has close ties to the Xinjiang Industry Technical College in Urumqi. The college is located in the Toutunhe district of the regional capital, an industrial zone where the Volkswagen factory is also situated.
The college reportedly offers a degree in automotive production, listing Volkswagen as one of the companies where graduates can typically find employment. According to Zenz, it is “directly plausible that Volkswagen could have hired Uyghurs who were interned in a reeducation camp”.
The college offers vocational education in collaboration with companies through research integration. Volkswagen is said to be involved, according to the college’s website. The college organized job fairs for graduates, with Volkswagen reportedly participating, as Zenz told Table.Media.
While it is not proven that the Wolfsburg-based company has former inmates of internment camps on its payroll, Volkswagen is getting closer to the structures of state-sponsored, systematic forced labor programs. A spokesperson for the company told Table.Media that they have no knowledge of collaboration with the college.
Instead, the company points to a “hiring freeze at the factory,” which has been in place for many years. In practice, the workforce at the plant has decreased since the outbreak of the COVID-19 pandemic in the spring of 2020. The company could not initially answer further questions about details.
“The new data concretely shows how close Volkswagen is to human rights abuses. Anyone operating a plant in this region has the fundamental problem that it is only a matter of time until directly affected,” says Zenz. In his research, he came across cases suggesting that Uyghurs from internment camps are immediately placed into vocational training, including in educational institutions that train their students directly for work in companies like Volkswagen.
A lot is at stake for Volkswagen. The company aims to convince the US rating agency MSCI to withdraw its “Red Flag”. MSCI had disqualified Volkswagen shares due to its involvement in Xinjiang. Investors such as the fund company Union Investment had urged Volkswagen to clarify the allegations by the end of the year. If the company fails to do so convincingly, Union Investment will remove the company’s securities from its sustainability segment.
The fund company Deka has already excluded Volkswagen shares from its sustainability offering. However, Deka also cited deficiencies in transparency and the composition of Volkswagen’s supervisory board in its decision.
At the company’s Capital Market Day in June at the Hockenheimring, CEO Oliver Blume assured investors of an independent audit. He stated that they wanted to get rid of MSCI’s “Red Flag”. In October, it was announced that an audit firm had been found. However, Volkswagen plans to disclose the name only when the results are published.
The internal police reports that made the Xinjiang Police Files public provide clues to individual fates that must be painstakingly pieced together to recognize possible patterns. Researcher Zenz became aware of the case of a Uyghur named Adiljan Hashim, who entered a reeducation camp in October 2017. After his release, he immediately began his studies.
According to the police report, Hashim was “released” (担保释放人员) on guarantee. This means someone has vouched for him. This type of release is very specific. The government retains control over the person’s whereabouts and activities; in this case, vocational training, according to Zenz.
The Xinjiang Vocational University in Urumqi also maintains close contacts with local companies. In an article from October, the university describes its close cooperation with companies for practical vocational training. According to Zenz, this article also mentions Volkswagen. The university also offers degrees in automotive technology. Therefore, Volkswagen is mentioned as one of the usual employers for graduates, although, according to the spokesperson, no new employees have been hired for years.
A police report from December 2017 states that a Uyghur named Ekpar Ablet was arrested in July of the same year and sent to a reeducation camp. Ablet was a student at Xinjiang Vocational University. It is unclear whether and when he was released. “But a significant number of Uyghurs were released into forced labor after one to three years of reeducation, including in further education,” says Zenz.
Two specific cases, where Uyghurs were placed directly from reeducation camps into vocational training schools in Hotan, are also documented in internal government documents. The Hotan Vocational Skills College offers training in automotive mechanics. This degree was developed in collaboration with the so-called Pairing Assistance Program, where regions in East China are paired with minority regions in Xinjiang and Tibet.
Several research reports have shown a close connection between this program and forced labor. Cooperation with the Hotan Vocational Skills College went through Tianjin. According to media reports, more than 20 companies from Tianjin have technical cooperation with vocational training institutions in minority regions like Hotan, including the FAW-Volkswagen joint venture in Tianjin.
In the two decades since China’s State Council officially classified the real-estate sector as a “pillar industry,” the sector has undergone rapid development, propelling GDP growth and inspiring in millions of Chinese the dream of owning their own home. But the sector is now plagued by problems, from high prices to massive debts, and threatens to undermine growth at a time when China can ill afford it.
Though there is no private land ownership in China, households are eager to own their own homes, both to improve their living conditions and to accumulate wealth. Chinese cannot easily purchase foreign assets, owing to capital controls, and Chinese stock exchanges have not been performing strongly. China does not tax residential real estate, capital gains, or inheritance – and promises major gains in value. As a result, property becomes the most attractive asset form to own.
From 2005 to 2021, the real price index for residential property in China increased by 28.5 percent, from 87.95 to 112.99. While the price index has fallen a few times over the years, it has always rebounded strongly, giving Chinese the impression that, when it comes to wealth accumulation, home ownership is practically a sure thing.
But as expectations of rising housing prices and speculation cause actual prices to increase at a far higher rate than growth in household disposable income – homes have become increasingly unaffordable for young Chinese people, let alone migrant workers, who do not enjoy the same rights as permanent city residents. In some first-tier cities, housing units cost more than 40 times the average income.
China’s government has repeatedly attempted to rein in housing prices, such as by restricting the number of real-estate purchases a single household can make and even imposing administrative controls on house prices. But such measures have proved largely ineffective and sometimes even counterproductive. While this is partly because buyers and sellers find ways to circumvent the restrictions, the fundamental reason is that the real-estate sector has effectively hijacked the Chinese economy.
The real-estate sector has a very long value chain, so whatever happens there has far-reaching effects, both upstream and downstream. Slower growth in housing prices leads to slower growth in real-estate investment. Since such investment and related activities account for a major share of Chinese GDP – more than 10 percent, on average, over the last decade – this drags down overall economic growth.
For years, whenever this happened, China’s government would respond by loosening or reversing whatever measures were impeding price growth, opening the way for a powerful recovery in both real-estate investment and property prices. After the 2014-15 crash, housing prices surged – and continued to increase for the next six years, in what amounted to the longest (mostly) uninterrupted price rise since 2003.
So, in 2021, China’s government again intervened, introducing three “red lines” for real-estate developers. If any developer had a liability-to-asset ratio of more than 70 percent, a net gearing ratio of more than 100 percent, or a cash-to-short-term-debt ratio of more than 100 percent, it would lose access to bank credit. Not surprisingly, the housing price index soon started to fall, followed by growth in real-estate investment.
What was surprising was the magnitude of the fall: in 2022, real-estate investment plummeted by 10 percent year on year. And even though the government soon loosened its restrictive policy significantly, the familiar rebound never materialized. On the contrary, in the first ten months of 2023, growth in real-estate investment fell by another 9.3 percent year on year, and the amount of unsold floor space increased by 18.3 percent.
Today, a growing number of real-estate developers are teetering on the brink of default, owing to the combination of high liability-to-asset ratios and a liquidity shortage. And some – most notably Evergrande, China’s second-largest developer – have already fallen over the edge. While the Chinese regulatory authorities insist that Evergrande’s default is a one-off event that will have little impact on the market, there is no denying the rising risks in the property sector. In the past, China always managed to muddle through, but this time may well be different.
To be sure, defaults among real-estate developers, even very large ones, are unlikely to cause a systemic financial crisis in China. At the end of the third quarter of this year, outstanding bank loans in China totaled 234.5 trillion yuan (33 trillion dollars), with mortgage loans accounting for just 39 trillion yuan (16.6 percent of the total), and credit to real-estate developers stood at 13 trillion yuan (5.6 percent of the total). Given high standards for borrowers and large down-payment requirements, the quality of mortgage loans in China is high.
The problem facing banks is not the prospect of large-scale borrower delinquency, but rather a growing desire among borrowers to repay their mortgage loans early. While Chinese banks’ non-performing-loan ratio is currently very low – below 2 percent – it could rise sharply if the government fails to address the deteriorating finances of developers (and their upstream and downstream firms).
Beyond the liquidation and restructuring of failed real-estate developers, China’s government can contain the financial risks by putting real-estate developers that are at risk of insolvency under greater government control, whether through conservatorship or temporary nationalization. It could also provide liquidity to solvent developers that need it and purchase the (financial or physical) assets of developers that are under pressure to offer “fire sales“.
With a relatively strong fiscal position and a central bank with space to adopt a more expansionary monetary policy, China should be able to facilitate solutions to the real-estate industry’s debt woes. One hopes the Chinese government will muddle through yet again.
Yu Yongding, a former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, served on the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006.
Copyright: Project Syndicate, 2023.
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Four judges and many, many students of an elementary school in Zaozhuang, Shandong Province, hold the Constitution of the People’s Republic of China in their hands. It is the revised version from Dec. 4, 1982, which was ceremoniously showcased yesterday. The original version of the constitution dates back to 1954.
