How Pakistan and Central Asia is helping China beat West's sanctions over Xinjiang

In November 2024, Volkswagen (VW), the German automaker, made headlines by announcing its decision to sell its factory in Urumqi, Xinjiang. This decision is part of a broader trend where multinational companies are reassessing their operations in regions linked to human rights abuses. While VW attributed the move to financial reasons, concerns over allegations of forced labour and repression of the Uighur Muslim minority in Xinjiang likely played a key role.

Volkswagen’s ethical dilemma

Volkswagen’s decision to leave Xinjiang highlights growing pressure on companies operating in the region, which faces global criticism for its treatment of Uighur Muslims. Reports of forced labour, mass detentions and cultural oppression have led to widespread calls for corporate accountability, particularly from advocacy groups and lawmakers in Europe and North America.

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Laws like the US Uyghur Forced Labour Prevention Act (UFLPA) and EU’s Corporate Sustainability Due Diligence Directive have increased risks for businesses tied to Xinjiang, banning goods linked to forced labour and imposing strict penalties for violations. By closing its Xinjiang factory, Volkswagen joins a wave of companies distancing themselves from regions with human rights controversies signalling a shift toward prioritising ethical practices.

Role of US sanctions

In November 2024, the US blacklisted 29 Chinese companies under the UFLPA, accusing them of benefitting from forced labour. This action, the largest enforcement measure under the act to date, has significantly raised the stakes for businesses operating in the region. The US sanctions in November this year have not only targeted Xinjiang’s officials but also Chinese companies impacting a range of industries. The recent blacklisting of 29 Chinese companies by the US Department of Homeland Security, as reported by The Global Times, is the largest single action under the Uyghur Forced Labour Prevention Act. These companies are accused of using Uyghur forced labour in their operations, a claim that continues to fuel tensions between Washington and Beijing.

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China has called these sanctions as an attempt to undermine its economic growth and destabilise Xinjiang. Despite this, the measures have successfully deterred many international businesses from maintaining operations in the region.

Xinjiang’s strategic response

Amid increasing isolation from Western markets, Xinjiang has sought to strengthen its economic ties with neighbouring countries under China’s Belt and Road Initiative (BRI). This vast infrastructure and trade project positions Xinjiang as a gateway to Central Asia, Pakistan and beyond.

The Khunjerab Port, a crucial border crossing between China and Pakistan, now operates year-round, reflecting the region’s growing trade ambitions. The transit point was previously closed during the harsh winter months from December to March due to adverse weather. Recent data highlights significant increases in trade volume through the port, showcasing its strategic importance within the BRI framework. According to the South China Morning Post, from April to October, over 11,000 vehicles and 40,900 tonnes of goods passed through the port, marking year-on-year increases of 42.6 per cent and 72.7 per cent, respectively. This uptick shows the growing importance of the port in facilitating trade under the BRI.

Similarly, Xinjiang’s Khorgos port, located on the border with Kazakhstan, has become a vital logistics hub. The establishment of a cross-border cooperation centre allows businesses and residents from both countries to engage in duty-free trade.

Challenges in Pakistan

While Xinjiang’s integration with Pakistan under the China-Pakistan Economic Corridor (CPEC) is critical to its economic strategy, it is not without challenges. In October, two Chinese nationals were killed in a suicide bombing at Karachi’s Jinnah International Airport, an attack claimed by the Balochistan Liberation Army. In response, China and Pakistan have intensified counterterrorism cooperation with joint drills aimed at enhancing security for Chinese enterprises operating in Pakistan.

Diplomatic engagement with Central Asia

The CPEC also has the footprint of the Central Asian region which has become platform to boost Xinjiang economically. In November, Xinjiang officials held their first meeting with counterparts from Kazakhstan’s Zhetysu region, a key partner under China’s cross-border initiatives. The meeting, held near the Khorgos port, focussed on a variety of issues, including infrastructure, tourism, market regulation and joint crime-fighting efforts. The South China Morning Post reported that the meeting also saw the signing of a memorandum on cross-border tourism, marking a new phase in regional cooperation. Khorgos, a key border crossing between China and Kazakhstan, serves as a hub for China Railway Express, a rail logistics service connecting China with Europe.

A cross-border cooperation centre has also come up at the Khorgos port. This centre, China’s first such initiative with any country, allows residents of both China and Kazakhstan to enter and conduct business without visas. The centre facilitates cross-border shopping, with visitors allowed to purchase duty-free goods worth up to 8,000 yuan (US$1,104) per day.

As China faces increasing isolation from the West, especially in the wake of the ongoing US-China tensions, Central Asia has emerged as a strategic partner. The region is vital for China’s ambitions to build a robust trade network through the BRI. The Xinjiang government reported a significant increase in trade with Central Asia, with the import and export value reaching 283.67 billion yuan in 2023, a 50 per cent increase from the previous year.

What the future holds

Volkswagen’s exit from Xinjiang is more than a business decision and is a reflection of the evolving relationship between corporate responsibility and geopolitical realities. However, despite international scrutiny over human rights abuses, China seems to be determined to counter Western isolation through regional partnerships. Xinjiang’s expanding role in cross-border cooperation with Pakistan and Central Asia reflects China’s broader strategy to strengthen its geopolitical position amid growing international scrutiny. While the region faces significant challenges, particularly from U.S. sanctions, its increasing integration with neighbouring countries under initiatives like the BRI positions Xinjiang as a key player in China’s economic future.