Editorial: The perils of globalization

This is a guest editorial by Alex Tullo, C&EN’s senior correspondent for business.

Earlier this month, we got a big reminder of how perilous it can be for chemical companies to operate globally.

After decades of harmony in China, BASF found itself pulling out of two joint ventures —which make polytetrahydrofuran and its precursor, butanediol—in the country’s Xinjiang region.

Xinjiang is home to a concentration of Uyghur people. Reports in the German news outlets Der Spiegel and ZDF alleged that employees of BASF’s partner in the joint ventures, Xinjiang Markor Chemical Industry, participated in visits to Uyghur family homes. Human Rights Watch says such visits, which officials can impose on households for 5 days or longer, are meant to indoctrinate and spy on the Uyghur population.

BASF denies any wrongdoing, pointing out that the exposés implicated its partner, not the ventures themselves. It also says it conducts regular audits of the joint ventures and found no evidence of human rights abuses such as forced labor.

The stories raised a delicate issue for BASF. The company has many reasons to fear offending the Chinese government. It has operations all over the country, including a joint venture with the state-owned oil company Sinopec in Nanjing. It is also building a $10 billion complex in Zhanjiang that is destined to be one of its major global chemical hubs.

After the articles were published, BASF’s chairman, Martin Brudermüller, held a call with the Inter-Parliamentary Alliance on China, a group of members of parliament from democratic countries that acts as a watchdog on issues such as trade and human rights. In the wake of the stories, the alliance had urged BASF to pull out of China.

After the call with the alliance, on Feb. 9, BASF announced that it was exiting the Xinjiang joint ventures. It revealed that it had been trying to sell its shares in them since the fourth quarter of 2023, before the reports brought the allegations to light.

While BASF’s statement about the pullout cited “activities inconsistent with BASF’s values,” this nod to principles got second billing to economic and environmental issues. The operations’ carbon footprint is relatively high because they use coal as a raw material, BASF says, and the butanediol market is oversupplied.

The emphasis on economic and environmental motivations could be a bit of face-saving for the company, disinclined to offend the Chinese government while it mollifies critics outside of China. The Xinjiang plants opened in 2016, a time when companies were already committing to reducing greenhouse gas emissions.

Since BASF announced its decision, Volkswagen, which has even more extensive operations in Xinjiang, said it is reevaluating its partnership there.

This isn’t the first time in recent years that political risk has burned BASF. Wintershall Dea, an energy company 73% owned by BASF, had extensive operations in Russia. Notably, Wintershall Dea owned a stake in the Nord Stream pipeline, which was moving natural gas from Russia to Germany, and it was helping finance a second pipeline, Nord Stream 2.

When Russia invaded Ukraine in 2022, BASF and other firms doing business in Russia faced public pressure to pull out. International sanctions against Russia piled up, and the Nord Stream pipelines were sabotaged. Wintershall Dea officials accused the Russian government of expropriating its joint ventures in the country. BASF took a total of $7.1 billion in write-downs in 2022 related to the loss of Wintershall Dea’s Russian assets.

BASF wasn’t alone: the war in Ukraine forced Solvay to sell its stake in a large Russian polyvinyl chloride joint venture with Sibur that was completed in 2014.

It’s time for companies to think more critically about where they operate. Executives must ask themselves whether practices in the countries where they plan to invest are consistent with the values they proclaim globally. Activists and journalists will hold them to those standards. The world has become a volatile place, and conflict, political instability, and repression that might have seemed improbable a few years ago aren’t so far fetched now.

Views expressed on this page are those of the author and not necessarily those of ACS.