Fears for Volvo expose sour turn in Sweden’s ties with China

GOTHENBURG (NYTIMES) – The 2009 meeting in Shanghai between the Swedish union leader and the “Chinese Henry Ford” started in a minibus ride and ended in one of the financial capital’s most opulent hotels. There, the men struck an unlikely alliance to save the struggling Swedish carmaker Volvo.

The president of Geely Auto Group, Mr Li Shufu, promised that his ownership would provide a blank check and allow Volvo to keep its name and independence. He has since invested US$10 billion (S$14 billion) as Volvo’s value has risen tenfold during the last decade. Even during the pandemic, Volvo’s sales have held up compared with the dismal results of rivals.

Volvo’s offices and factory in Gothenburg, Sweden in May 2020.
Volvo’s offices and factory in Gothenburg, Sweden in May 2020.PHOTO: NYTIMES

“We got near-total freedom to excel,” the union leader, Mr Magnus Sundemo, said in a recent interview at his house in a suburb of Gothenburg, Volvo’s home base. “We started believing we could fight with Audi, BMW and Mercedes. We got our confidence back.”

But the limits of that freedom are increasingly apparent, as Sweden has unexpectedly become a bellwether for the European Union’s ever more strained engagement with China. Swedish political and business leaders are asking whether the country rushed too swiftly into an economic relationship with China, with the Volvo deal as a renewed source of controversy.

This year, Mr Li announced plans to merge Volvo Cars with his Zhejiang Geely Holding Group, the parent of Geely Automotive, creating a global company and, in essence, swallowing the business whole. In Sweden, it triggered a national debate, with a swirl of rumours in its wake.

As yet, it is not clear what changes will come if Volvo is no longer allowed to operate independently inside the larger company. But there are concerns in Sweden that a merger could mean moving the headquarters of Volvo to China, perhaps with a listing on the Hong Kong Stock Exchange; or that parts might be fabricated more centrally for both brands, meaning a potential loss of work for Swedish subsidiaries. And there are rumours that Mr Li might rename the company Volvo-Geely, using the Volvo name to add prestige to a less established brand.

“We want the innovation power to remain,” said Ms Anna Margitin Blomberg, the head of the engineers’ union at Volvo, who is preparing for talks with the Chinese owners. “And also the critical thinking, and that is typical of the engineering.”

Her major worry, she says, is “that there will be people sitting at the top making decisions, and that we can’t be a part of those decisions”.

Some Swedish officials who are reassessing ties to China have also raised national security concerns. Chinese investors have bought a variety of other Swedish companies, some of which make dual-use technologies that they are forced to share with the Chinese military.

Geely was not Volvo’s first foreign owner: It had previously been held by Ford, which had starved it of investment.

Yet Volvo is the beating economic heart of western Sweden, employing 19,000 people. It is also hard to overstate the position Volvo occupies in Sweden’s identity and national mythology, particularly after the demise of Saab in 2011. Clunky and somewhat drab, but always durable and, above all, safe, Volvos have for decades reflected the country’s self-image of no-nonsense practicality.

“Volvo was really synonymous with Sweden because this small country produced a car that was sold all over the world and it was the safest car in the world,” said Mr Olle Wastberg, a former diplomat and former director-general of the Swedish Institute.

For years, Sweden has taken pride in forging ties with Chinese cities in an effort to promote tourism and business connections, but also democracy and human rights.

In March, however, citing a sharp increase in Chinese acquisitions of Swedish technology and knowledge-based companies, the Swedish Security Service, Sapo, labelled China the biggest threat to the country’s national security after Russia. The purchases include a semiconductor company, Silex, and Satlab Geosolutions, a satellite positioning company.

In late 2017, Geely became the second largest stakeholder in Sweden’s largest industrial company, Volvo Truck, whose subsidiary, Arquus (formerly Renault Trucks Defense), makes military vehicles.

“We know that Chinese companies are used by the Chinese government as a way to get information and serve as a base for influencing other countries,” Mr Wastberg, the former diplomat, said.

In May, amid increasing concerns over the threat to national security, the government proposed new rules for mergers and acquisitions that would allow officials to block foreign takeovers of Swedish companies.

But the threat went beyond the economy, the intelligence service said, warning of China’s stepped up efforts “to influence basic freedoms and rights in Sweden”, by “trying to influence Swedish politicians and media”. That seemed a reference to a spat over the arrest of a Hong Kong-based publisher who holds Swedish citizenship.

After the publisher, Gui Minhai, was abducted in Thailand and convicted in China, Sweden honored him with a human rights award. That prompted China’s ambassador to Sweden, Mr Gui Congyou, to issue a stark warning.

“We treat our friends with fine wine,” he told Swedish radio in November, “but for our enemies we have shotguns.”

But no China-related issue has so galvanised Swedes as the proposed Volvo merger.

Mr Li started Geely, the first Chinese carmaker not owned by the state, in 1997. When he and Mr Sundemo, the Swedish engineer and union leader, met in 2009 in Shanghai, there were a lot of smiles, Mr Sundemo recalled.

“He smiles a lot, but as a Swede you can never really understand what he thinks behind that smile,” Mr Sundemo said.

Volvo executives and labour leaders had welcomed the Chinese with open arms, glad to be done with Ford. The Americans had so tarnished Volvo’s image that when they put it up for sale it attracted few buyers save Mr Li, who firmly believed in the company, Mr Sundemo said.

After the sale in 2010, Swedish authorities went out of their way to please the new Chinese owners. When the company wanted to buy land to build a research centre in Gothenburg, Sweden’s second largest city, the municipality sold it a plot at a generous discount. They also cancelled the building of a school on the same grounds and helped Geely cut through Sweden’s red tape.

They had ample reason to be so welcoming.

“Gothenburg is Volvo and Volvo is Gothenburg,” said Mr Daniel Bernmar, a member of the opposition Left Party.

In Gothenburg, new Volvo models stand on display at the arrivals hall of the airport. In town, seemingly every other car is a Volvo. Losing Volvo, like Saab before it, would have been traumatic.

Despite the city’s close business connection with China, Mr Bernmar, a critic of China’s human rights record, led an effort last month to cut friendship ties between Gothenburg and Shanghai, citing Beijing’s authoritarian turn under President Xi Jinping.

“Instead of these business contacts promoting democracy, it’s done nothing of the sort,” Mr Bernmar said.

While his campaign failed in Gothenburg, in recent years 11 Swedish cities have cut friendship ties with China, with several citing the country’s human rights record as the reason. “When you deal with corporate China, you also deal with governmental China,” Mr Bernmar said.

Asked for comment, a spokesman for Geely Holding did not directly address the issues of Volvo’s independence, saying that, “Geely Auto and Volvo Cars are continuing to discuss areas of cooperation and mutual value-creation that could lead to a full combination of the companies.”

Volvo refused to comment on the proposed merger, saying the details were still being debated. But many Swedes fear that a full-on takeover by the Chinese might undercut the remarkable strides the company has made in re-establishing the brand.

“We are Sweden lovers, and Volvo stands for something,” said Ms Margitin, of the engineers’ union. “We would like that to remain.”

For Mr Sundemo, who is now retired, the impending merger is a disaster and an example of Sweden selling out its industries. He said the Chinese liked to run forward, while the Swedes were slower.

He is still happy with how the company has grown since Geely bought it, he said, but he feels the latest move might have had a political motivation.

“We probably all have been a little naive,” he said.

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