"What makes you think we're a German company?"

A Volkswagen AG executive was alleged to have asked this question at a recent private roundtable in the context of a discussion about de-risking the car manufacturer's supply chain from China. The comment hints at the fact that around 25 percent of Volkswagen is owned by foreign institutional investors, and another 15 percent is owned by the sovereign wealth fund of Qatar. Of course, to some, the dismissive remark ignored the elephant in the room—that 25 percent of Volkswagen and 21 percent of the company's voting shares remain in the hands of the German state of Lower Saxony.

Nearly half of Volkswagen's annual earnings come from China, so the Lower Saxony government and its constituents could face significant negative consequences if Chinese laws stopped protecting their presumed rights. The problem isn't hypothetical: China's new Foreign State Immunity Law may end up intensifying de-risking discussions in the West.