Let us assume for a moment that you wanted to create the perfect storm to strain US-China relations. For those stakeholders particularly sensitive to both countries' politics, it would be ideal to increase tensions during a transition period; definitely for one country, ideally for both.
If at all possible, such a moment would be that much darker if the economies of each were troubled, and even better would be if both believed the other was partially to blame. For the desk-pounding hawks in each country, it would be useful to point towards acts of military aggression as further cause to be suspicious of the intentions from the other. And, it would not hurt to have several high profile policy failures that suggest your country cannot compete fairly against the other.
Unfortunately, as the summer of 2012 draws to a close, each of these criteria for a perfect storm appears to be coming together. Mitt Romney, the GOP's presidential nominee, has publicly castigated China as much of the cause of America's economic problems.
A particularly contentious election in the United States is being matched by a leadership transition in China fraught with subterfuge and enormous downside risk when measured against China's stated desire for peaceful transitions and social stability.
The American economy continues to languish, with a slowing economy in China ominously suggesting that the world may be in for a protracted downwards slide as the year comes to a close. Military tensions in the South China Sea have only increased the not so subtle view by many American policy makers that China's military aspirations are not peaceful, nor should they be trusted to act as "responsible stakeholders."
Nested into all of these problems and frustrations has come a story that would otherwise be only momentarily interesting: the purchase of Waltham, Massachusetts A123 Systems by China's Wanxiang.
A123, an American lithium ion battery company, was the recipient of a US$249 million grant in 2009 from the Department of Energy (DOE) as part of the Advanced Technology Vehicles Manufacturing Loan Program (ATVM). Designed to foster a thriving electric vehicle manufacturing sector domestically, including ancillary technologies like batteries such as those A123 makes, the loan program was designed to bridge the gap between venture capital financing and more traditional loans, a chasm that many promising American companies like A123 had not been able to cross in the aftermath of the 2008 financial crisis.
In a very general sense, the ATVM program was designed to emulate in a small way the much larger actions taken by the Chinese central government in its pursuit of high technology clean-tech manufacturing.
Beset by manufacturing problems, some of its own making and others related to problems by one of A123's most important customer, electric-car maker Fisker specifically, A123 has been on the verge of bankruptcy. A123 received notice from NASDAQ in August that it would be de-listed.
Wanxiang, an automotive parts manufacture that has been operating in the North American market through its Chicago facility for many years, has a history purchasing distressed automotive parts manufacturers. Seeing an opportunity, Wanxiang has offered to make further investments to A123. The investment would allow A123 to stay open, but would essentially make A123 owned by Wanxiang.
A123's larger financial crisis, and the potential losses to its public and private investors thus far, would have been much more severe had Wanxiang not stepped up as a potential suitor. All of this has been lost on congressional critics like Cliff Stearns (Republican - Florida), who issued a statement saying, "Once again it appears the Department of Energy and the Obama Administration have failed to secure sensitive taxpayer funded intellectual property from being transferred to a foreign adversary."
Not to be outdone, Senators Chuck Grassley (Republican - Iowa) and John Thune (Republican - South Dakota) sent a letter to Department of Energy Secretary Steven Chu echoing Stearn's fears. In their letter, the two senators say "Billions of US taxpayer dollars have flowed to foreign companies through the Recovery Act, and we are concerned that the recent announcement could lead to even more taxpayer dollars going overseas."
Public congressional criticisms have thus far sounded one common theme: is clean-tech research being paid for by American taxpayers getting unwittingly sent to China? If so, what sort of economic return (if any) should these taxpayers anticipate?
It is unclear exactly what to make of these Republican criticisms. Some are certainly being pursued purely because it is the silly season of American electoral politics. But what precisely do these senators propose should have been done differently? Should the investments not have been made at all?
Many in the conservative camp would agree that the government has no role to play in incentivizing or otherwise nurturing infant industries.
Should the investments have been somehow nationalized to prevent intellectual property from going to another nation that might use it for their own economic gain? Such an approach can at times be taken in cases where national security might be at stake, but the A123 situation does not appear to be a good example of this.
To satisfy critics like Grassley, Stearns and Thune, should the Obama administration have prevented this technology from going to China? If so, what does this sort of approach suggest about how the modern Republican Party has soured on globalization, specifically ideas about creative destruction which are so essential to the conservative view of how innovation is seeded and becomes commercially viable in a market economy?
In most other periods, the A123 story would have made for some temporary fodder for pundits, but in the summer of 2012 it has added further to the sense in the American political scene that the United States is ill- prepared to compete with China's model of economic development.
Rather than driving policy makers to embrace thoughtful reforms of how America should be pursuing a national economic strategy, A123's failures have been used to attack the idea that government has any role to play advocating for, investing in, or incentivizing the pursuit of a coherent response to China's economic nationalism.
For conservative critics in particular, the failures of A123 point towards the ways in which both the Obama administration and Beijing misunderstand the proper role of government in fostering new industries.
This hostility leaves conservatives with two options: either embrace the role of the market alone as the best judge of what to make investments in, or elevate the idea that China's approach directly threatens America's economic interests. The latter begs the question of what the United States must do in response. Certainly, for conservatives a rejection of the policies like the ATVM program would be a good way to start; however, would this be all a Romney led administration would like to see done differently?
Given everything that Romney has felt obligated to say about China in order to appease the hawkish elements of his party, can he only treat China as an economic threat, or must China be something more?
Most troubling is that, as seen by too many contemporary Republicans, China and Obama are one in the same. They both believe that government is somehow necessary or otherwise central to addressing social problems and formulating national economic policy. Neither entirely trusts the market to work independent of oversight. Both see government as a necessary way to collectively manage society at the acknowledged expense of maximizing individual freedom.
Whether these are reasonable or intellectually coherent comparisons are beside the point: they capture much of the shared suspicion and animas that colors how conservatives view both China and President Obama.
In the hustle and bustle of the GOP's convention in Tampa, one thing is clear: the Republican Party is eager to defeat President Obama and destroy the ideas he has advocated. The means by which these will be pursued are increasingly aggressive as conservatives come to believe the ends will justify the means. Is something similar shaping up in how these same people view China? Will it become necessary to elevate China to the same sort of ideological threat as the Obama administration is supposed to represent to the American way of life, and if so, what does that mean conservatives should be prepared to do to China?
As otherwise straight forward stories like that of A123 and Wanxiang continue to come to light, rather than have a rational discussion as a nation about how to better evaluate, monitor and structure national investments, conservatives seem bent on using A123's failures to repudiate a President they loathe and a nation they increasingly are coming to distrust.
Benjamin A Shobert
China ex-minister says foreign auto joint venture policy "like opium"
China's policy of requiring all foreign car makers to form local joint ventures is "like opium" for Chinese firms and is failing to foster world-class indigenous automakers, a former minister was quoted as saying.
China eclipsed the United States as the world's largest auto market by volume in 2009, but all the state-owned auto groups rely heavily on their foreign partners.
"It's like opium. Once you've had it you will get addicted forever," former machinery and industry minister, He Guangyuan, was quoted as telling the auto channel of Yahoo.com during an industry forum in Tianjin over the weekend.
While He no longer has influence over policy, it is extremely rare for current and even former senior government officials to publicly criticize an existing policy.
China officially opened its door to foreign automakers about three decades ago, requiring each player to team up with no more than two local partners and hold up to a 50 percent stake in the joint venture.
All the world's major car makers are now operating through JVs in China.
"From central authorities to local governments, everyone has been trying hard to bring in foreign investment. But so many years have passed and we don't even has a one brand that can be competitive in the auto world," He said.
"I feel red-faced."
Nissan Motor Co Ltd (7201.T), Honda Motor Co Ltd (7267.T) and Peugeot SA (PEUP.PA) collectively contributed to over 98 percent of total 2011 sales of their Chinese partner, Dongfeng Motor Group Co Ltd (0489.HK).
Even domestic champion SAIC Motor Corp Ltd (600104.SS) gets around 60 percent of its sales from made-in-China General Motors Co (GM.N) and Volkswagen AG (VOWG.DE) cars.
China has now become the largest market for GM and Audi AG (NSUG.DE) among others, but shares of Chinese indigenous brands have been losing ground steadily amid a slowing market.
As of the end of July, sales of all Chinese cars fell 5.4 percent from a year earlier despite a 7.5 percent gain in the overall passenger car market, official data show.
Market share for indigenous sedans was 26.8 percent as of the end of July, down from an all-time high of 30.9 percent in 2010.
Policymakers in Beijing have cajoled joint ventures into making new brands which they hope could give the Chinese side access to much-coveted foreign technology.
But instead of developing a car from scratch that would allow Chinese partners to claim half the patent rights and obtain know-how from their foreign partners, all the JVs simply took an existing foreign car model and only made a few changes to "create" a new JV car.
GM and SAIC's first JV car, Baojun 630, is built on old Buick Excelle, while Dongfeng and Nissan's first Venucia car is fashioned after Tiida.
The second Baojun car which hit the showrooms two weeks ago is an old Chevrolet Spark with no tweaks at all. The yet-to-be launched second Venucia is said to be Nissan's compact March.
($1 = 6.3484 Chinese yuan)
How a Chinese conglomerate became a cleantech powerhouse
“Cleantech is the new frontier for civilization,” Pin Ni, the President of Wanxiang America, told me in an interview this week. While Wanxiang might be an entirely unfamiliar name in the U.S., it’s one of China’s largest industrial parts companies with $13 billion in revenue and 45,000 employees. Wanxiang’s American division is sizable in its own right, with around $2.5 billion in revenue and 6,000 people.
Wanxiang has emerged as a company that has been making some really aggressive investments into U.S.-based cleantech startups, and the firm has invested in quite a few companies that had hit a wall financially. Most recently Wanxiang said it planned to invest up to $450 million into ailing lithium ion battery maker A123 Systems, which could eventually give Wanxiang 80 percent ownership.
A123 Systems, based in Waltham, Mass. has been bleeding cash for months, with weak sales and a battery recall for a line it produced for electric car maker Fisker Automotive. It was on the verge of being delisted from the Nasdaq. Ni described A123 Systems to me as one of the clear leaders in lithium ion battery manufacturing that has been facing significant financial challenges. Wanxiang will work to help A123 get “financially stabilized,” said Ni.
Wanxiang also invested $420 million into GreatPoint Energy, a company based in Cambridge, Mass. that converts coal into cleaner-burning natural gas. At the time that deal was described by the Wall Street Journal as “the largest ever by a Chinese corporation into a venture-capital-funded U.S. company.” GreatPoint Energy planned to use the money partly to build a large-scale plant in China to convert coal into natural.
But before Wanxiang’s investment, GreatPoint Energy’s technology had stalled in the U.S., partly because U.S. shale natural gas had emerged as so cheap plentiful. GreatPoint’s technology showed great promise, but “economically they were finished in the U.S. The shareholders had decided to not give the company any more money,” said Ni. However, in China, GreatPoint’s economics worked far better.
Ni told me for U.S. cleantech startups, Wanxiang can provide valuable resources like capital, management, and help with expanding into China. Wanxiang is involved in all types of clean technology, from electric cars, to solar, to wind farms, to batteries. Wanxiang invested in another struggling company electric car company Smith Electric Vehicles.
When I asked Ni if Wanxiang looks for undervalued, under performing, cleantech startups, he said, it probably only looks that way because of the few press releases about these companies. Wanxiang also invests in energy companies that are thriving, says Ni.
But the reality of cleantech is that “we’re not there yet in terms of technology and cost,” says Ni, “the industry needs a lot of support from governments and private companies. It’s not a viable business as of today.” However, Wanxiang and Ni don’t waver on the sector in the long term: “There’s no question we need to get there.”
Wanxiang’s investments in U.S. cleantech companies aren’t without controversy; particularly for companies that have gotten money from the U.S. government, and then are building products in China. A123 Systems received a $249 million matching grant from the Department of Energy to build its factory, which will now be mostly owned by the Chinese conglomerate.
Struggling US battery maker A123 has dramatically avoided the perils of bankruptcy by signing a non-binding MoU (memorandum of understanding ) with China’s Wanxiang Group Corp, the largest auto parts maker in that country (think Magna as a US-based comparison).
A123 Prismatic Battery Modules For PHEV & EV Applications
The deal will see Wanxiang take up 80% control of the company by year’s end in exchange for an investment of up to $450 million dollars.
This is good news if you are interested in the upcoming Chevrolet Spark EV, and were concerned about A123′s ability to deliver lithium packs for that car when it gois into production in 2013.
Fisker Automotive can also breath a sigh of relief that their battery maker for the Karma and upcoming Atlanticis not going anywhere.
For current shareholders, it is unclear how this dilution will affect the value of the stock. At time of press, A123 shares were trading up 6% (real time quote here).
A123 Systems , who received $249 million ATVML loan (for advancement of green technology) from the Obama administration in 2009, had found itself extremely short on cash and still facing the costs of a $60 million recall/warranty issue on lithium battery packs supplied earlier to the likes of Fisker Automotive and others.
With only $47.7 million as of 30 June 2012 in cash (and equivalents) reported for this past quarter ended, excluding a recent private investment deal, and stock offering worth another $36.8 million, the company’s odds of survival had been fading fast.
The Wanxiang investment package includes a bridge loan and the purchase of A123 senior secured convertible notes and warrants.
A123 Family Of Battery Products
The MoU between the two companies will see A123 receive an initial loan of $25 million immediately, plus another $50 million when it closes. The Chinese conglomerate will then purchase $200 million in senior secured convertible notes and invest up to $175 million through exercising of warrants that it would receive from the initial bridge loan and convertible notes.
A123 CEO David Vieau said of the deal:
“Today’s announcement is the first step toward solidifying a strategic agreement that we believe would remove the uncertainty regarding A123’s financial situation. A substantial capital investment from Wanxiang would not only provide financial stability to A123 as we continue to grow, but it would also align us with a large, successful global brand in the automotive and cleantech industries. Wanxiang has a successful track record of operating in the U.S. with significant employment and commitment to good corporate citizenship, and we expect that a strategic agreement with Wanxiang would help enhance our competitive position in the global marketplace, especially in China.”
To which, the CEO of the Wanxiang Group, Weiding Lu echoed:
“This MOU is the first step toward a longer-term agreement through which we plan to build on the foundation A123 has established in the US and help expand the company’s capabilities both domestically and internationally, which we believe would create long-term value to the customers, investors and other stakeholders of both companies.”
In addition to the upcoming supply deal with General Motors with the Spark EV, A123 has a very large end of year/2013 order book, and this deal will give the battery maker the opportunity to see if a US based (but not owned) can ultimately be successful.
A123 recently announced a ready for production, potentially disruptive new battery technology, Nanophosphate EXT, that achieves a 90% retnetion rate after 2,000 cycles at both high and low temperatures.
Livonia, Michigan Cell Manufacturing Facility
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