While much of the American public’s attention was focused on Secretary of State Hillary Clinton’s congressional testimony regarding the security breaches in Benghazi, a potential breach with far more serious implications is proceeding virtually unimpeded. In December, Delaware Bankruptcy Judge Kevin Carey approved the sale of A123 Systems Inc., a bankrupt electric car battery manufacturer, to China’s largest auto parts maker. As a result, America stands on the brink of providing the communist nation with ten years of American technological advances they have been unable to achieve on their own.
A123 Systems filed for Chapter 11 bankruptcy in October 2012, despite receiving $249 million in taxpayer funding made available in December 2009, as part of the stimulus package. Like so many of the “green” investments made by this administration, the lithium ion battery maker was unable to turn a profit. Yet they did develop solid new technology, highlighted by a battery with military applications, due to its ability to remain functional in extremes of heat and cold.
Last August, when the company posted an $83 million loss for the second quarter, A123 said it had reached a “non-binding memorandum of understanding” for a loan of up to $450 million with Wanxiang America Corp., a subsidiary of Wanxiang Group, China’s largest automotive components manufacturer and one of China’s largest non-state-owned companies, to maintain solvency. If the entire amount had been given to A123, Wanxiang America would have owned an 80 percent share of the company. The Wanxiang Group is run by auto-parts titan Lu Guanqiu, one of richest men in China’s National People’s Congress. Guanqiu maintains close ties with the Communist Party.
Thus, the deal raised concerns with Rep. Cliff Stearns (R-FL), chair of the House Energy and Commerce Committee’s panel on oversight and investigations. “We need to make sure the federal government isn’t an unwitting accomplice to the theft of our own national secrets by providing [foreign-controlled companies] with multimillion-dollar government grants and loans,” he said in a statement. A spokeswoman for the Republican National Committee was far blunter. “It is unfortunate Obama borrowed from the Chinese to give taxpayer money to prop up green energy companies that the Chinese are now buying,” she said.
According to the Wall Street Journal, that deal (which the paper valued at $465 million) collapsed. Thus, A123 continued to run short of cash, and on the same day it sought bankruptcy protection in October, A123 said it would be selling its automotive operations to Johnson Controls, a Wisconsin-based auto parts-maker, for $125 million. Johnson Controls also promised $72.5 million in bridge financing to underwrite some of A123’s debt and keep the company’s facility in Michigan, and its 800 employees, in operation. Johnson was also willing to license back to A123 “certain technology for its grid, commercial and government businesses,” according to a statement.
Wanxiang subsequently challenged Johnson Controls status as the primary bidder. In November, Wanxiang said it would continue to employ A123 U.S. workers and keep its plants open should their bid for the company be successful. Wanxiang America’s president Pin Ni sent a letter to A123 Chief Executive David Vieauthat to that effect. “Wanxiang has a long history as a technology and automotive company, operating in the United States to ensure plants remain productive and local U.S. employees keep their jobs,” it stated.
The auction began on December 6. It was over on December 8, when Wanxiang posted a winning bid of $256.6 million, topping a combined offer from Johnson Controls and electronics maker NEC Corp. of Japan. A123’s government business will be sold to Navitas Systems, a small American energy company based in Illinois, for $2.2 million, ostensibly to alleviate concerns about transferring advanced military technology to the Chinese. “We think we have structured this transaction to address potential national security concerns expressed during the review of our previous investment agreement with Wanxiang announced in August, as well as to address concerns raised by the Department of Energy,” said A123 CEO Dave Vieau in a statement. “We believe this transaction balances those risks with A123’s obligation to act in the best interest of our creditors.”
Republicans expressed their skepticism the following Monday. “A123’s core battery technology is used in all of their business applications and allowing the sale of one facet of the company may very well grant the buyer complete access to critical technology and intellectual property that cannot be separated among business lines,” said Rep. Marsha Blackburn (R-TN), adding that any separation would be “technically impossible.” Sens. Chuck Grassley (R-IA) and John Thune (R-SD) echoed that assessment, contending the Committee on Foreign Investment in the United States (CFIUS) should block the sale. CFIUS could make a ruling by the end of this month.
The Department of Energy is siding with Wanxiang, claiming the military technology has been separated and sold to Navitas. Yet two former chairmen of the U.S. House Armed Services Committee, Democrat Ike Skelton and Republican Duncan Hunter, doubled down on the skepticism. After insisting that A123’s “unprecedented technology” is critical to our maintaining our “battlefield advantage,” the men cut through the rest of the PR fog surrounding this sale:
Wangxiang has sought to win approval of the deal by agreeing to split off A123 Systems’ existing military contracts to an American corporation, but that is hardly reassuring. It is A123 Systems’ technology that is the issue, not its contracts. The trade secrets and patents that would be controlled by the Wanxiang Group resulted from a decade of trial and error by some of America’s finest scientists, with much of the work funded by U.S. taxpayers.
If the Committee on Foreign Investment has any doubt about what’s going on here, it need only look at its own annual report to Congress, which it filed last month. For the first time in the history of the committee, it warned that “there is likely a coordinated strategy” underway by unnamed foreign powers ‘to acquire U.S. companies involved in research, development, or production of critical technologies for which the United States is a leading producer.”
Barry M. Costello, a retired Navy vice admiral, commander of the U.S. Third Fleet, and a member of the Strategic Materials Advisory Council was equally blunt. “The Chinese company and A123 attempted to alleviate security concerns by having a separate U.S. company purchase the existing military contracts,” he explains. “What they didn’t resolve is that the core technology will still belong to Wanxiang and is potentially available to the Chinese military…This sale has been called a ‘win-win.’ If permitted to proceed, the Chinese and A123’s creditors will be those winners. We can’t allow U.S. national security, our soldiers and our citizens to be the losers.”
Dean Popps, deputy assistant secretary of the Army and acting assistant secretary of the Army for acquisition, logistics and technology under the Obama and George W. Bush administrations, amplified another concern. “You don’t want to be building a military spy satellite and be reliant on a lithium ion battery that’s made in China because you don’t make it anymore,” he warned.
Sadly, selling advanced technology to the Chinese is not without precedent. Back in 1998, the company Loral Space gave the Chinese a 200-page report on how to improve their missile guidance systems without telling the government, precipitating a Department of Justice investigation. President Bill Clinton undermined that investigation by granting Loral a waiver to complete the deal. This was Clinton’s second waiver regarding Loral’s business initiatives involving the Chinese. Years earlier, the president also waived State Department disapproval of such business as well. Yet Loral CEO Bernard Schwartz had built a six-year friendship with the president, no doubt enhanced by $1.3 million in donations to Clinton and Democrats. The years long DOJ investigation concluded in 2002, with Loral paying a $14 million civil fine, the Pentagon issuing a report concluding that sensitive technology involving missiles was transferred to the Chinese and the Chinese getting a better missile guidance system that makes them a greater danger to the United States.
Giving them additional advanced technology with military applications–again–makes no sense whatsoever. President Obama acknowledged that reality during his inauguration speech. “We cannot cede to other nations the technology that will power new jobs and new industries, we must claim its promise,” he said. Dean Popps concurred. “This highly sensitive technology should not be handed over to China,” he warned. “American taxpayers own this technology; we paid for it and, like the president said, we should claim its promise.”
Joseph Stalin once said, “When we hang the capitalists they will sell us the rope we use.” Anyone who believes the Chinese Communist government, which as recently as last September hacked into a White House computer system used for nuclear commands, isn’t every bit the threat the Soviet Union was, is delusional.
The American appetite for cheap consumer goods is one thing. Aiding and abetting the military ambitions of a potential adversary is quite another.
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