Wanxiang purchase upsets US
legislators By Benjamin A
Shobert
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 is the Managing
Director of Rubicon Strategy Group, a consulting
firm specialized in strategy analysis for
companies looking to enter emerging economies. He
is the author of the upcoming book Blame China
and can be followed at www.CrossTheRubiconBlog.com.
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