Leading the charge

Wanxiang to buy a majority stake in US car battery maker

Leading the charge

Lu Guanqiu: Wanxiang’s boss

Paul Ryan, running mate of presidential hopeful Mitt Romney, recently took Barack Obama to task for being soft on China, claiming that the US president had behaved like a “doormat” in ongoing trade disputes with Beijing. Then again the congressman from Wisconsin has never been one to mince his words (on another occasion he said “Obama isn’t interested in governing or putting forward solutions to fix our nation’s problems”).

But Republicans searching for another anti-Obama barb are now looking at a recent deal in which one of China’s largest private companies is acquiring a majority stake in a US firm.

What makes the deal controversial is that the target was a former recipient of a $259 million green technology grant from the Obama administration.

Car parts manufacturer Wanxiang Group is to pay $465 million for an 80% stake in US high-tech battery maker A123 Systems, reports Reuters. The Chinese firm is already a major employer in the US (when Chinese leader Hu Jintao toured America last year, the only factory he visited was one belonging to Wanxiang) but this is likely to be of less consequence to GOP politicians keen to portray the deal as embarrassing for the current administration.

Correspondingly, the Chicago Tribune has noted that Wanxiang’s investment “has raised concerns about cash-rich Chinese companies siphoning American innovation for the benefit of China”. Florida Republican congressman Cliff Stearns also claimed earlier this month that it raised national security concerns by allowing “sensitive taxpayer-funded intellectual property” to be transferred to a “foreign adversary”.

Massachusetts-based A123 has struggled due to weak domestic demand for electric cars. But the company has had some success abroad, especially in China, where it is a supplier of batteries for Shanghai-based carmaker, SAIC Motor Corp.

A123’s chief executive said in a statement that it would “continue to expand on our strong manufacturing and systems engineering capabilities in Michigan and Massachusetts,” reports Reuters.

But the newswire also points out that A123 had promised to create 5,900 jobs when it received the green technology grant. Three years later, and it has only added 1,000 workers.

Wanxiang, with its private capital, will be trying to succeed where public money has seemed to fail. But analysts believe that most of the expansion plans will be in China, where policy support for electric vehicles is expected to deliver a boost to the market.

“It is obvious that this transaction has the ultimate goal to introduce A123 to China, betting on the new energy automobile market,” auto analyst Jia Xinguang told 21CN Business Herald.

That won’t necessarily put A123 on the road to profitability. China’s lithium battery sector has become highly competitive, as local governments encourage their own champions to enter the industry. This could make it difficult for A123 to stand out.

At least A123 already has connections that it might be able to leverage in China. The company’s customers include a roll call of big carmakers – such as General Motors, BMW and Tata Motors.

Wanxiang also appears well- placed to bridge any cultural divide with its new partner, as it has long experience of doing business in the US (we covered some of its other deals in America in WiC92). Wanxiang entered the US market way back in 1984 and the man in charge of US operations, Ni Pin, has overseen the acquisition of companies affiliated with large automakers such as Ford and Chrysler.

That means company bosses are less likely to be deterred by some of the criticism of the deal coming from the politicians. “This kind of thing doesn’t bother us,” Ni told the Chicago Tribune. “We’ve been investing in the United States for a long time.”

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