A123 sale to Chinese firm raises security concerns, Republicans and outside critics say

A123 Systems lithium-ion batteries / AP
December 13, 2012

Republicans and outside business groups are calling on the Treasury Department to reject the sale of bankrupt battery-maker and stimulus recipient A123 Systems, Inc. to a Chinese firm, arguing the move could put American national security at risk.

Chinese firm Wanxiang Group won a bid for A123 System on Sunday, beating out the Wisconsin-based Johnson Controls. A123 Systems, which produced lithium-ion batteries for electric cars, filed for bankruptcy in October after receiving $133 million of a $249 million stimulus grant from the federal government.

The Treasury Department’s Committee on Foreign Investment in the United States (CFIUS) must now finalize the sale, even though A123's military interests were sold in a separate auction to an American firm, because A123 Systems also provided contract work for the federal government.

More than two dozen members of Congress oppose the deal, along with organizations such as the Strategic Materials Advisory Council, a group of former American military and industry leaders, and the U.S. Business and Industry Council (USBIC), a national business group representing 2,000 small and medium-sized manufacturing companies.

Sens. John Thune (R., S.D.) and Chuck Grassley (R., Iowa) issued a joint statement Monday decrying the move.

"President Obama's energy policy has been a win-win for China and a lose-lose for the American taxpayer," Thune said. "The president borrowed money from China to pay for his $800 billion stimulus bill, and then gambled these funds away on now-bankrupt green energy ventures. Now we learn that a Chinese company has bought one of these companies for pennies on the dollar. In the end, the taxpayers will be left having to repay interest to China for a business that a Chinese company now owns. Given the important national security interests at stake, we expect a full review of the bankruptcy transaction by the Treasury Department."

Rep. Marsha Blackburn (R., Tenn.) also called on the CFIUS to block the sale, arguing it could have "significant implications for our national interests" and that it would be impossible to separate A123 System’s commercial and military intellectual property.

A123 has defended the sale.

"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," A123 Systems President and CEO Dave Vieau said in a statement. "We believe this transaction balances those risks with A123's obligation to act in the best interest of our creditors."

Critics of the sale say it undermines not only national security but also the Obama administration’s renewable energy goals.

"After all, one of the main rationales advanced by the president for his green energy initiative is that we couldn't allow the so-called technology of the future to be controlled by foreign interests," said Alan Tonelson, USBIC research fellow. "We could not afford to let free markets work their will. Now we have this la-dee-dah attitude."

Tonalson, who called the sale "jaw-dropping, incomprehensible, and mindless," argued the administration should have used its considerable leverage to ensure an American firm retained control of A123’s assets.

"And of course, there's a further irony in that this not an administration that's been reluctant to fiddle with bankruptcy proceedings," Tonelson said, referring to the Obama administration’s bailout of the U.S. auto industry.

The Department of Energy said it has taken steps to ensure no more stimulus funds flow to the company and that its stimulus-funded assets remain in America.

"The Energy Department worked through the bankruptcy process to ensure that the plants and equipment that were partially paid for by the Recovery Act would remain in Michigan, generating jobs and opportunity for American workers," DOE spokesman Bill Gibbons told Politico’s "Morning Energy" this week. "We are pleased that the bidders indicated they would keep those Michigan facilities operating, consistent with the intent of the grant."

The Wanxiang Group, which has been expanding its U.S. presence for close to two decades, is now a major property owner and employer in the Midwest. It also has close political ties in both its home country and in America.

The Boston Globe reported Thursday that former Chicago Mayor Richard Daley, whose brother was chief of staff to President Barack Obama, is a Wanxiang consultant.

"Wanxiang has shown itself a strong corporate citizen with a commitment to supporting local workers and developing the local economy," Daley told the Globe.

The Wanxiang Group’s chief executive, Lu Guanqiu, is a member of the Chinese legislature.

As reported by the Daily Caller’s Patrick Howley, law firm Latham and Watkins, which conducted A123′s bankruptcy auction, contributed $208,244 to Obama in the 2012 election cycle.

A123 was once praised by Obama as a "success story."

"The work you’re doing will help power the American economy for years to come," Obama said in a Sept. 13, 2010, phone call to A123 Systems, congratulating the firm on opening its new facilities in Michigan.

A123 received $1 million from the federal government on the same day it filed for bankruptcy.

The Energy Department and CFIUS did not return requests for comment.

The Wanxiang Group did not immediately return requests for comment.