Guest Post: China's Strategic Next Step Is Buying Critical US Taxpayer-Funded Technology

Unless the Obama administration intervenes, the United States may soon have to depend on one of China’s wealthiest and most politically-connected Communist party leaders for access to taxpayer-funded technology that will power the next generation of space satellites and unmanned military vehicles.

In the world of advanced lithium-ion batteries, the Holy Grail has been the development of safer, faster-recycling and longer-lasting technology that will operate in extreme temperatures.

Working in partnership with NASA’s Jet Propulsion Laboratory with more than $250 million in federal and state grants, a Waltham, Massachusetts, company, A123 Systems, recently announced development of technology that advances battery science by at least a decade.  The “nanophosphate lithium ion battery” is capable of retaining more than 90 percent of its initial capacity after 2,000 full charge-recharge cycles at temperatures as high as 133°F; in the extreme cold of space, it delivers a 20 percent increase in power over older technologies at -22°F.

While the breakthrough technology opens new vistas for defense planners and designers of the “smart grid” and telecommunications networks, those prospects weren’t enough to overcome sluggish sales of electric vehicles using A123 Systems batteries, and the company was forced into bankruptcy late last year. (I serve as an advisor to the Strategic Materials Advisory Council – an organization that responds to threats to the U.S. industrial base and the critical materials supply chain.)

At the bankruptcy auction of the company’s assets – primarily its patents and trade secrets — the winning bidder was a Shanghai-based company, The Wanxiang Group, headed by one of China’s wealthiest Communist party oligarchs, Lu Quanqiu.

If the transfer to Wanxiang goes forward, it will enable China to leapfrog every country in the world in technology critical to powering future generations of satellites, military drones, power grids and telecommunications networks.  Because of the new batteries’ better safety record and extreme resistance to heat, the Chinese and their allies will also be better able to power the complicated electronic gear now carried by ground troops, particularly in tropical and desert climates.

For its part, the Wanxiang Group is portraying itself as an “Americanized” company whose North American arm, Wanxiang America, counts among its advisors Richard Daley, the former Mayor of Chicago and brother of President Obama’s former chief of staff.

Appearances aside, this is no American company.  Its founder and CEO, Lu, is, according to the Wall Street Journal, one of China’s wealthiest oligarchs, with a personal net worth of at least $4 billion and strong connections throughout the Chinese Communist party.

For more than four decades, Lu has held a seat in China’s highest legislative body, the National People’s Congress, and serves as the Group’s Communist Party Secretary.  The company itself is entirely family-owned but, nonetheless, maintains a spider web of business arrangements with state-owned enterprises including State Grid, one of China’s largest electrical grid operators.

Under the terms of the bankruptcy sale, the Chinese would not have access to A123 Systems’ existing military contracts, but that should be of little comfort.  It is the technology – the company’s trade secrets and patents – that should be of concern, not its defense contracts. In fact, the company bidding for the military contracts paid only $3 million for them, compared to Wanxiang’s bid of $250 million for the remainder.

The sale of this or any other company to a foreign entity is subject to review by the Committee for Investment in the United (CFIUS), a relatively obscure interagency panel chaired by the Treasury Secretary, which also includes the heads of six other Cabinet Departments, the U.S. Trade Representative and the head of the Office of Science and Technology Policy. The Committee is in the process of reviewing the propriety of the transfer amid increasing calls for the bankruptcy sale to be voided.

Thanks to a gap in the law, Congress, meanwhile, is officially in the dark about the entire matter.  Even though A123 Systems’ research was underwritten by hundreds of millions in Congressionally-appropriated funds, no requirement currently exists for Congress to even be notified that an overseas transfer of the technology is underway – a situation that House members, led by Tennessee’s Marsha Blackburn and North Dakota’s Kevin Cramer, aim to correct by introducing legislation.

Further complicating the Chinese purchase is a report highlighted in a bipartisan column by former Democratic House Armed Services Chairman Ike Skelton and former Republican Armed Services Chairman Duncan Hunter. The two former lawmakers say a report last month from the CFIUS committee to Congress 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.”

One doesn’t need to be Sherlock Holmes to figure out which unnamed powers the report is talking about.

It would be more than ironic if the United States had to rely on a Communist Chinese conglomerate for access to taxpayer-funded advanced energy research with significant military applications, but unless the Administration calls a halt to it, that is exactly what is about to happen – and at bankruptcy prices.