Chinese EV battery factory planned near Big Rapids faces renewed scrutiny

• Gotion Inc. announced a $2.36 billion EV battery factory last year near Big Rapids, with construction set to begin by July
• But scrutiny of its parent company’s ties to the Chinese government continues as relations between the U.S. and China fray 
• Some Michigan lawmakers hope to get more answers as the state considers a $175 million grant for the factory

April 20: Michigan Senate narrowly clears $175 million for China-linked Gotion plant
April 19: Gotion controversy tests longstanding Michigan-China economic ties
April 13: Amid Gotion furor over China, Michigan vows to change how it vets firms
April 12: Gotion funding on hold in Michigan, amid uproar over China ties
April 6: Politics, rumors fueling conflict in Big Rapids over Gotion plant deal
March 31: Anti-China ‘propaganda' stokes fears as Michigan town weighs Gotion factory

Six months after Michigan business advocates celebrated Gotion Inc.’s $2.36 billion electric vehicle battery factory deal near Big Rapids, questions persist about its ties to China’s government and threats that may pose to national security.

Local concerns about the company spread to Lansing this week as U.S. political and trade relations with China continue to fray.

The Big Rapids Township Board of Trustees voted in February to seek a federal review of Gotion to determine whether the company's deal in Michigan — and its Chinese ownership —  indicates any risks to the U.S.

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The move followed concerns raised by some residents and observers who continue to criticize the deal, which includes promises of $715 million of state funding in the form of $540 million in tax breaks and $175 million from the $1.6 billion Strategic Outreach and Attraction Reserve (SOAR) fund for large-scale Michigan business projects. 

All told, the company was offered $1.14 billion in incentives, or about 48 percent of the project’s estimated costs. The figure includes state and local costs and at least $50 million from utilities Consumers Energy and ITC Michigan.

Then, on Wednesday, during a state Senate appropriations committee meeting, Sen. John Damoose, R-Harbor Springs, asked the sole question posed to representatives of Gotion and local government and economic developers who spoke in favor of the project. 

“There's tremendous concern, as you know, related to the growing tensions between the United States and China,” Damoose said. Some, he said, followed Chinese foreign minister Qin Gang saying in early March that conflict with the U.S. was inevitable as he defended his country’s ties with Russia.

That concern extends to Gotion Inc. and its corporate links to China and its Communist Party-led government, Damoose said. Of particular concern is whether it could harm U.S. economic interests.

“I’m having a hard time finding answers here about Gotion,” Damoose said.

In reply to Damoose’s question, Chuck Thelen, Gotion Inc.’s vice president of North America Manufacturing who joined the meeting via video conference, sought to distinguish Gotion Inc. from Gotion High-Tech, the parent company.

Gotion Inc., he said, is incorporated in the U.S. as a wholly owned subsidiary of Gotion High-Tech, which holds about 3.5 percent of China’s EV battery market share and is publicly traded in both Switzerland and China. Volkswagen is a majority shareholder, though the German automaker does not have a majority voting right on the Board of Directors; those were retained by the founding shareholders. 

However, earlier in his presentation, Thelen did not distinguish between the Gotion division planning to build in Big Rapids and Gotion High-Tech as he spoke about the parent company’s expansion around the globe.

“Globally what we have is a company that was headquartered in Hefei, China,” Thelen said. “We have manufacturing and research and development sites all around the world.”

Thelen’s answers “only raise more questions,” Damoose said as the appropriations committee weighs the $175 million SOAR request for Gotion. 

Thelen forwarded a follow-up statement Wednesday to Bridge and other media declaring “there is no (Chinese Communist Party) organization or influence” on Gotion Inc.’s North American operation. “There is not a slim chance of influence of any political party to Gotion … while we follow regional and federal regulations and requirements within all of our North America facilities.”

Thelen later told Bridge the company’s Fremont, California-headquartered U.S. operation “does not, and never has, endorsed or supported any political affiliation.”

While U.S.-China relations have been complicated for decades, more recently the U.S. has watched China — with the world’s second-largest economy — set a policy for greater Communist Party influence in private business, according to a 2020 report by the New York Times. That’s where much of the U.S. security concerns arise, something that also extends to the data gathering capabilities of social media site TikTok as Congress questions whether the Chinese-owned video platform is a security risk.

The government is led by the Communist party, with leader Xi Jinping its general secretary. Under his leadership, about 100 Chinese companies designated as a state-owned enterprise (SOE) “dominate strategic sectors as well as banking, and (the government) maintains policies that provide preferential treatment of these firms,” according to a report in the Library of Congress.

Other companies, including Gotion High-Tech, are publicly traded with less direct ties to the communist government. However, research published in 2015 by two law professors at University of Florida concluded that, in China, “no firm—...  irrespective of ownership—is truly autonomous from the government.”

Many Chinese business interests can overlay with party initiatives, said Xun (Brian) Wu, professor of strategy at the University of Michigan’s Ross School of Business. 

The politicization of the business sector has increased, he said. In fact, last fall a report from Hong Kong showed that most mainland Chinese businesses trading there had rewritten their articles of association to enshrine the party’s role in the business. Gotion High-Tech did so as well last summer, with Article 9 of its Articles of Incorporation stating: “The Company shall set up a Party organization and carry out Party activities in accordance with the Constitution of the Communist Party of China.”  

Chinese corporate politicization also has the potential to change some of the long-standing business relationships between Chinese and American companies, Wu said, notably affecting Michigan and its auto industries. The state is home to many auto suppliers that seek to be close to its manufacturers. 

When it comes to battery technology, Wu said, the U.S. auto industry stands to win from Chinese participation because its technology investment is more advanced.

However, given the political climate, Wu said, more scrutiny of Chinese companies is “inevitable” from U.S. states as they consider more EV expansion, which he said could be a political and “symbolic effort that adds a lot of costs.”

Just this week, applications from Chinese companies to list on the Swiss stock exchange were halted by Chinese officials. Gotion High-Tech began trading in July to raise money for expansion, but a report this week in Reuters said the Swiss listings “serve little purpose” after Chinese investors buy them to make a quick profit. 

Big Rapids Township Supervisor Bill Stanek told Bridge on Wednesday that township attorneys will be requesting a Gotion financial review through the Committee on Foreign Investment in the United States (CFIUS), an interagency committee led by the U.S. Department of Treasury that reviews foreign investment.

Thelen told Bridge that Gotion Inc. is voluntarily submitting a declaration to the committee.

While the committee has existed since the 1970s, in September President Joe Biden issued new directives for enforcement actions for violations, such as for when a company is found to omit information. A growing issue for the Biden administration is the security of critical supply chains, including manufacturing, and potential harm to U.S. technological leadership.

“What may otherwise appear to be an economic transaction undertaken for commercial purposes may actually present an unacceptable risk to United States national security due to the legal environment, intentions, or capabilities of the foreign person, including foreign governments, involved in the transaction,” Biden said.

As a result, Biden said, the government will “continue to respond to these risks as they evolve, including through a robust review of foreign investments in United States businesses.”

In Michigan, Gotion Inc. initially planned to buy property in both Big Rapids and Green Charter townships for its battery plant, but earlier this year said that the Big Rapids Township portion — roughly 115 acres —  is on hold as the company plans to start construction by summer on 550 acres in Green Charter Township. 

Gotion Inc. and its parent company have not been flagged by the U.S. Department of Commerce as an entity of concern, said Otie McKinley, spokesperson for the Michigan Economic Development Corporation, which competed against other states for the project. 

The Michigan Strategic Fund, the public funding arm of the MEDC, also followed its background review policy when vetting Gotion Inc. for the state awards, McKinley said. 

“Gotion will be a transformational project for Big Rapids and Mecosta County,” he added, noting that in addition to local jobs the project will add U.S. capacity to produce EV batteries. 

Jim Chapman, supervisor of Green Charter Township, said during Wednesday’s Senate committee hearing that the project is a “game-changer” and widely supported by residents. Hiring projections call for 2,350 new jobs with wages averaging about $52,000 per year. 

Stanek told Bridge he still supports the project coming to the greater community, and he doesn’t believe that his township board’s unanimous vote for federal scrutiny of the company prompted Gotion to back out of Big Rapids Township.

“We’ll see where they go from there,” Stanek said of the Big Rapids Township request. “And if the federal government decides to (review Gotion finances) or not, it's up to them.”