Anshan's proposed investment in US: are we OK with this?

A couple of days ago, news surfaced that Anshan Iron and Steel, one of the largest steel manufacturers in China intends to purchase a 20 percent stake in a near-bankrupt Mississippi steel mill. I say "surfaced" because the actual decision to pursue this investment apparently came in May, but for whatever reason never made the news in the US.

As would be expected, the Congressional Steel Caucus, a group of about 50 US lawmakers who are advocates of the US steel industry, raised objections to the proposed investment. These objections are similar to those raised by CNOOC's proposed takeover of Unocal back in 2005, so there is really nothing new here. The requisite "national security" implications are raised. And there is little doubt that the Steel Caucus's "investigation" will recommend against allowing this investment to happen.

Of course, the Steel Caucus can only make a recommendation; it does not have the final word, so it is not inconceivable that the investment could happen anyway. After all, a 20 percent stake is not a controlling stake, right? And even if it were, Anshan is just like any other profit-seeking business, right?

To address the first question, the answer is that we cannot always be certain whether 20 percent is a controlling stake. That really depends on who the other shareholders are and how large their stakes are. According to the Wall Street Journal, the Mississippi plant in question is owned by a private company, the Steel Development Co., which, according to its website is owned by "institutional investment firms headquartered in the United States, as well as [its] management group." So I think it is reasonable to assume that Anshan's proposed 20 percent stake would not be a controlling stake.

As for the question of whether Anshan is a profit-seeking business, the short answer is, yes, except for when it is not.

Beijing-based lawyer and blogger, Stan Abrams, posted a funny, and partially tongue-in-cheek, article today essentially making fun of the Congressional Steel Caucus's knee-jerk commie baiting (my term, not Stan's). While I largely agree with Stan's conclusion, I have to wonder whether the fact that Anshan is a state-owned enterprise is a significant factor that deserves further scrutiny.

Stan says (again, tongue-in-cheek):

Everyone knows that the company is controlled by China’s Assets Supervision Commission of the State Council (SASAC), which means that the company is merely a tool of the Communist Party. With all of those subsidies, Anshan is definitely up to no good.

Well, let's take this apart. First of all, I think we can be sure that not "everyone knows" this. Whether they should remains to be seen. Second, yes, Anshan is indeed owned by SASAC, the arm of the State Council that holds the shares of China's largest state-owned enterprises.

Third, while Anshan isn't "merely" a tool of the Communist Party (it is also other things), it is nevertheless a tool of the Communist Party. Anshan is 67 percent owned by SASAC, which doesn't necessarily make it a tool of the Communist Party -- until you take a closer look. The senior management of SASAC-owned companies, including Anshan, are appointed, not by their Boards of Directors, not by SASAC, not by the State Council, but by the Politburo of the Chinese Communist Party. (Richard McGregor's new book documents much of this. It's also a great read. McGregor explains some of this in an interview here on the China Beat.)

I also found it interesting that Qi Xiangdong, Deputy Secretary General of the Chinese Iron and Steel Association seemed to bend over backward to try to redefine what "state-owned" means:

"A market-economy country like the U.S. shouldn't make administrative intervention to corporate behavior," Mr. Qi said. "Western countries still have a stereotype of [Chinese] state-owned enterprises. ...Anshan Iron is a listed company, and not a Chinese state-owned enterprise in the traditional sense." (WSJ, 5 July 2010)

Setting aside the irony that the king of state interventionist governments would lecture the US about what a market economy is, it is extremely disingenuous of Mr. Qi to suggest that a company that is 67 percent owned by the government is not state-owned. If I were a conspiracy theorist, which I'm not, I might begin to suspect that there is a Chinese plot to redefine English language words such as state-owned, democracy, rule-of-law, etc., so as to confuse their foreign detractors.

What about "all of those subsidies"? Well, since Anshan is indeed a state-owned enterprise, we can be certain that, at some point in the past, and probably at some point in the future, Anshan will benefit from government subsidies. Part of the reason for continued government control of major enterprises in China is fear of instability that would be caused by massive layoffs if these giant firms were to go bankrupt. As long as any company is in state hands, that's not a problem. Anshan is "blessed" with a soft budget constraint, and they know it.

Is Anshan "up to no good"? Probably not, though when it comes to the murky world of Chinese state-owned enterprises, nothing can be said with all certainty. Anshan's external shareholders, a diffuse group of individuals and institutions who collectively own only 33 percent of Anshan's shares, have no say in what the company does. Anshan is part of a large group company, and there is absolutely zero visibility into the operations or financial statements of the unlisted entities. It may also give us pause that a Chinese official stretches reason in order to declare Anshan not to be a state-owned enterprise when it clearly is.

So while Anshan is probably just looking for a good investment in a business that it already knows, without visibility into the rest of Anshan's dealings, its leadership, its true controlling owners (i.e. the Politburo), we cannot be absolutely certain.

So are we OK with this investment?

Yeah, why not? Let the folks in Mississippi take Anshan's money. When it comes to the power of the Chinese state, it pretty much stops at the borders of the United States. Once Chinese money and people enter the US, they are subject to rule-of-law. And while the Chinese may wish to redefine what that term means within their own borders, they will find US courts quite unsympathetic to any attempts to do so elsewhere.

Ownership doesn't matter. Winning does.

China is well-known for state direction of the economy, and China itself doesn't really try to hide the fact that its most important industries are dominated by state-owned enterprises. Among these industries are airlines, telecoms, banking, finance, steel, mining, shipping, petroleum and, yes, automobiles.

Consumer Subsidies for energy-saving cars

In yesterday's post, I noted that a good mix of Chinese and foreign auto companies sell "energy-saving" cars that are eligible for consumer subsidies of 3,000 yuan per car. Curiously though, the best selling small sedan in China, BYD's F3, doesn't appear on the list.

I am not sure about the reasoning behind this oversight, but I would be hesitant to read too much into it. Despite the fact that it is privately owned, BYD appears to have attracted the favorable attention of the central government. The list (Chinese pdf) of subsidy-eligible cars is identified as a first cut (第一批), so perhaps the F3 will appear on the second cut.

As I mentioned yesterday, China's "new energy vehicle" (NEV) policy calls for consumer subsidies of up to 50K yuan for plug-in hybrids and up to 60K yuan for pure electric vehicles. (The subsidies are calculated based on a formula of 3,000 yuan per kilowatt hour of battery pack capacity.)

Beijing Likes BYD

What is interesting about this distinction in vehicle types is that there is (to my knowledge) only one company in all of China manufacturing a plug-in hybrid: BYD. The only other plug-in hybrids slated to be sold in China are the Chevrolet Volt, which will be imported and, therefore, doesn't qualify, and the next generation Toyota Prius which will have a gasoline engine too large to qualify for subsidies.

So it appears that Beijing has handed BYD a nice little gift by creating a special subsidy category for its F3DM plug-in hybrid -- which would be really nice if BYD had any intention of taking advantage of it. According to BYD's Assistant General Manager, Wang Jianjun, at the beginning of the year BYD had planned to build only 1,000 "new energy vehicles" (NEVs). Now that the subsidies have been announced, there has been no change in plans. BYD still plans to build only 1,000 new energy vehicles in 2010, according to Wang.

This strikes me as a little odd. Just last fall, BYD CEO, Wang Chuanfu was quite vocal in his disappointment that Beijing had yet to announce subsidies for NEVs. He stated at a conference that BYD could not build more of these cars until the company had an idea of how much the subsidies would be.

Well, now they know. So 1) why aren't they ramping up production?, and 2) why are they so publicly announcing that they aren't ramping up production? This would seem to be an ungrateful reaction to help being offered by the central government, and I could only speculate as to the reason.

Not only has the central government created a category to subsidize cars that BYD no longer seems inclined to produce, but late last year, BYD was extended a 15 billion yuan ($2.2B) credit line by state-owned Bank of China.

This move was a little unusual as China's banks are traditionally hesitant to lend to private companies. Lending to SOEs is easy. If anything goes wrong with a loan to an SOE, the banker has political cover, but if a private firm were to fail to repay a loan, the banker may find his job on the line. My assumption (and I have no way to confirm this) is that someone in Beijing provided the political cover needed for Bank of China to grant this loan to BYD.

So why all the favorable attention from Beijing for this apparently ungrateful, privately-owned upstart from Shenzhen?

It's all about winning

Put simply, China intends to dominate the global auto market, and its concern is not that state-owned firms lead the way, but that Chinese firms lead the way. While this is no guarantee that, at some point, China's unaccountable Communist Party wouldn't decide to nationalize everything, for the moment, China sees value in what the private sector brings to its auto industry. And BYD, ungrateful or not, continues to push the envelope in terms of NEV technology as well as peripheral technologies like solar power and storage solutions.

Follow the Policy

By looking at China's recent NEV policy announcements, it is easy to see where China's priorities lie with respect to its auto industry.

The 3,000 yuan subsidy for energy-saving vehicles does not discriminate between Chinese or foreign brands (see yesterday's post). This indicates that China's short-term interest is in conserving fuel and pumping less CO2 into the atmosphere.

The 50-60K yuan subsidies for plug-in hybrids and pure electric vehicles indicate that China intends for Chinese companies to have a significant global market share in the auto market of the future.

Only time will tell whether Beijing's decision to pick the winning technology is more effective than those of other countries allowing the market a little more of a say in which technologies come out on top.

China Auto Subsidies: Who's on the List? Who's Not?

A month ago, China announced subsidies to support sales of "new energy vehicles" and energy-saving vehicles. Yesterday, the government released a list of cars approved for subsidies under the "energy-saving" category. The list is interesting, not because of whose cars are on the list, but because of whose cars are not on the list.

"New energy vehicles", in this case, include both plug-in hybrids and pure electric vehicles. The former are eligible for a subsidy of up to 50,000 yuan and the latter of up to 60,000 yuan. Note that traditional hybrids of the non-plug-in variety are not included here.

"Energy-saving" vehicles have traditional internal combustion engines, but the engines must have a displacement of 1.6 liters or less. Readers may remember that early in 2009, China's government announced a 50 percent tax break to be applied to all cars with engines 1.6 liters or less.

The sales tax on these cars was decreased from 10 percent to five percent, and it led to a significant increase in sales of small cars, which further drove China's annual sales to eclipse those of the US for the first time ever. (Though, admittedly, this was helped by a steep drop-off in US sales due to the recession.) The biggest selling car in China last year was BYD's F3, a gasoline powered Toyota Corolla lookalike with a small engine.

Toward the end of 2010, the small car tax break was cut in half (tax increased from 5% to 7.5%), and extended for a few more months as part of China's stimulus plan. Now that the tax break has ended, the government has resorted to a one-time subsidy of 3,000 yuan that basically accomplishes the same task of encouraging sales of fuel-efficient cars.

Detailed List of 71 Models

Yesterday, the NDRC released a list of cars eligible for the 3K subsidy. There are 71 specific models from 16 companies, all with engines of 1.6 liters or less. (I won't list all of the cars here; the complete list can be found in this Chinese pdf.)

Before seeing the list, my expectation would have been that the number of Chinese-branded models would exceed those of foreign-branded models, but that is not the case. Among the 71 listed models, 32 are Chinese and 39 are foreign.

Why does this surprise me? Because when the tax break was enacted over a year ago, the government's intention was to pick a cutoff point (1.6 liters) at which Chinese brands would most benefit. According to research shown to me by an auto industry executive in Shanghai, cutoffs of 1.5 liters or 1.7 liters would not have benefited independent Chinese brands as much as the 1.6 liter cutoff. The executive's research estimated that, at the 1.6 liter cutoff, approximately 85 percent of sales were of Chinese brands.

And indeed, as the tax break was announced last year, many commentators pointed out that the foreign manufacturers had been caught flat-footed because they offered few cars that qualified for the tax break.

Well, apparently that has changed. The list now has 17 different model variations made by Shanghai GM (SAIC-GM) alone.

Because there has apparently been a crackdown in reporting on actual monthly sales numbers from China, I now have difficulty getting my hands on sales data. (Apparently someone figured out they could charge money for the data.) If I could, it would be easy to determine just how many of each of these 71 models has been sold in recent months to see who would be benefiting the most. Perhaps the numbers of Chinese vs foreign models would matter less than the absolute numbers of vehicles being sold.

Who's Not on the List

And one would assume that China's hottest selling sedan, the BYD F3 would ensure that most of this subsidy money would flow to Chinese brands. There's just one problem with that reasoning: the F3 is not on the list!

I'm not sure whether this was an oversight, but the only BYD model on the list is the F0, a car small enough to pick up and put in your pocket.

Who else isn't on the list? Toyota, Nissan, Ford, Mazda. Each of these companies makes cars in the 1.6 liter and below segment, but none of these is on the list.

And poor Toyota, the company that brought the world the first production hybrid, the Prius, doesn't appear to offer any car in China that is eligible for any kind of subsidy. Its small cars like the Yaris didn't make the 3K subsidy list, and its Prius won't qualify for the 50K hybrid subsidy because it isn't of the plug-in variety. Its next generation Prius, which will be a plug-in hybrid, won't qualify either because its gasoline engine is being upgraded from 1.5 liters to 1.8. Can these guys not catch a break in China?

I would suspect an anti-Japanese sentiment here, but the 3K subsidy list does have other Japanese-branded cars from Guangzhou Honda and Chang'an Suzuki.

There's another surprising wrinkle in China's new energy vehicle policy, and it concerns BYD. More on that tomorrow...

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Edit: The guys at China Car Times have put up an English list of models eligible for the 3K subsidy here.

A National Disgrace

American politics is not the normal purview of this blog, but today I will make an exception.

This afternoon, Eric Garland posted this video clip on Twitter. It's a seven minute clip from The Daily Show in which Jon Stewart lambastes the last eight American Presidents for their empty words about "independence from foreign oil".

While it is classic Jon Stewart humor, it's also very sad. But I'm not sure which is sadder: the content of the video, or the fact that such an important statement has to come from a comedy program.

Lest we blame all of this on the President, there are another 535 parasites on Capitol Hill who bear just as much responsibility.

So enjoy the video, but if you're an American citizen, please think long and hard about who gets your vote this fall.

An Energy-Independent Future

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

Beijing's Promotion of EVs: Global, not Local

Yang Jian, Managing Editor of Automotive News China, has a great commentary today entitled "Beijing's real goal in promoting electric vehicles" (free registration required to read -- and it's worth the trouble!).

Yang says:

The central government's real goal is to help key domestic automakers leapfrog their foreign competitors in the race to develop advanced powertrains.

In other words, this is not about getting Chinese consumers into electric vehicles. It's about pushing Chinese automakers -- both private and SOE -- to become global players in the rush to develop the newest green technologies.

The cities chosen for the electric vehicle subsidy pilot (as I referenced here recently) were chosen because their local automakers were deemed by the central government to be closest to having marketable electric or hybrid cars. The whole point of the subsidies is to give local automakers in these cities (Shanghai, Changchun, Shenzhen, Hangzhou and Hefei) enough test subjects to carry out credible testing of their technologies.

I agree 100 percent with Yang Jian's views. China's goal with new energy vehicle technology is not about getting Chinese consumers into EVs; it's about getting people all over the world into Chinese EVs.

The Missing Element in China Labor Issues

Recent news has been full of accounts of dissatisfied workers in China. First, there was the string of suicides among workers at the massive Taiwan-owned Foxconn factory in southern China. Then there were the strikes against Japanese-owned Honda auto parts factories. Now it seems that worker unrest has spread north to another Taiwan-owned factory in Kunshan, Jiangsu province.

Not being much of an expert in labor issues, I have largely avoided comment on this issue while watching the labor experts analyze the minutiae of management-labor relations, rising wages and their potential impact on China's manufacturing base.

The one issue I have yet to see highlighted is the fact that, so far, all of these suicides, strikes, etc., have occurred at foreign-owned or controlled companies. China's state-owned enterprises have (thus far) remained unscathed by what looks like a trend of worker dissatisfaction.

Do SOEs treat their workers better than foreign companies? Do they pay their workers better? Or have the SOEs simply been lucky so far?

A China-Indiana Connection for New Energy Vehicles

The basic premise behind my current research program is that some governments are more heavily involved than others in their respective economies. And a further assumption, supported by economic theory, is that greater state involvement equals lower efficiency, profitability and competitiveness. For me, two of the most obvious reference points are the United States and China.

As I have looked closely at how China’s government has guided and supported its auto industry, I have also begun to ask some important questions: Why does government’s involvement in economic development necessarily have to be negative? And why is China’s government able to manage the growth of national champions while the U.S. government still seems content to let the market do its job and let the chips fall where they may?

Last week I received a somewhat last-minute invitation by a company named Ener1 to attend a U.S.-China Advanced Technology Vehicle Summit in Indianapolis, Indiana. The chief attraction for me was the fact that dozens of Chinese automobile company executives and government officials would be in attendance, so my expectation was that I might get to chat with a few of them on the sidelines.

While my expectations were indeed met – I had a chance to talk with people from Geely, Dongfeng and BYD – they were ultimately exceeded. My unexpected find was a number of American auto supplier executives who were excited about state and local governments in Indiana, the environment for electric vehicle innovation there, and their opportunities in China.

The day I arrived at the summit the folks at Ener1 were excited about the announcement of a joint venture between their EnerDel subsidiary and Wanxiang of Hangzhou, Zhejiang Province. Wanxiang is the largest tier-1 auto parts supplier in China. During 2010 the joint venture formed by the two companies will begin producing lithium-ion battery systems for Wanxiang’s existing customer base in China.

I had a chance to chat with Ener1 Chairman and CEO, Charles Gassenheimer who explained to me that EnerDel’s advantage in China is its manganese-oxide based battery technology which has greater energy density than the iron-phosphate technology used by companies such as BYD. As there is a big need in China for battery packs that can drive heavier vehicles such as buses, energy density will be increasingly important, and EnerDel’s technology gives Wanxiang a stronger offering for its domestic customers.

EnerDel’s batteries are already being deployed in the TH!NK City and the Volvo C30 electric passenger vehicles.

Governor as Matchmaker

Because China is a new frontier for EnerDel, I asked Mr. Gassenheimer how he connected with Wanxiang. Of all the companies in China, why this one? “It was a marriage made by the Governor of Indiana,” he replied. Governor Mitch Daniels, who addressed the opening dinner of the Summit, makes trips to Asia to promote his state, annually to Japan, and this year, for the first time, to China. Governor Daniels later reached out to EnerDel, whose facilities are located in Indianapolis, to encourage them to talk with Wanxiang whose Chairman he had met during his trip to Zhejiang Province, a sister province to the State of Indiana.

So it would appear that Indiana has a savvy governor who understands the value of creating business connections for his state. But when Governor Daniels travels to China and elsewhere, what exactly is he selling? Why would the Chinese be interested in Indiana when Detroit is right across Indiana’s northern border?

As I spoke with Mr. Gassenheimer, we were also joined by Thomas J. Snyder, President of Ivy Tech Community College and also a board member of Ener1. Mr Snyder pointed out that the 100-strong delegation of Chinese visitors who were currently attending the Summit were spending only a brief time on their other stops in the U.S. (they were also to visit Chicago and Detroit), but they were spending nearly two full days in Indiana.


Business-Academia Partnerships

Part of Indiana’s attraction, according to Mr. Snyder is a strong educational system. He runs the country’s largest Community College system with over 100,000 students and 23 campuses in Indiana. This system feeds into a system of four-year universities among which are such engineering giants as Purdue University.

At the opening dinner, I spoke with an executive from an Italian parts supplier who attended the Summit. His company has factories in both China and the State of Indiana. “Why Indiana?” I asked. “Because, not only are wages competitive for a region so close to Detroit, but local engineering talent is readily available. People in Indiana can make anything you want.”

Not only does Mr. Snyder, a former General Motors man, serve on the board of directors of Ener1, but he and Dr. France Cordova, President of Purdue, both serve on the board of Indiana’s Energy Systems Network (ESN). ESN is a partnership among business and academia formed to develop Indiana’s energy technology and cleantech sectors. They “provide project development and coordination for joint ventures and cooperative partnerships”. And they were also the organizer and chief sponsor of the Auto Summit I was attending.

So Indiana has a governor who likes to hustle, a strong educational system, and a business-academia partnership. California has Schwarzenegger, Stanford, Cal-Tech, USC, UCLA. Why wouldn’t the Chinese choose to base themselves in California?

A Nexus for New Vehicle Technologies

Unlike California, “Indiana has a balanced budget. We’re in the black. We have a conservative government, low taxes, low wages... But most importantly, we have a nexus of new vehicle technologies,” explained Mr. Snyder.

Right there in the area are either headquarters or major operations for companies such as Cummins, Delphi, Remy, Allison Transmission, and EnerDel. The last four of which were previously spun off from General Motors. In fact, much of the team that now comprises EnerDel were the team that designed the ill-fated EV1 electric car that General Motors introduced and later unceremoniously killed during the 1990s.

Some of these businesses were dying on the vine at General Motors and have since found new lives of their own as stand alone businesses. Out from under the bureaucracy of GM, they were freed to innovate and seek out new markets, which, for these businesses, are now focused on two areas: big and new – “big” being China, the world’s largest auto market, and “new” being new technologies for transportation such as batteries and motors for electric and hybrid vehicles.


The China-Indiana Connection

While Ener1 and EnerDel ready their joint venture with Wanxiang, some Indiana companies are already on the ground in China. Remy, Inc. (formerly Delco-Remy, and formerly part of GM) is already building starters and alternators in China through both a wholly-owned foreign enterprise (WOFE) and a joint venture with a unit of ASIMCO. They also had their starter/alternator combinations in the hybrid Chery taxis that have run in Beijing since about a year prior to the start of the Olympics.

Remy have recently closed their WOFE factory in Shenzhen and moved it to Zhengzhou where labor is in greater supply and, therefore, cheaper. This also places the WOFE in close proximity to their joint venture which solves a few logistical issues as well. As Jay Pittas, Sr. VP for Remy explained, “we save a lot of money on wages by getting away from Shenzhen, but then you have more challenges with transportation, so it’s a bit of a tradeoff.”

I asked Mr. Pittas whether the Chinese were truly serious about electric vehicles and whether they would have a market in China, to which he replied, “the Chinese are viewing the electric vehicle as a very important strategic spot for them because they realize they will never be the technological leaders in gasoline and diesel engines. They clearly see a more level playing field with EVs because we’re all at the same starting point. So they are willing to throw a lot of resources behind this.”

“We saw a dichotomy of forecasts this morning with one guy (an American auto analyst) projecting a 4 to 10 percent increase in share of electric and hybrid vehicles in the China market by 2015, (while) the (Chinese analyst) projected a 30 percent share by 2015. I happen to believe the Chinese will try to drive it to a 30 percent number, regardless of what the economics look like because they want that technological leadership.”

When asked how he would compare U.S. and China’s state support for new vehicle R&D, Pittas said, “we (Americans) think it’s a big deal when the President talks about investing $100 million in alternative vehicles. The Chinese talk about a billion.” From this perspective, the U.S. Federal Government doesn’t exhibit nearly the level of seriousness as do the Chinese. Is it any wonder then that American automakers and parts suppliers are all beating a path to China now?


The Downside to China

I asked Mr. Pittas and the CEO of Remy International, John Weber about the downsides to working in China. Almost in unison, they both said, “IP” (intellectual property). Explains Weber, “IP is probably the biggest (downside) by far. No matter what (your partner) says, your technology bleeds when you take it over there. You’re copied everywhere.”

“So how do you get ahead of that?” I asked. “You can’t. You learn to manage the bleed. You don’t give them your latest technology, and when you do, you put it in a wholly-owned, not a JV.”

“Still” offers Pittas, “I like operating better there than in Japan. It’s the most entrepreneurial environment in the world – including the U.S.”

“Also”, adds Weber, “while, in general, you can’t beat the cost of a Chinese product, their quality is just not what you’d expect, and this is where our opportunity lies.”

Some executives of Allison Transmission, whose heavy-duty automatic transmissions are in all of Beijing’s buses, expressed similar sentiments. Foreign parts manufacturers still have a tremendous technological edge over the Chinese manufacturers, but more importantly, some Chinese assemblers are starting to raise the bar in terms of requirements.

Explains Michael Headly, Allison’s VP of International Marketing, “what our technology offers is improved safety, productivity and cost-effectiveness. While not all of the Chinese manufacturers are making these kinds of demands yet, many are beginning to ask about it, and we take this as a positive sign for the future.”
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Interestingly, most of these companies have also received federal grants and loans to help them get their new technologies off the ground. Ener1 has received a $118 million grant from the Department of Energy under the American Recovery and Reinvestment Act (ARRA) and is also in line for a sizable loan. Remy has received $60 million under the same program, and Allison International has received $63 million. Kokomo, Indiana based Delphi has also received a grant of $89 million. All of these projects are related to development of new vehicle technologies and were part of President Obama’s $787 billion stimulus package.

So while the U.S. government does not get as heavily involved in industrial planning as does China’s government, it isn’t exactly fair to say the U.S. government is uninvolved. Nor can the same be said for many state governments. In addition to benefiting from Governor Daniels’ matchmaking skills, Ener1 has also received $70 million in funding from the State of Indiana.

While some great things are happening in Indiana, there may still be lessons U.S. governments could learn from their Chinese counterparts. For example, construction projects tend to progress from the planning stage to usage in times that are unthinkable in the U.S. During his first visit to Wanxiang, Ener1’s Charles Gassenheimer was “blown away” by the fact that Wanxiang had just broken ground on a new facility twice the size of their current facility. The people at Wanxiang told him it would be ready for use in three months.

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Disclosure: The author's travel to Indianapolis was paid for by Ener1, Inc.