Gotion controversy tests longstanding Michigan-China economic ties

• A vote on Michigan’s $175 million in incentives for Gotion Inc.’s EV battery component factory is set for Thursday
• Gotion’s Chinese parent company drew concerns over its ties to the Chinese Communist Party, which is it obligated to support
• Proponents say the deal has been vetted under state and federal measures, and it could bring 2,350 jobs to the Big Rapids area

April 20: Michigan Senate narrowly clears $175 million for China-linked Gotion plant

Legislators charged with approving Michigan’s large-scale business incentives expect to vote Thursday on the most controversial project to date: A $2.3 billion plan by Gotion Inc. to build an electric vehicle component factory in Big Rapids.

The deal, announced to widespread approval last fall, has come under growing criticism from political conservatives and, increasingly, some Democrats amid questions about ties between Gotion’s parent company and the Chinese Communist Party. 

Geopolitical competition, the war in Ukraine and technology and national security concerns are bringing greater scrutiny to businesses with ties to China during a period of fraught relations between the superpowers. 

Related:

• Jobs v. China: How politics, communist ties roiled $2.3B Gotion plan in Michigan
• Amid Gotion furor over China, Michigan vows to change how it vets firms
• Chinese EV battery factory planned near Big Rapids faces renewed scrutiny

But Michigan has embraced closer economic ties with Chinese companies for decades in a bid to boost, and diversify, the state’s flagging economy. 

From 1990 through 2020, an estimated $460 billion in direct foreign investment flowed between China and Michigan, according to the China Investment Monitor from The Rhodium Group, which gathers data on Chinese investment by state.  Of that, 38 percent — or $175 billion — was investment within the state. 

Over those years, two Republican governors launched trade missions to China, and the state’s lead economic development agency has spent millions of dollars on ongoing efforts to recruit more Chinese businesses, including during Democratic Gov. Gretchen Whitmer’s terms.

Chinese businesses now operate around the state, said Mary Gallagher, director of the International Institute at the University of Michigan. Many have been here for years, she added, mostly supporting the state’s signature product: cars.

“Michigan's automotive industry has been intertwined with China for many decades,” Gallagher said. 

But the quiet operation of Chinese auto suppliers in Michigan stands in contrast to the accelerating debate resulting from Gotion Inc.’s plan to build a production facility near Big Rapids, about an hour north of Grand Rapids. 

Gotion Inc. is a U.S.-based company, but its parent company, Gotion High-Tech, is based in China, where companies are facing increased pressure to work in sync with the Chinese Communist Party (CCP). Critics say Michigan shouldn’t take the risk of allowing a battery company with ties to China to set up shop here, working in the critical Electric vehicle realm.

Proponents of the Gotion deal point to the 2,350 jobs the project is promised to create, saying the state’s incentive investment is worth the hiring and spinoff business likely to result from a large-scale EV project. Backers also note that if Michigan rejects the factory project another state is likely to reap the benefits since federal regulators have found no security concerns relating to Gotion. 

The state Senate Appropriations Committee is calling the hearing at 11:30 Thursday at the Capitol on whether to approve $175 million in state incentives for the deal. Committee Chair Sarah Anthony, D-Lansing, intended to allow public comment at the hearing, she told Bridge Michigan on Wednesday. 

The committee vote — the final stop in Gotion’s eligibility for funding from the state’s $1.6 billion Strategic Outreach and Attraction Reserve (SOAR) fund — comes after the vote was put on hold last week over ongoing concerns relating to China.  

Anthony told Bridge she’s leaning toward supporting the project. 

“We received some additional information from (Michigan Economic Development Corporation) and then also heard from several of the local officials who have been in meeting after meeting with Gotion and vetting it from their perspective,” she said. “Those questions are answered on my end.”

The deals keep coming 

Even as controversy rose over Gotion Inc., Michigan continued to seek new business investment from China.

This month, the state spent $582,594 on an annual contract with the Michigan Asia Advisory Group, which operates as Due East Advisors under partner Brian Connors. He previously ran the nonprofit Michigan China Innovation Center, funded by the MEDC, throughout the Snyder administration. It disbanded in 2021.

China is a strong trade partner for Michigan, said MEDC spokesperson Otie McKinley. China’s advanced EV battery technology is something that can help U.S. companies as they try to move the battery supply chain to North America and turn to Chinese companies for joint ventures. 

More Chinese-Michigan alliances are possible, McKinley said, like the one between Ford Motor Co. and Contemporary Amperex Technology Co. (CATL) as the Dearborn-based automaker licenses CATL battery technology for its new EV battery factory planned in Marshall. 

Amid rising U.S.-China tensions, McKinley said measures are in place to ensure the business deals are not security risks. 

“Michigan is only bidding on projects that have already passed federal scrutiny and vetting and we know will be making an investment in the United States,” McKinley said. “If legal, and these dollars are going to be invested here in the U.S., the MEDC has an obligation to compete to bring these transformational investments to our state.”

Decades-long policy

China’s peak investment in Michigan was in the state’s automotive industry in 2015 and 2016, years that account for almost half of the direct investment China made in Michigan from 1990 to 2020. 

That boost represented the outcome of a strategy by Republican Gov. Rick Snyder, who traveled to Beijing in 2011 a few months after he took office. He became the first Michigan governor to visit China since 2000, when fellow Republican John Engler traveled there with then-Detroit Mayor Dennis Archer.

Engler and Archer went to celebrate Northwest Airlines opening a nonstop air route from Detroit to Shanghai just days after General Motors announced it planned to expand production in China, where a growing middle class loomed as an enormous emerging market. (In 2021, GM sold more cars in China than in the U.S.)

The pair also tried to recruit Chinese businesses to come to Michigan. 

Like Engler, Snyder went to China to sell the state, which he was retooling with a more business-friendly tax structure and welcoming stance to immigration. Both efforts, Snyder said then, would help a battered Michigan recover from the Great Recession.

He found a receptive audience among the Chinese, who a few years earlier had become the largest global auto producer.

"They can tell I have a business background, so we can jump right in . . . (rather than) have a dysfunctional conversation between a politician and a businessman," Snyder said during his  first trip. 

Snyder’s sojourn became the first of several during his administration, during which the MEDC contracted with the nonprofit Michigan China Innovation Center to represent the state in Chinese business recruiting.

“China is the biggest automotive producer in the world, (and) they're the biggest automotive market in the world,” Connors, the MEDC’s recruiter of Chinese business, said in a podcast in 2021. 

Michigan concentration of automotive engineering makes for “a very natural marriage” with China, he said in the podcast. That’s amplified with vehicle electrification, he said, due to strong Chinese battery technology.

“When they've already decided they're coming to the (United) States, we want to convince them to land in Michigan, and come and contribute to the local economy here.”  

Bilateral relationship

While mutual business investments between China and Michigan thrived over decades, it didn’t always come politically easy. U.S. relations with the communist country have been edgy even as the countries supported each other’s economy. 

The chance for Michigan to expand business “one of the reasons why there is a strong support for normalizing trade relations with China,” Engler said during his 2000 visit, which in part was to show support for China entering the World Trade Organization (WTO). 

Joining the WTO would help in “making sure the rules of the trade, from writing a contract to honoring the intellectual property and patent protection - all of those are on a much sounder footing so that as we go forward, trade with China becomes as normal as the trade with Europe."

But many of those concerns didn’t go away: Intellectual property theft, potential industrial espionage and national security risks all loomed, even as profitability and successful joint ventures forged new investments between Michigan and China.

The MEDC’s Connors touted the results of the state’s seven trade missions to China under the Snyder administration, saying in 2018 the state had 300 Chinese firms supporting at least 6,000 jobs. But he warned then that the ease of winning business in China could be changing.

“Today, the two countries’ highly intertwined supply chains contribute enormously to one another’s economies,” Connors said in a news release at the time. “At the same time, rising tensions between the U.S. and China on trade and investment threaten that cooperation.” 

In the past decade, communist party interference in the business sector has intensified. 

In 2015, the Chinese government told businesses there that they must have Communist units within their businesses. President Xi Jinping increased the number of state-owned enterprises, which were essentially subsidized by the government over privately run enterprises. And in 2020, the CCP took over the state-owned businesses. 

Michigan business ties to China flew largely under the radar of critics of communism and China until early this year. The Gotion deal was announced in early October, then a few months later, critics took notice of the Chinese connection. 

The Gotion award, in fact, followed by one week the Michigan Strategic Fund allocating $25.5 million in Coronavirus Aid, Relief, and Economic Security (CARES) Act funding to support Nexteer Automotive in Buena Vista Township near Saginaw. The award was to support a $312 million investment from Nexteer, which has a two-thirds Chinese ownership — including half of that belonging to AVIC Automotive, a Chinese state-owned enterprise. 

Joseph Cella, former ambassador to Fiji appointed by President Donald Trump, and ex-U.S. Rep. Peter Hoekstra, a former ambassador to the Netherlands, told Bridge they are concerned that it appears Michigan and the MEDC did not find the Chinese ownership ties to the CCP. 

It makes hem question the role of Gotion High-Tech officials in U.S. operations, they said, and they’ve asked Michigan Sen. Gary Peters, among other federal officials, to dig further into the situation. Peters’ office did not reply to a Bridge request for a comment on Gotion.

In the meantime, Cella said, “there was nothing barring (the MEDC) from doing the serious due diligence that’s been woefully lacking from the get-go.”

The MEDC told Bridge last week that it’s upping its vetting of Chinese investment as a result of the Gotion controversy, even as it still supports the project. 

Cella and Hoekstra said they hope that federal rules on China business disclosures will be further tightened, which they noted have already been strengthened under both President Joe Biden and under Trump. Among those are provisions in the CHIPS Act to ensure that U.S. funds are not used to build facilities in China and other areas of concern. 

“In the last six to 12 months … the China profile has changed,” Hoekstra said. “And so any investments going to a company linked with the Chinese Communist Party today are a much higher risk than what they would have been perceived to be a year ago.”

Gallagher, the U-M professor, said she’s critical of some Chinese policy, including its human rights record, which includes ethnic targeting of the Muslim Uyghurs and repression of dissidents. 

“But at the same time, I think the U.S. should be much more pragmatic about evaluating investment from China,” she said. “It's not always going to be a Trojan horse of communism.”

With the Gotion Inc. deal, Gallagher said, “it's coming with technology that Michigan badly needs to to be competitive in the new automotive industry as it changes towards electrification.”