Wednesday, December 21, 2005

Chinese Tycoon's Delphi Interest Sparks Trade, National Security, IPR Policy Worries

A trade industry weekly's report that a Chinese industrialist is dickering to buy Delphi assets is generating worries in the nation's capitol where an international relations expert sees possible trouble ahead for the U.S. if the reported deal results in an asset transfer.

"Lu Guanqiu, the ambitious chairman of Wanxiang Group, says he is negotiating with Delphi Corp. to acquire some of the financially troubled company's assets in the United States," according to Automotive News' current issue (subscription only). The Chinese company name is pronounced "wahn-shong."

"Lu is unlike most Chinese suppliers, who are content to stay home and increase their overseas business with exports. He wants to become a Tier 1 supplier to the major U.S. auto manufacturers with products made in America," Automotive News said in its report.

Wanxiang is a major international firm, with worldwide revenues last year of $2.6 billion. The company employs more than 31,000 people worldwide and makes universal joints, brake disks, bearings, driveshafts and other products, according to Automotive News.

Delphi is the largest U.S. auto parts supplier and recently filed for Chapter 11 bankruptcy protection. It appears Lu is seeking to purchase some Delphi assets, but other officials with the Chinese company declined to provide Automotive News with additional details of the particular assets under consideration.

Following its October bankruptcy filing, Delphi created the Automotive Holdings Group, which includes plants and related operations that could be on the auction block. "The group posted operating losses of $957 million on sales of $1.86 billion during the first nine months of the year," according to Automotive News.

John Tkacik, a Senior Research Fellow in Asian Studies at The Heritage Foundation, a conservative Washington, D.C. think tank that pays substantial attention to national security, economic and political developments across the Pacific, sees some serious potential problems in the Wainxiang Group/Delphi talks.

(FULL DISCLOSURE: While my profession is newspaper journalism, for the past six years, I have been Director of the Center for Media and Public Policy at Heritage, teaching fellow journalists how to do Computer-Assisted Research and Reporting, and working on issues such as Freedom of Information Act reform.)

"I think Wanxiang may be seeking to purchase the DELPHI brand name as well, so that they can produce in China," Tkacik, a former U.S. Foreign Service officer, told Tapscott Behind the Wheel. He worries that once Delphi assets were purchased, the Chinese company would "box them up" and transfer them to China.

"There are innumerable industries which the U.S. simply doesn't have anymore because the production lines are now in China," Tkacik said. "China underprices, the U.S. production-lines simply shut down and purchase units from the Chinese supplier."

Tkacik noted that "hand tools are a good example of one of the first to go, consumer electronics, lap-top computers, and now even fiber-optic cable production are leaking away from the U.S. to China." He cited JDS Uniphase as an example in fiber-optic cable field.

"Chinese competition and Chinese IPR piracy is one of the reasons Delphi has been losing competitiveness," Tkacik also noted. IPR stands for "intellectual property rights" and is of particular concern in international commerce regarding trademarks, copyrights, commerical trade secrets and patents.