Missile Technology Plant Moved to China

An important U.S. high-tech manufacturer is shutting down its American operations, laying off hundreds of workers and moving sophisticated equipment now being used to make critical parts for smart bombs to the People's Republic of China [PRC], Insight has learned.

Indianapolis-based Magnequench Inc. has not yet publically announced the closing of its Valparaiso, Ind., factory, but Insight has confirmed that the company will shut down this year and relocate at least some of its high-tech machine tools to Tianjin, China. Word of the shutdown comes as the company is producing critical parts for the U.S. Joint Direct Attack Munition [JDAM] project, more widely known as smart bombs, raising heavy security issues related to the transfer of military technology to the PRC. The factory uses rare earths to produce sintered neodymium-iron-boron permanent magnets that have many industrial applications but are essential to the servos critical to precision-guided munitions. According to documents obtained by Insight, Magnequench UG currently is producing thousands of the rare-earth magnets for "SL Montevideo Tech," a Minnesota-based manufacturer of servos. That company confirmed to Insight that it holds a Department of Defense [DoD] contract to produce the high-tech motors for the precision-guided JDAM.

The Valparaiso-based manufacturer, originally known as UGIMAG, became Magnequench UG when it was acquired by Magnequench Inc. in August 2000. Magnequench Inc. had been purchased in 1995 by a consortium that included the China-based San Huan New Materials and Hi-Tech Co., created and at least partially owned by the Chinese Academy of Sciences in Beijing. Magnequench was a spin-off company of General Motors Corp. [GM], and at the time of the buyout was headquartered in Anderson, Ind.

Clyde South was a negotiator for the United Auto Workers Local 662 representing the workers at Magnequench when the consortium began negotiating to buy the company in 1995. In an interview with Insight, South says that worker concern about PRC influence over the consortium led to an "agreement with GM" that the plant would remain in Anderson for at least 10 years According to South, the buyers made the same agreement with the union, but since he had doubts about their intentions he took his concerns to Washington. Warnings fell on deaf ears. In August 2001, the sixth year of the 10-year agreement, South's distrust was validated when the consortium's managers "told us they intend to close the plant" and eliminate roughly 400 jobs.

The Magnequench plant in Anderson transforms neodymium, iron and boron into powder using a unique patented process that produces the exotic rare-earth magnets. Following the buyout in 1995, the production line at Anderson was "duplicated in China" at a facility built by the PRC company. According to South, after the company "made sure that it worked, they shut down" the Anderson facility. South says he suspects the buyout was about getting the technology, adding, "I believe the Chinese entity wanted to shut the plant down from the beginning. They are rapidly pursuing this technology."

Meanwhile, says the union negotiator, "They told us, 'We are going bankrupt,'" and therefore had to close the Anderson facility. This was not long after the consortium purchased UGIMAG in Valparaiso, according to critics, telling the workers there that they planned to keep the factory running. But, according to some sources, Magnequench Inc. had "refused to buy the buildings or the property" on which the factory was located, "suggesting a temporary arrangement." South said of his experience, "You just couldn't believe anything they told you."

The plant workers at Magnequench UG are organized by the United Steelworkers of America. Insight contacted union official Michael O'Brien, who confirmed negotiations with Magnequench UG regarding the company's future, but declined to comment further.

The transfer to Communist China of technologies that make rare-earth permanent magnets also is a matter of concern for defense and national-security experts, says Peter Leitner, a senior strategic-trade adviser to the DoD. Leitner says rare-earth magnets "lie at the heart of many of our most advanced weapons systems, particularly rockets, missiles and precision-guided weapons such as smart bombs and cruise missiles." He tells Insight why the PRC's need for this type of technology is urgent, noting that "China has an ongoing high-priority effort to produce a long-range cruise missile. They are trying to replicate the capabilities the U.S. has, such as with the Tomahawk [cruise missile], as part of their power projection, and expanding their ability to strike targets at long distances."

Since the 1995 buyout of Magnequench by the consortium of two Chinese companies and a cooperating U.S. firm, it has in turn bought at least two more high-tech companies that deal in rare-earth magnets. In addition to UGIMAG in 2000, which became Magnequench UG, it has bought GA Powders, which was a spin-off company of the Idaho National Engineering and Environmental Laboratory, a U.S. national lab. An insider tells Insight that "Magnequench UG is the last American company making these rare-earth magnets. When it moves to China, there are none left." Leitner sees a pattern. He says the Chinese "have targeted the manufacturing process through a variety of suspicious business activities and have been furiously transferring the manufacturing technology to China, thereby becoming the only source. They are purchasing U.S. companies, shutting them down and transferring them to China."

According to Leitner, "The Chinese are clearly trying to monopolize the world supply of rare-earth materials such as neodymium that are essential to the production of the militarily critical magnets that enable precise guidance and control of our most advanced weapons and aircraft." He warns that risks are involved in allowing this kind of technology transfer, adding: "By controlling the access to the magnets and the raw materials they are composed of, U.S. industry in general and the auto industry in particular can be held hostage to PRC blackmail and extortion in an effort to manipulate our foreign and military policy. This highly concentrated control - one country, one government - will be the sole source of something critical to the U.S. military and industrial base."

Intelligence analysts emphasize that the PRC routinely combines espionage operations with business deals. Internal PRC documents refer to this as advancing "economy and i national-defense construction." A 1999 congressional report on PRC espionage states that the Beijing government sees "providing civilian cover for military-industrial companies to acquire dual-use technology through purchase or joint-venture business dealings" as a responsibility of the government. The report lists "rare-earth metals ... for military aircraft and other weapons" as one of the primary targets of the PRC.

So how could this be happening? Because of the PRC's involvement in the 1995 buyout of Magnequench, the deal required the approval of the Committee on Foreign Investments in the United States [CFIUS], which is chaired by the secretary of the Treasury. CFIUS approval of the buyout predated a series of reports by the FBI and congressional committees warning of massive PRC espionage efforts against U.S. businesses and military technology. In one case, which involved the then-struggling McDonnell Douglas Corp., the China National Aero-Technology Import and Export Corp. [CATIC] targeted the U.S. aircraft giant's plant at Columbus, Ohio, according to government sources. Plant 85, as it was known, is where the bodies of the U.S. Air Force C-17 strategic transport plane and the MX intercontinental ballistic missile were made.

In 1994, CATIC made an offer to buy Plant 85 and relocate it to what was to be a civilian aircraft-production facility, according to government documents. The request for an export license for the plant's machine tools touched off a bitter feud among export-control officials at the DoD that still lingers nine years later. Those opposed to the sale argued that once the Plant 85 machine tools were exported to the PRC, they would be used to produce missiles for China's People's Liberation Army [PLA]. Those who favored the sale pointed to the ancillary deal the PRC dangled in front of McDonnell Douglas to purchase more than $1 billion worth of aircraft.

In the end, those in favor of the sale of Plant 85 won out and those opposed almost immediately were vindicated. According to government documents, within months of exporting the plant to China, U.S. officials learned that the sensitive machine tools had been diverted for use in a Chinese factory that makes the Silkworm missile that Beijing has provided to rogue nations. United Auto Workers union official South tells Insight he sees similarities between the cases of McDonnell Douglas and Magnequench, noting that immediately after the consortium's first Magnequench acquisition, "They transferred the patented jet-casting process to China."

In an interview with Insight, Magnequench Inc. President Archibald Cox Jr. initially denied but later confirmed having a contract for the production of rare-earth magnets for the JDAM. When asked about the shutdown of the Anderson plant last year, he acknowledged having a 10-year agreement with GM and the steelworkers, but insists that despite the early termination of that agreement the workers "got a fair deal" when the company bought out their contract. Cox tells Insight the closing of the Valparaiso plant was a matter of economics, and denies that the company is moving equipment to China.

"We are going to sell everything in the plant i unless we can use it somewhere else," says Cox. Insight has obtained evidence that "somewhere else" may mean China. A copy of an internal memo from the Valparaiso plant seems to contradict the "sell or auction" option. A brief memo, dated Jan. 23, states in part, "In the near future you will be seeing people in the plant performing measurements and a variety of estimating and planning activities in preparation for equipment sale and/or removal ... to give the company an idea of cost and logistics." According to eyewitness accounts, all such "people have been from China." Cox also acknowledges that Magnequench Inc. did not purchase the buildings or land where the Valparaiso plant is located, but refuses to characterize reluctance on the company's part: "It just wasn't part of the deal," Cox says.

A source with detailed and specific information about the internal operations of the company tells Insight that "the company set up their own competitors by transferring the machines and technology to China. Once the Chinese companies bought into Magnequench, they created their own competition."

According to company officials, Mangnequench asked for and received clearance to export equipment it has shipped to the PRC.

Meanwhile, employees of Magnequench UG have placed their hope in an unlikely labor-union ally. The one surefire deterrent to Magnequench UG's move to China would be for President George W. Bush to exercise his authority under the 1988 Exon-Florio amendment to the Defense Production Act and order San Huan New Materials to divest its holdings in this strategic U.S. company. In his State of the Union Address, the president offered a glimmer of hope for Magnequench employees by declaring his administration's intent to "strengthen global treaties banning the production and shipment of missile technologies." If so, say the workers, this may be a very good place to begin the process.

Fundamentally, we believe that the U.S. government needs to devote more resources and put in place new programs to build wider expertise about China and to protect our industrial base from eroding as a result of our economic relations with China.
-- C. Richard D’Amato, chairman
U.S.-China Security Review Commission
(How to improve U.S.-China relations )

Saw this report some time ago.

It is this type of behavior and thinking that will hurt us terribly should the inevtable occur and the plug be pulled once we are made completely "inter-DEPENDANT" in the so called new global economy.

Histroy tells us ... IMHO, common sense tells us that this is the type of place it can lead.

Fregards.

Look at the dates when this technology went over and think back to who was occupying the Oval Office at the time.

That's riiiightttt! The traitor. I suspect we will be uncover ing the reach and range of his treachery for years to come, and with each new revelation the denial of the left will become ever more reality resistant.

That's riiiightttt! The traitor. I suspect we will be uncover ing the reach and range of his treachery for years to come, and with each new revelation the denial of the left will become ever more reality resistant.

There are lots of traitors involved in this, including the companies willing to sell.

It should also be mentioned that the availabilty of these rare earth minerals in the US is being compromised.

MolyCorp's ability to process these minerals is being curtailed by the California Desert Protection Act and the enviros.

"Lenin, who spent most of his life in the West and not in Russia, who knew the West much better than Russia, always wrote and said that the Western capitalists would do anything to strengthen the economy of the USSR. He said: They will bring us everything themselves, without thinking about their future. And, in a difficult moment, at a party meeting in Moscow, he said: 'Comrades, don't panic, when things get very though for us, we will give the bourgeoisie a rope, and the bourgeoisie will hang itself.' Then Karl Radek, who was a very resourceful wit,said: 'Vladimir Ilyich, but where are we going to get enough rope to hang the whole bourgeoisie?' Lenin effortlessly replied, ?They will sell it to us themselves.' " -Alexander Solzhenitsyn, speech to the AFL-CIO, Washington, D.C., June 30, 1975

Why do we want a foreign power to build parts for our smart weapons?

It sounds like these weapons are smarter than the people in charge of them.

Why do we want a foreign power to build parts for our smart weapons?
It sounds like these weapons are smarter than the people in charge of them.

It's the basic communist doctrine of "equality".
That's why Klintoon is vehemently opposed to building nuclear power plants in the U.S., but gladly built one for North Korea's Kim Jong-il (Mr. Kim is actually a nice guy and won't attack us if we help him, dontcha know? </sarcasm>)

The 'Rats employ this convoluted logic in just about every other issue as well. Little kids playing T-ball don't keep score so everybody can be a "winner". High schools either abolish graduation valedictorians (or the title is shared by 30~40 kids), etc. etc. It's all because doing it any other way is so "unfair".

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