China EV tech seen as critical, but tax breaks raise questions for Michigan

When President Joe Biden toured the Detroit Auto Show on Sept. 14, he delivered a speech about how restoring manufacturing in Michigan and the U.S. is key to beating China in the electric vehicle arms race.

Two weeks later, Michigan officials approved tens of millions of dollars in incentives for Chinese-owned manufacturers.

First was a 30-year tax abatement approved by local officials for a proposed $2.4 billion EV battery plant by Gotion Inc. in Big Rapids. A day later, the Michigan Economic Development Corp. gave Nexteer Automotive Corp. $25.5 million in COVID-19 relief funding and $2.3 million in tax breaks for its operations in Saginaw County.

The move to subsidize manufacturers headquartered in China — the main global economic rival to the U.S. and often the go-to adversary in political rhetoric — has drawn criticism.

But it also suggests that the EV race cannot be run alone and that as China looks to take a foothold in an electrifying U.S. automotive market, Michigan is open for business, said Brian Wu, professor of strategy and director of China Initiatives at University of Michigan Ross School of Business.

"The new investment is especially meaningful because it's consistent with efforts to create a more sustainable environment, to invest in cleaner energy," Wu said of the Gotion project. "It creates opportunity for China and the U.S. to collaborate on one of the most pressing problems for human beings."

As it stands now, China is miles ahead in the transition to electrification. A record 3.3 million EVs were sold last year in China, the most in the world and more than five times as many as the U.S., according to S&P Global Inc. The Far East controls about 75 percent of the market for raw materials that make up car batteries.

While localizing the automotive supply chain makes sense to some degree, decoupling it from China is not practical, Wu said. Chinese suppliers such as Gotion and CATL Co. are expected to invest billions of dollars and create thousands of jobs in the U.S. in the coming years, and steering that toward Michigan is a smart play, according to Wu.

Doling out taxpayer incentives to companies, regardless of nationality, is bad policy, said John Mozena, president of the Center for Economic Accountability and an outspoken opponent of corporate incentives.

"The research and the evidence of our own eyes and evidence of history is that more often than not, companies were going to be doing the same exact thing without a subsidy," Mozena said. "The companies take the free money because they like free money."

In the case of Gotion, which is 26 percent owned by Volkswagen Group, distributing incentives to create jobs when manufacturers throughout the region are already struggling to fill similar jobs is "short sighted," Mozena said.

The MEDC said Nexteer, whose parent company is owned by the Chinese government, needed the incentives to justify keeping its plant in Buena Vista Township. Mozena said it's unlikely the subsidies had that kind of sway.

"This is where their manufacturing is, this is where their R&D is, this is where their headquarters is, and the amount of money that they got from the subsidy is far less than it would cost them to move operations elsewhere," he said.

Whether it's mere coincidence that the state OK'd grant money for a company tied directly to Beijing at the same time it works to secure Gotion's investment is debatable, but the approval means more than money, Wu said.

It can be seen as a gesture, he said, signaling that the state is willing to do business in good faith with the Chinese, who value trust and personal relationships when it comes to doing business — "guanxi," as it's known in Mandarin.

"I think the relationship, the understanding and the respect of different cultures, 'guanxi,' truthfully is crucial," he said. "I would say number one, even more important than technological capability in this cross-border investment."

The volatile relationship between the West and China are a major factor in Chinese companies deciding to invest in the U.S., and geopolitical tensions between the two often dictate the business relationship, Wu said. For example, battery giant CATL reportedly paused its plans for a U.S. plant in August after House Speaker Nancy Pelosi's trip to Taiwan.

Gotion and other Chinese companies will be paying close attention to Michigan politics as the election approaches, Wu said.

Michigan Republican gubernatorial candidate Tudor Dixon last week criticized the administration's approval of more Strategic Outreach and Attraction Reserve funding, some of which could be directed toward the Gotion project.

"Your taxpayer dollars should be used to make sure your kids are getting a world-class education, you have a reliable infrastructure (and) that you have safe cities, but now we're seeing taxpayer dollars go into an adversary, a Chinese corporation," Dixon said in a Facebook video.

Whitmer, too, has often spoken about the need to outcompete China for manufacturing dominance.

Companies want to go where they feel welcome and where they think their investments will be protected, Wu said. At the same time, Gotion has a lot of work to do to win over the community.

"They need to closely manage their identity and image, focusing on the job creation part," Wu said.