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DE RUEHBJ #0444/01 0550952
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P 240952Z FEB 10
FM AMEMBASSY BEIJING
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 8231
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
INFO RUEHOO/CHINA POSTS COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 000444 
 
SIPDIS 
 
STATE PASS USTR 
 
E.O. 12958: DECL: 02/24/2020 
TAGS: EINV EIND CH
SUBJECT: HUMMER STUCK IN THE MUD 
 
Classified By: Economic Minister Counselor William Weinstein for reason 
s 1.5 (b) and (d). 
 
¶1. (C) Summary and comment: Hummer's Detroit-based government 
affairs representative Wei Shen told EconOff February 15 that 
the PRC had formally rejected Tengzhong's application to 
acquire the Hummer brand from General Motors (GM).  While the 
details are unclear, Post understands that this was a formal 
rejection of Tengzhong's application under the PRC's 
"technology transfer" regulations.  Shen told Emboffs 
February 11 that GM and Tengzhong had repackaged its 
application as a "foreign acquisition" and were preparing to 
submit it for approval.  Nevertheless, Post believes PRC 
industrial and environmental policies and poor relations 
between Tengzhong and Sichuan Province officials make PRC 
approval of Tengzhong's application unlikely.  GM was 
considering extending its end-of-February deadline for the 
sale, said Shen, while at the same time exploring other 
options.  End summary and comment. 
 
HITTING A RED LIGHT 
------------------- 
 
¶2. (C) Hummer Vice President for Industry and Government 
Relations Wei Shen on February 15 informed EconOff that the 
Ministry of Commerce (MOFCOM) had issued a notification to 
the Sichuan Provincial Department of Commerce (SPDOC) denying 
Tengzhong's application to acquire Hummer.  According to 
Shen, MOFCOM's decision was based on an "Opinion" issued by 
the National Development and Reform Commission (NDRC) that 
she had not seen.  She said MOFCOM did not state a reason for 
the denial, but credited the decision to "industrial policy." 
 
SPINNING ITS WHEELS 
------------------- 
 
¶3. (C) Briefing Emboffs on February 11, Shen said GM and 
Tengzhong had been struggling with the PRC bureaucracy since 
the deal was first announced last year. According to Shen, GM 
and Tengzhong had originally decided to ask Sichuan 
provincial agencies to submit the purchase request on their 
behalf rather than apply directly to the central government. 
Despite the deal requiring only central government approval, 
Shen said, MOFCOM and NDRC "would not take the application 
seriously" if it was not submitted from -- and with the 
implicit support of -- the Sichuan provincial government. 
 
¶4. (C) GM and Tengzhong officials initially approached SPDOC 
and the Sichuan Development and Reform Commission (SDRC), 
packaging the purchase as a "technology transfer" from the 
United States to China.  NDRC, arguing that MOFCOM handles 
technology transfers, instructed SDRC not to get involved. 
MOFCOM determined Tengzhong "did not qualify" for the 
proposed technology transfer and "refused to accept" the 
application. 
 
¶5. (C) According to Shen, the companies had since repackaged 
the application as a "foreign acquisition" and were in the 
process of resubmitting it to SPDOC and SDRC.  She said 
SPDOC's rules required the company to submit a feasibility 
study to determine whether the transaction could be 
classified as a foreign acquisition. 
 
¶6. (C) Shen asserted that Sichuan,s Provincial Party 
Secretary had not yet gotten involved in the Hummer case; 
however, he had been courting GM investment for some time. 
Shen implied the Party Secretary had been seeking some sort 
of quid pro quo from GM before agreeing to support the Hummer 
transaction.  Shen predicted the Party Secretary's backing 
would convince MOFCOM to approve Tengzhong's application. 
 
NOT MADE IN CHINA 
----------------- 
 
¶7. (C) Shen said PRC officials at the central and provincial 
levels had cited multiple reasons for their unwillingness to 
grant Tengzhong approval to purchase Hummer.  Foremost, while 
they recognized the deal would be good for the United States 
and good for Tengzhong, they failed to see "what's in it for 
China." 
 
¶8. (C) Shen noted that many Chinese officials dismissed 
Hummer as "gas-guzzling junk," a cast off from an 
unsuccessful American venture inappropriate for China.  The 
perception that America was "flexing its muscle" to push the 
sale of the Hummer brand was pervasive among PRC contacts. 
Shen confirmed that Tengzhong's near-term plan was to 
continue manufacturing in the United States, limiting the 
potential for job creation in, and related benefits to, 
 
BEIJING 00000444  002 OF 002 
 
 
China.  To compound problems, as part of the PRC's broader 
industrial policy, the Ministry of Industry and Information 
Technology (MIIT) has called for auto industry consolidation 
and attempted to limit new market players. 
 
¶9. (C) Shen added that Tengzhong had also faced trouble 
getting approval from the State Administration for Foreign 
Exchange (SAFE) to convert domestically-earned Renminbi into 
foreign currency for the purchase.  She noted at the February 
11 briefing that Tengzhong might be able to circumvent SAFE's 
approval for Renminbi conversion by utilizing other revenues 
held offshore.  On February 15, however, Shen said MOFCOM 
indicated that it would "never" approve Tengzhong's 
application "even if it used offshore money." 
 
HIDDEN ROADBLOCKS 
----------------- 
 
¶10. (C) Beyond the PRC's expressed policy concerns, Shen 
believed other forces were at play.  For example, a key MIIT 
Vice Minister had opposed the Hummer purchase because of his 
connections to Wuhan-based Dongfeng Motor Corporation, 
producer of a product similar to the Hummer line that would 
compete with a Tengzhong-owned Hummer.  Shen also recounted a 
conversation in which an SPDOC official seemed to refer 
obliquely to a previous ill-fated dealing with Tengzhong. 
"There is some bad blood," said Shen, "but we're not sure 
what it is." 
 
ATTRACTIVE FINANCING AVAILABLE 
------------------------------ 
 
¶11. (C) Shen said that during GM's due diligence, the company 
had recognized Tengzhong was not a major player in the 
Chinese auto industry.  GM ultimately decided to accept 
Tengzhong's offer because the company was able to prove it 
had the required cash and financing, which GM interpreted to 
mean that it also had the necessary Chinese government 
connections to succeed.  "A private company with that kind of 
money is not a coincidence," Shen commented.  She noted 
Tengzhong had shown its commitment to the $150 million deal 
by providing "millions of dollars a month" to fund Hummer's 
ongoing operations. 
 
NO CASH FOR CLUNKERS 
-------------------- 
 
¶12. (C) Shen claimed the Hummer deal had received "all 
necessary approvals" from the U.S. side, including from the 
Committee on Foreign Affairs in the United States (CFIUS). 
The GM-Tengzhong agreement gives the Chinese firm until the 
end of February to secure PRC approval, though Shen suspected 
that timeframe might be flexible.  "It's not like there are 
other white knights out there for us," she confided. 
 
¶13. (C) Shen admitted that GM had earlier looked at other 
possible Chinese buyers and had been approached by Beijing 
Auto Industry Holding Company (BAIC), which recently 
purchased Saab from GM (septel).  She said GM recognized that 
selling Hummer to a well-connected national champion would 
likely speed the PRC approval process, but the company 
questioned whether BAIC had the necessary financing 
immediately available to close the deal. 
 
¶14. (C) Comment: The PRC has from the beginning been 
reluctant to discuss with Post Tengzhong's potential purchase 
of Hummer.  Wei's account was at times self-contradictory, 
causing us to question the accuracy of the details of her 
account.  For example, on February 11, Wei indicated that 
MOFCOM had refused to accept Tengzhong's technology transfer 
application and that the foreign acquisition transfer had not 
yet been submitted, but on February 15 she said MOFCOM had 
formally rejected Tengzhong's application.  Still, the PRC's 
actions lead us to believe that decision-makers are loathe to 
allow a company that has not been hand-picked as a national 
champion to acquire what is seen as a controversial U.S. 
brand.  End comment. 
HUNTSMAN