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Missile Technology Plant Moved to China (JDAM smart-bombs)
Insight on the News ^ | March 4, 2003 | Scott Wheeler

Posted on 06/29/2005 10:57:29 AM PDT by spycatcher

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.

And, Cox insists, "China is already selling the same products for less money."

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.

TOPICS: Business/Economy; Foreign Affairs; Government; News/Current Events; Politics/Elections
KEYWORDS: chicoms; china; magnequench; technology
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From a few years ago. Posted for relevance to current national security debate over China's business activities.
1 posted on 06/29/2005 10:57:29 AM PDT by spycatcher
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To: spycatcher

Frontman and hard working John Huang just got a raise.
Thanks Bill Clinton for hooking up with all the ChiComs. I am sure this is not the end of the ChiComs snapping up technology. They have already been given 25 years worth of advancement during the Clinton Gore 90's.

2 posted on 06/29/2005 11:02:18 AM PDT by oldironsides
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To: spycatcher

I take it they moved to China?

I did a Google search and found this article, which suggests that this British corporation currently has a Chinese branch and appears to be exchanging engineers with China:

3 posted on 06/29/2005 11:05:34 AM PDT by Cicero (Marcus Tullius)
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To: spycatcher
So does anyone know what became of the JDAMS manufacturing operation and did the plant shutdown?
4 posted on 06/29/2005 11:14:26 AM PDT by robowombat
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To: B4Ranch; Happy2BMe

The hits just keep on coming...

5 posted on 06/29/2005 11:14:45 AM PDT by glock rocks (Get er done!)
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To: spycatcher
I believe this is the same company mentioned in the article.

Looks like the plant closed and the move happened.



General Motors, Sumitomo Special Metals and The Chinese Academy of Sciences independently discover a new permanent magnet material composed of neodymium, iron and boron.

Magnetism and Magnetic Materials Convention in Pittsburgh, PA - debut of Neodymium production methods by General Motors and Sumitomo Special Metals.

General Motors creates business unit, Magnequench, and builds 175,000 sq. ft. plant in Anderson, Indiana, U.S.

Beijing San Huan New Material High-tech, Inc., China National Non-Ferrous Metals Import & Export Corporation, and an investment group led by Sextant Group, Inc. acquire Magnequench and establish Magnequench International, Inc.

Magnequench begins capacity expansion in Anderson, Indiana. Total expenditures exceed $30 million over next four years.

Magnequench acquires GA Powders to develop gas atomization process for making NdFeB powder.

Magnequench acquires Xinbao Special Metals in Tianjin, China.

Magnequench breaks ground for Tianjin, China powder manufacturing plant.

Magnequench commences construction of its $10.5 million one-of-a-kind Technology Center in Research Triangle Park, North Carolina.

The United States International Trade Commission issues a General Exclusion Order, excluding from entry into the United States any unlicensed rare earth magnets or magnetic materials that infringe the claims of Magnequench's basic composition patents.

Magnequench International, Inc. forms a holding company, Magnequench, Inc., as its operations become more global.

Magnequench's Technology Center opens in Research Triangle Park, North Carolina, offering design engineers a unique environment for working with our staff to create optimized prototypes.

Magnequench opens powder plant in Tianjin, China to expand capacity and to better serve Asian markets. The Tianjin plant also puts production close to the source of raw materials, reducing processing time and the need to carry excessive inventories.

Magnequench acquires Widia Magnet Engineering and the rare-earth magnet business from UGIMAG, Inc. to expand their permanent magnet offering to include sintered and injection-molded NdFeB, samarium-cobalt, Alnico and ferrite.


Magnequench files patent lawsuit against US companies:Acer America Corp.; Acer Inc.; Best Buy Co. Inc.; Circuit City Stores, Inc.; CompUSA Inc. and its parent, Grupo Sanborns SA de CV; Philips Business Electronics North America Corp., Philips Business Electronics International B.V.; Koninklijke Philips Electronics N.V.; Samsung Electronics America, Inc.; Samsung Electronics Co., Ltd.; Sony Computer Entertainment America, Inc.; Sony Computer Entertainment, Inc.; Toshiba America Electronic Components, Inc.; Toshiba America, Inc.; Toshiba Corporation, Compaq Computer Corporation and Hewlett-Packard Company.


Magnequench closes Anderson, Indiana plant and consolidates all powder production at Tianjin, China facility.

Magnequench opens magnet production facility in Juarez, Mexico.

The Board of Patent Appeals and Interferences of the United States Patent and Trademark Office rendered final judgment affirming Magnequench's rights to all claims in its core neodymium-iron-boron patents.


To better serve the majority of powder customers who are in Asia, Magnequench closes Technology Center in Research Triangle Park, and relocates all R&D to a new 17,000 sq. ft. facility in Singapore Science Park.

Magnequench divests all of its magnet businesses, to focus on providing rare earth-iron-boron powders and powder products.

Magnequench files patent infringement lawsuit in the US against: Microsoft, Philips, Sony Corporation, Eastman Kodak, Dell Corporation, Acer Inc., ASUS Computer International, Iomega Corporation, LG Electronics, Lite-On Technology Corporation, Memorex Products, Inc., TEAC Corporation and Wal-Mart.


6 posted on 06/29/2005 11:16:07 AM PDT by show me state
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To: oldironsides

I gotta say though, part of the blame can fall on Bush's Administration too. Moving such technology always requires the hand of present-day Gov't.

7 posted on 06/29/2005 11:16:59 AM PDT by theDentist (The Dems have put all their eggs in one basket-case: Howard "Belltower" Dean.)
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To: spycatcher

ching ping

8 posted on 06/29/2005 11:20:04 AM PDT by jaydubya2
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To: spycatcher

But, but free trade is good for America!!!! </SARCASM OFF>

9 posted on 06/29/2005 11:21:35 AM PDT by TXBSAFH (The pursuit if life, liberty, and higher tax revenue (amended by the supreme 5).)
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To: show me state

What are the patent infringements that they sued about?

Unable to find details. Were these companies manufacturing using Magnequench patented process?

10 posted on 06/29/2005 11:32:50 AM PDT by free_life
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To: zip


11 posted on 06/29/2005 11:35:27 AM PDT by Mrs Zip
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To: free_life

How can they sue for patent infringement?

National defense industries are EXEMPT from the patent laws or copyright laws.

12 posted on 06/29/2005 11:35:58 AM PDT by pganini
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To: free_life


Claiming intellectual property abuse in Asia, specifically in China, Korea and Taiwan, Magnequench International Inc, the patent holder and a world leader in the manufacturing of specialized magnetic powders and magnets, filed suit in the United States District Court for the District of Delaware and a second suit in Indianapolis against 13 major electronic, office products and computer firms in the United States and Asia, as well as Wal-Mart.

Accused of patent infringement were some of the world's leading computer and electronics companies, including Sony Corp, Eastman Kodak, Dell Corp, Acer Inc, ASUS Computer International, Iomega Corp, LG Electronics, Lite-On Technology Corp, Memorex Products Inc and TEAC Corp. Wal-Mart also was charged as a retailer selling infringing products.

Magnequench asks the court for an injunction to prohibit the importation of further infringing materials as well as treble damages.

The subject matter of the lawsuits involves neodymium-iron-boron (Nd-Fe-B) magnets and magnetic materials used in most popular consumer electronic products, as well as in automotive and industrial applications.

In this instance, the alleged patent infringement centers on computer and media memory systems such as CD-ROMs and DVDs.

13 posted on 06/29/2005 11:36:17 AM PDT by show me state
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To: show me state

Those parts are still covered by ITAR restrictions. Magnequench is no longer allowed to supply the magnets. The main user of this product is up here and had to scramble to find new suppliers.

14 posted on 06/29/2005 11:46:05 AM PDT by MNlurker
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To: Brilliant

Mention of the same rare earth minerals China could get from their proposed purchase of Unocal.

15 posted on 06/29/2005 11:47:11 AM PDT by Golden Eagle
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To: glock rocks

Bush = Communist butt wipe

16 posted on 06/29/2005 11:47:18 AM PDT by ARCADIA (Abuse of power comes as no surprise)
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To: All

the elites need WAR in order to create NWO.

17 posted on 06/29/2005 11:47:35 AM PDT by -=[_Super_Secret_Agent_]=-
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To: glock rocks
Yes it will keep coming as I tried to say months ago, here on FR.

I was made fun of by many freepers comparing China to Japan, "they said the same thing about Japan".

Well China isn't Japan. There are over a billion people in
in China, they possibly have more natural resources than WE do. They are very intelligent and their leaders plan to be the ONLY major country in the world.

Surely some on FR have read some of the translated articles, from the Chinese leaders, that have been telling this for years.

My husband and I , he died two years ago, predicted this years ago. NO ONE listened to us.

I am 82 and I really didn't think I would live long enough to see it come this far.

It did not happen because we opened up China. It happened because the "consumers" in America wanted CHEAP goods and China knew just exactly how to draw us in. They then knew how to entice our American Companies that were loosing money how to come to China and build new factories and the bottom line would improve.

At the time I remember my husband asking someone,"do you want cheap products or good paying jobs", no one thought he was serious. Well you can't have both!!!
18 posted on 06/29/2005 12:01:44 PM PDT by frannie (Be not afraid of tomorrow - God is already there!)
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To: spycatcher
Is it too naive to assume that defense contracts affecting our national security may not be awarded to actual or potential enemies?

Even more fundamentally, shouldn't advanced weapons (or its critical components) only be allowed to be produced domestically?

19 posted on 06/29/2005 12:03:28 PM PDT by Publius6961 (The most abundant things in the universe are ignorance, stupidity and hydrogen)
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To: spycatcher; glock rocks; B4Ranch; All
House pushes Navy to buy more ships in 2006
20 posted on 06/29/2005 12:04:24 PM PDT by Happy2BMe
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