Hoosier Responsible?

Apr. 30, 2008— -- As she campaigns throughout Indiana, Sen. Hillary Clinton has been talking quite a bit about Magnequench, a Valparaiso, Ind., factory that moved to China.

"We've got to elect a president next January who's going to remember Magnequench," Clinton told voters in Valparaiso on April 12.

It seems, however, that when it comes to Magnequench there's quite a bit that Clinton has conveniently forgotten.

Watch "World News with Charles Gibson" TONIGHT at 6:30 p.m. ET for the full report.

"We went to Valparaiso," Clinton told voters in Princeton, Ind., last night, "where there used to be a plant called Magnequench that made the magnets that helped to guide the precision-guided missiles, the so-called smart bombs. You've seen those — they take off, they go down the chimney, they were incredibly sophisticated and these magnets, you know — not the kind you put on the refrigerator, like we all do — but these really sophisticated magnets were instrumental making that happen."

Clinton continued, saying, "Well, a Chinese company bought Magnequench and then they decided that they were going to move the whole company from Indiana to China. Now the president of the United States has the authority to veto that kind of a move, but Senator [Evan] Bayh begged the Bush administration not to export it — it was going to lose jobs but it was also going to lose the know-how, the technical sophistication that created those magnets. President Bush and his administration wouldn't, basically wouldn't even give Evan Bayh the time of day. Those jobs left, and along with them went the savvy to make the magnets."

What Clinton doesn't tell voters is that Magnequench was originally sold to Chinese interests during her husband's administration, which okayed the move despite concerns about national security and eventual job loss. Experts say the Chinese acquired the "technical sophistication" that created the magnets long before George W. Bush took office.

Sen. Evan Bayh, D-Ind,, Clinton's top surrogate in the state, often joins her on the stump in bashing the president for allowing Magnequench to move abroad. What Bayh doesn't tell voters these days is that he has blamed the company's moving on a 1995 decision made by Clinton's husband's administration.

Andy Albers, a former vice president of Magnequench, said he received a phone call from Clinton's campaign to go over key details of Clinton's Valparaiso event before it happened on April 12.

"I told them all the truth, but it didn't go anywhere," Albers told ABC News. "Evan Bayh and Hillary Clinton are living in some false reality here, making all these false accusations."

In Piittsburgh on April 14, Clinton told voters that "not only did the jobs go to China, but so did the intellectual property and the technological know-how to make those magnets."

Albers says no secrets or intellectual property transferred to China when Magnequench moved in 2003, despite the claims of these politicians.

"Right here, over 200 Hoosiers built parts that guided our military's smart bombs to their targets….George Bush could have stopped it, but he didn't," Clinton says in a TV ad airing in Indiana, presumably referring to the president's ability to use the Committee on Foreign Investment in the United States (CFIUS), an interagency board chaired by the Secretary of the Treasury responsible for analyzing national security implications when foreign entities take over domestic companies.

Experts say Bill Clinton could have stopped it as well.

Clinton Administration 'Approved the Sale'

In 1995, China National Non-Ferrous Metals, headquartered in Beijing, and San Huan New Material High-Tech Inc, funded by the Chinese government, joined with other interests to purchase the Anderson, Ind.-based Magnequench, which made Neo powder for use in magnets.

The two Chinese companies were headed by the husbands of the first and second daughters of then-Chinese leader Deng Xiaoping. One of those daughters was at that time "vice minister of China's State Science and Technology Commission, whose responsibilities included acquiring military technologies by whatever means necessary," according to David Cay Johnston in "Free Lunch: How the Wealthiest Corporations Enrich Themselves at Government Expense (And Stick You With the Bill)."

"Complaints about the sale of Magnequench were made to the U.S. government because of the military applications for the magnets," Johnston reports. "Still, the Clinton administration, an ardent proponent of globalization, approved the sale."

The Clinton administration requested that the technology and production remain in the U.S.

"If we believe this was truly a national defense issue, the company should not have been allowed to be sold in 1995, to the group it was sold to, which was backed by the Chinese government and Chinese entrepreneurs," says Virginia Shingleton, head of the economics department at Valparaiso University for the past 12 years.

A memo prepared for Bayh by the non-partisan Congressional Research Service earlier this year stated that the Clinton administration could have objected to the sale under CFIUS, but it did not, and that the consortium promised to keep those Anderson, Ind., jobs in the U.S. only until 2005.

An Oct. 6, 2005, press release from Bayh noted that he asked for the Government Accountability Office to study "concerns over foreign takeovers of American companies with national security implications … after an Indiana company called Magnequench closed thanks to a 1995 decision by CFIUS to approve a Chinese consortium's takeover. At the time, Magnequench made 85 percent of the magnets used to guide U.S. smart bombs."

Said Bayh, in the release: "The committee responsible for providing this protection does not have a good track record, as I saw myself when it allowed an Indiana company that made smart bomb magnets to be purchased by a foreign business. When it comes to protecting our national security interests, we should be doing more, not less."

But Bayh now glosses over the outrage he once expressed at the Clinton administration's approval of that 1995 sale, emphasizing instead the fact that there are currently no companies in the U.S. that manufacture Neo magnets.

Did Chinese Already Have the Know-How?

In 2000, also during Bill Clinton's presidency, Magnequench purchased from UGIMAG the factory in Valparaiso that manufactured the Neo magnets.

President Clinton's administration took no steps to stop the purchases in 2000, either.

Around that time, Shingleton says, "there was talk about the national security issue and the loss of jobs because they were leaving. Some of the higher-wage jobs left immediately [in 2000]. I knew personally some people who were managers and who lost their jobs."

The Anderson plant was sold in 2001. The Valparaiso plant closed in 2003. In 2005, Magnequench merged with AMR Technologies, based in Canada, creating a new firm — Neo Material Technologies.

Do the Chinese now have "the intellectual property and technological know-how to make these magnets" as a result of the 2003 move, as Clinton claims?

"That's patently false," Albers says. "There was nothing new that the Chinese didn't already know about. They already had the equipment and the technology and the know-how."

The intellectual property, Albers says, "remains in the United States and was not transferred."

When the Clinton campaign called Albers two days before her Valparaiso event, he says, "They asked me to explain to the about Magnequench and the closing and did any technology go to China that would hurt the military … and I explained that that was not the case."

As for the jobs issue, Shingleton says she's "befuddled" because of the support for free trade and globalization seen in Bill Clinton's administration, which resulted in much larger job losses in the region.

"I just don't get it," says Shingleton. "NAFTA was passed under President Clinton, there's been a movement to open for free trade … Look at all the steel jobs that were lost in Northwest Indiana. If you want to look at the attrition of jobs, look at the steel industry. The question to ask her is what happened to all the other industries that shipped their jobs overseas before 2000?"

Legit Issue

Experts say that there is a legitimate issue Clinton raises regarding these Neo magnets. In the last several years, the producers and manufacturers of Neo magnets have left the U.S. The last one — Hitachi's Edmore, Mich., plant — closed in 2005.

"It's also a security issue," Clinton said in Pittsburgh. "I'm not comfortable with the fact that we now have to buy magnets for our bombs from China. "

Jeff Green is former counsel for Rep. Duncan Hunter, R-Calif., who worked for years to bring attention the issue of China's move on U.S. military technology. Green currently works for U.S. companies that reproduce high performance magnets.

Green applauds Clinton's and Bayh's attention to the issue because, he says, "I think if we're dependent Chinese manufacturers for this technology, it has the potential to be a national security threat."

Does the U.S. "now have to buy magnets for our bombs from China," as Clinton has said?

"I think it's more accurate to say that all the technology and production of these Neo magnets comes from overseas," he says, including Japan, Finland, Germany and China, the latter of which controls the majority of the Neo magnet market.

Not that there's anything stopping any U.S. companies from mining Neo magnet parts in, say, Mountain Pass, Calif.

"Nothing was done by Magnequench that aided the Chinese military program or hurt the U.S. military program," says Albers, who adds that Clinton's focus on his former company "concerns me because it doesn't address the main issue, which is how to make U.S. companies more competitive globally — that's the question we should be asking, that's what we should be addressing. We should not be twisting the truth about that this is a national security issue, because it's not a national security issue, it's about global competitiveness."

Albers until recently was a registered Republican, but he intends to vote for Sen. Barack Obama for president in the Indiana primary next week.

Eloise Harper and Avery Miller contributed to this report.