Wanxiang Group granted approval to buy A123 Systems image

China’s largest auto parts manufacturer won U.S. government approval to buy A123 Systems, a bankrupt maker of electric car batteries that was funded with federal money.

According to a source familiar with the situation cited by Reuters, a U.S. government committee on foreign investment approved the sale of the lithium-ion battery maker to Wanxiang Group. The approval was granted although some members of Congress and retired military leaders said the sale to Wanxiang would transfer sensitive technology to China and asked the U.S. committee to block it.

A123 filed for bankruptcy in October 2012 because of weaker-than-expected demand for hybrid vehicles and technical problems. The U.S. government granted $249 million to A123 Systems to promote clean energy, but apparently about half of that money was never used.

A123 Systems was sold in December at an auction supervised by the U.S. Bankruptcy Court in Delaware. Wanxiang’s bid of about $257 million won against U.S. rival Johnson Controls of Milwaukee. The money raised in the auction will be used to repay the battery maker’s debts of about $376 million.

The Chinese company tried to avoid criticism of the deal and excluded A123’s defense contracts from its bid at the auction. Those were sold separately to Navitas Systems for $2.25 million.