Chinese aluminum giant Zhongwang resists US pressure
THEIU ZHONGTIAN has been dubbed the “king of aluminum” of Asia. His company, Zhongwang Group, is one of the world’s largest manufacturers of aluminum products. At one point, he was the richest man in northeast China’s Rust Belt, where the company is based. In America, Mr. Liu has a different reputation. Companies controlled by the 57-year-old man were convicted in late August for orchestrating one of the most brazen tariff avoidance programs in history. Now his empire appears to be falling apart, not at the hands of US prosecutors, but because of domestic economic problems.
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Zhongwang’s long, hollow metal rods are a key component in everything from cars to houses and bridges. They supported the construction and manufacturing boom in China. Literally sometimes: Zhongwang landed big contracts with the construction groups behind the 2008 Beijing Olympics and the 2010 Shanghai World Expo. A first public offering in Hong Kong in 2009 made Mr. Liu one of the richest industrialists in China.
Mr. Liu’s fortune turned in 2019. He was indicted by the US Department of Justice (DoJ) for implementing a regime whereby shell companies shipped products subject to import duties disguised as coarsely welded aluminum pallets. Prosecutors say Mr. Liu arranged for these pallets, 2.2m of which were stored in his US warehouses, to be turned into other things at fusion facilities in America. The conviction in August found U.S. companies it controls guilty of trying to evade $ 1.8 billion in tariffs. The sentence, expected in December, could allow the DoJ attack Zhongwang’s US assets. Days after the decision, Zhongwang froze trading in its Hong Kong shares, apparently pending the delayed release of first-half 2021 results.
All debilitating, of course. But probably not fatal. The company remains the second largest aluminum extruder in the world with a large domestic market. Delays in disclosure are common in Hong Kong and may be unrelated to the DoJ Case. And the Chinese government, itself in conflict with the United States over trade and geopolitics, could even help protect Zhongwang from DoJlawyers.
Then, on October 15, the firm revealed that two major subsidiaries in China were facing serious difficulties “due to large losses.” Analysts believe that without a bailout, Mr. Liu’s group could collapse. The company provided little explanation. But like many Chinese companies, it has been crippled by power cuts, which could cause its usual capacity to drop 5-10% until the end of the year. In order to avoid power outages, local governments allow some energy-hungry manufacturers to operate only ten days a month, says Johnson Wan of Jefferies, an investment bank.
Aluminum extrusion requires a lot of energy, which is why blackouts and soaring electricity costs have hit Zhongwang hard. After selling its smelter business in 2020, the company faces a spike in aluminum prices, as other smelters increase prices to help offset their own growing bills due to metal shortages. As Zhongwang’s hometown of Liaoning braces for a freezing winter, manufacturers face more disruption as coal is burned to heat homes rather than to generate industrial electricity. For Mr. Liu, escaping the clutches of US law must be cold comfort. ■
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This article appeared in the Business section of the print edition under the headline “Awaiting Electrocution”