World’s Second-Largest Aluminum Manufacturer in China Bankrupt After 30 Years in Business

China Zhongwang Holdings Limited (China Zhongwang), the second largest aluminum manufacturer in the world, has declared bankruptcy. In less than 30 years, this $100 billion enterprise, that was raised from scratch, has fallen.

On Sept. 20, China Zhongwang, a listed company, started bankruptcy reorganization proceedings. The company announced that day, on the Hong Kong Stock Exchange (HKSE) to protect the rights of creditors, that the Shenyang Intermediate Court of Liaoning Province of China had ordered the company and its subsidiaries to consolidate and reorganize.

The Shenyang Intermediate Court cited an audit report by Mazars & Co. of Hong Kong, a leading tax and accounting firm, stating that China Zhongwang is now clearly insolvent, its subsidiaries’ liabilities amount to RMB 459.8 billion (about $64 billion) as of the end of March 2022, while its total assets amount to only RMB 202 billion (about $28 billion). China Zhongwang is Asia’s largest, and the world’s second-largest, manufacturer of industrial aluminum extrusion products that are used in construction, transportation, mechanical equipment, and power engineering. It is also the main supplier of aluminum extrusion materials for high-speed trains in China.

Startup

Liu Zhongtian founded the company in 1993, and by 2001, China Zhongwang had already reached an annual output of 300,000 tons of aluminum, making it a well-known enterprise in the construction of aluminum profiles. After a successful transformation to industrial aluminum profiles, China Zhongwang leapt to Asia’s No. 1 industrial aluminum extrusion product manufacturer by 2008, and became known as the “king of aluminum in Asia.”

On May 8, 2009, China Zhongwang was listed on the HKSE, raising $1.3 billion. According to the company’s official website, it was “the largest IPO in the world since the financial crisis in 2008.” Liu’s assets also jumped to 24 billion yuan (about $3.34 billion), making him the richest man in China at that time.

Expansion

Liu began expanding his business into the financial sector in 2011 through equity participation. By 2018, China Zhongwang directly or indirectly held shares in nine different companies, from banks and insurance companies to finance companies.

In September 2017, Zhongwang acquired a controlling stake in Aluminiumwerk Unna AG, a German, high-end, aluminum extruder that makes seamless tubes. Its customers include Airbus, Boeing, Mercedes-Benz, and BMW. Just one month later, China Zhongwang announced that it had acquired a controlling stake in Silver Yachts Limited, a top yacht manufacturer in Australia, with the intention of expanding the application of aluminum alloy materials into the marine vessels field.

However, around the same time, China Zhongwang’s $2.33 billion deal to acquire Aleris was rejected by the U.S. government due to national security concerns.

Setback

Starting in the second half of 2010, the U.S. Department of Commerce conducted anti-dumping and anti-subsidy investigations on certain aluminum profiles made in China. It determined that the companies were selling aluminum at artificially low prices in the U.S. market while enjoying subsidies in China.

On March 29, 2011, the U.S. Department of Commerce issued a ruling imposing anti-dumping and countervailing duties on certain aluminum extrusions exported from China to the Unitede States, including a countervailing duty rate of 374.15 percent on China Zhongwang.

The Wall Street Journal reported in Sept. 2016 that about 1 million tons of aluminum was neatly stacked in a storage facility in the Mexican desert, valued at around $2 billion, and enough to produce 2.2 million Ford F-150 pickup trucks. The report alleged that the stockpile was an illegal plot by the Chinese aluminum manufacturers to evade U.S. customs duties.

After several years of investigations, Liu was indicted in the United States in May 2019. The indictment alleges that Liu and his partners provided funds to shell companies to purchase aluminum from China Zhongwang and then sold the aluminum to U.S. buyers, disguising the origin of the shipments in the process to avoid U.S. customs duties. The storage facility in the Mexican desert was part of the operation. This was one of the largest customs cases ever handled by the U.S. Department of Justice.

On April 11 of this year, a U.S. District Court judge ordered six U.S. companies associated with Liu to pay $1.83 billion in damages for their involvement in the fraud. Neither Liu nor a representative of China Zhongwang appeared in court to face the charges. China Zhongwang was fined $3.6 million for contempt of court.

Decline

Liu’s setback in the United States was a turning point for his company, which led to China Zhongwang’s decline in China as well. News of Liu’s indictment in the United States sent his company’s stock prices into a downward spiral. China Zhongwang’s trading was suspended on August 30 last year due to its failure to disclose its semi-annual and annual financial reports for 2021.

As the Chinese Communist Party continued to impose its draconian zero-COVID policy, China’s economy began to decline along with its real estate and construction sectors, and China Zhongwang’s clients in the construction industry were also significantly struggling. These factors, coupled with the shutdown of some aluminum plants and fluctuations in raw material prices for aluminum ingots, have added to the woes of China Zhongwang.

On Oct. 15 last year, China Zhongwang announced that two of its subsidiaries had operating difficulties due to significant losses. After struggling for another year, the company finally declared bankruptcy. The “king of aluminum in Asia” is now in massive debt.