China: aluminum giant Zhongwang goes bankrupt with $ 64 billion in debt
Zhongwang Holdings, of the controversial Chinese entrepreneur Liu, has filed for bankruptcy, and it is not a minor company, but the first Chinese producer of aluminum extrusions and the second in the world. Underlying it is the combination of a number of factors, from rising energy costs to US tariffs, to the consequences of fraudulent practices in the US, and this failure, although not unexpected, will have consequences worldwide. The company capitalized $ 3.8 billion, has 252 branches, but also added $ 64 billion in debt, due to an unchecked growth from the Eastern Far West.
Indeed, Liu made Zhongwang grow through debt-fueled acquisitions. Then he diversified into all sorts of companies, initially national and then foreign, using only the looser logic. For example, the purchase of an Australian luxury yacht manufacturer has probably not paid off for the group.
Meanwhile, the acquisition of a high-quality German aluminum tube extruder , Aluminumwerk Unna, made more sense. At the very least, it offered the advantage of nominal vertical integration. However, China's billet export tax meant that Zhongwang could never profitably supply its raw material acquisition. As a result, Una would always be an independent subsidiary.
Then the accusation, three years ago, of fraud against the US tax authorities through six subsidiaries located in Southern California. Prosecutors said that between 2011 and 2014, the companies sold 2.2 million aluminum pallets to a US entity controlled by Liu. They then used melting facilities to turn the pallets into commercial products. Finally, they made "sales" to shell companies to inflate the company's financial position. This complex corporate turnaround was condemned just this year, with a $ 1.85 billion fine on the six companies.
The state is unlikely to enter directly into a bailout of this group, even if its failure could have important economic repercussions on the entire Chinese production system. Much more likely there will be both interventions by local authorities and, with greater intensity, that of state-owned companies in the sector that will buy pieces of the group of their interest, all indirectly financed by the state.
However, Zhongwang remains, at least in terms of capacity, the largest Asian producer of aluminum extrusions. Although the domestic market is now well supplied, the closure of the group's factory would leave a considerable hole in the domestic aluminum supply.
However, some interesting questions remain. For example, who will emerge among the state-owned enterprises to take over the plants deemed profitable? Furthermore, will the collapse of Zhongwang induce a regulatory change in Beijing's oversight of the private sector?
After the bankruptcy of so many real estate and construction companies, of which Evergrande is just the tip of the iceberg, the bankruptcy of private sector manufacturers is not a trend the authorities want to see perpetuating. Will we have heavy state controls in return?
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The article China: the aluminum giant Zhongwang goes bankrupt with $ 64 billion in debt comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/cina-il-colosso-dellalluminio-zhongwang-va-in-bancarotta-con-64-miliardi-di-dollari-di-debiti/ on Sun, 06 Nov 2022 14:43:49 +0000.