The biggest aluminium extrusions producer in the People’s Republic of China and the second biggest in the world is now in bankruptcy proceedings, as a Chinese court has approved the application filed against China Zhongwang in September.
A court in Shenyang gave the green light to the petition filed by several of its creditors earlier this week. Experts estimate that the firm has about US$64 billion in liabilities, but less than half that amount in assets at present.
Zhongwang has yet to file its annual financial report for 2021 or its report covering the first half of 2022. Once sitting atop the Chinese extruded aluminium market, Zhongwang announced in mid-October that its subsidiaries have endured significant losses and were thus unable to address the situation appropriately on its own.
China Zhongwang’s entry into the North American market spelled trouble for domestic extruded aluminium producers, as domestic firms were unable to compete with Zhongwang’s products, which have long been understood to be subsidized by Beijing.
However, experts say that new tariffs enacted by the United States government and an investigation into the company’s founder by US authorities have dealt a death blow to the once-mighty firm.
Shanghai attorney Eugene Weng told financial media that Zhongwang’s insolvency was far from unexpected.
“The collapse of Zhongwang was shocking but not surprising to people in the commodity industry. This year’s volatility in the global commodity market and the company’s poor corporate governance are the straws that broke the camel’s back.”
Weng went on to say that the lassiez-faire attitude by Beijing is partly to blame for Zhongwang’s downfall.
“The fall of Zhongwang is the failure to crack down on these alleged self-financing activities. Such practices are a ticking time bomb and can hardly be tolerated by Chinese courts.”
“However, the bankruptcy has exposed the weaknesses of the conglomerate business model that Zhongwang pursued, and its collapse has hit many contractors and creditors,” he went on to say. “Liquidating assets could also prove difficult, given manufacturing has been weakened by China’s strict zero-Covid policy.”
Zhongwang’s growth was almost as impressive as its downfall. In 2019 the firm’s market cap was US$3.8 billion, and the firm’s rise made company founder Liu Zhongtian the richest man in northeast China from 2014 to 2017.
Liu diversified Zhongwang’s business in 2016, expanding into the aerospace, marine, and automobile markets. The acquisition of Aluminiumwerk Unna in 2017 increased its presence in the aerospace market as well.
However, an attempt at purchasing American aluminium firm Aleris for US$1.1 billion was quashed by regulators in Washington over national security fears.
“Everything would have been fine if Zhongwang had kept up its pace of growth and development. However, when the music stopped, Zhongwang was in trouble,” Weng concluded.