China Hongqiao Group

China Hongqiao Group Co., Ltd.
Native name
 中国宏桥集团有限公司
Public
Traded as SEHK: 1378
Industry Aluminium
Founded 1994
Headquarters Huixian, People's Republic of China
Key people

Zhang Bo (CEO and Executive Director)

Zhang Shiping (Founder and Chairman)

Zheng Shuliang (Vice Chairman)
Parent China Hongqiao Holdings Limited
Website hongqiaochina.com/en

China Hongqiao Group Limited is a Chinese state-owned company founded in 1994 that specializes in the production of aluminum. Hongqiao is currently the largest aluminum producer in the world,[1] having overtaken its main competitor, the Russian company UC Rusal, in 2015.[2]

The company's founder and Chairman, Zhang Shiping, was named as the 6th most influential entrepreneur in China in 2016[3] and is currently ranked 27th on the Forbes China Rich List with a net worth of $4.8 billion.[4] His son, Zhang Bo, is the Chief Executive Officer of China Hongqiao.[5]

China Hongqiao has been producing aluminum and generating electricity since 2002, and it owns more than 400 million tons of production capacity.[6]

The company owns subsidiaries, including Shandong Weiqiao Aluminum Power Co., Ltd., Huimin Huihong New Aluminum Profiles Co., Ltd. and Hongqiao Investment (Hong Kong) Limited.[7]

History

In July 1994 the company's predecessor firm Shandong Hongqiao was founded and was involved in the production and distribution of trousers.[8] It was later renamed China Hongqiao Group. The acquisition of thermal energy provider Aluminum & Power in June 2006, started the reorientation of Hongqiao to aluminum production a few months later.[8]

In 2007 the company's annual production capacity reached approximately 301,513 tonnes of aluminium.[8]

In March 2011, Hongqiao was listed on the Hong Kong stock exchange at a price of $7.20 per share.[9] The goal was to raise $2.2 billion of new capital.[10][11] At that time, the production capacity increased to 1.1 million tonnes per year.

According to the company's own data, the annual aluminum production at the end of 2014 exceeded 4 million tonnes for the first time.[6]

In March 2016, Hongqiao announced a capacity increase of 16%, increasing aluminum production to 5.2 million tonnes.[12]

Company operations

China

The Group's main production facilities in China are located in Binzhou, Shandong province.[13]

Indonesia

As part of a joint venture with PT Well Harvest Winning Alumina Refinery, China Hongqiao Group announced in December 2012 an investment of $1.5 billion for the creation of a company mining aluminium bauxite at Borneo with an expected annual production capacity of 2 million tonnes.[14]

In 2016, the company opened its first production facility in Indonesia with an output of 1 million tons per year. Hongqiao is the majority shareholder with a stake of 56% in PT Well Harvest Alumina.[15] This was both the first Chinese investment in an alumina refining plant and the first aluminum factory built in Indonesia. Consisting of a power plant and a seaport in Ktapang in the Kalimantan region, the factory converts bauxite into alumina.[16] Sun Xiushun, president of the shipping company Winning International Group and shareholder of the joint venture, explained that the treated alumina would mainly be used to meet the demand for raw materials from local Indonesian aluminum huts. The remaining aluminum oxide is primarily exported to China, the Middle East and other regions.[14]

Guinea

In June 2014, China Hongqiao Group Logistics Company Ltd. announced that it had signed a $120 million declaration of intent to acquire an unspecified company in the construction industry in Guinea. The company in question has a construction subsidy in Guinea of an estimated 2.2 billion tonnes, with a duration of 25 years. The main focus of the China Hongqiao Group was access to new bauxite reserves to meet growing demand in China.[17] In March 2015, the company confirmed that it had reached an agreement on various mining and port investments of US $120 million to promote the development and export of bauxite.[17]

According to Hongqiao CEO Bo Zhang, further investments worth 200 million USD[18] would be flowing as part of a new consortium[19] with the port of Yantai and the bauxite mine in Boke, thereby boosting 10 million tons of bauxite to the year 2017.[20]

In November 2015, 170 000 tonnes of bauxite were shipped from Yantai to China. In March 2016, China Hongqiao Group announced that it would export approximately 15 million tons of bauxite for 2016 as a whole. For the year 2017, 30 million tons are targeted.[21]

Criticism

Overcapacities

Despite the efforts of the Chinese government to reduce the production surplus in the domestic bauxite industry through reforms, Hongqiao announced in March that production would be increased by 16% to 6 million tonnes by the end of 2016.[12] According to Peter Thomas, vice president of Zaner Group LLC, a metal broker based in Chicago, this will lead to a 1% to 2% drop in aluminum prices.[22]

The overcapacity in the Chinese industry results from intended government policies, such as cheap loans and government subsidies that were meant to reduce the production costs of companies.[23] In the case of Hongqiao, the company's growth can be explained by the inclusion of loans worth more than USD 2.1 billion in 2015.[24]

In August 2016, Hongqiao CEO Zhang Bo dismissed fears of overcapacity in the aluminum industry, emphasizing instead the industry's stability.[25]

Since its stock market listing in 2011, the company has experienced record growth. The production capacity of 1.1 million tonnes has been increased to 5.2 million tonnes since the IPO (March 2016).[12]

In August 2017, the company announced a cut of 2 million tonnes of outdated aluminium production capacity, amid a renewed governmental crackdown on illegal production.[26][27]

Environmental issues

The production of aluminum is very energy intensive. Accordingly, Hongqiao's aluminum factories are heavily dependent on coal-generated electricity. Due to the high energy consumption, Hongqiao's Chinese production plants cause CO2 emissions of more than 100,000 kt per year. In 2012, Chinese journalists reported about the deteriorating living conditions of people near the factories. The main reasons were air and water pollution.[28] That same year, the company announced it would use coal ash for aluminum production, however, satellite images of the factory in Shandong showed large amounts of red mud, a toxic waste product of the bauxite production process. Since the production of aluminum from coal ash is very expensive, the company opted instead for bauxite. Toxic waste was then stored in the vicinity of agricultural areas, which led to fears that alkaline substances such as iron oxide, silicon oxide and titanium oxide could be released into the atmosphere.[29]

In 2016, Hongqiao was charged with operating unlicensed mills with a capacity of 2,000kt, as well as environmental fraud by ignoring Chinese emissions standards.[30]

After the Chinese Communist Party passed stricter environmental requirements, Hongqiao began to make the transition to renewable energies and stopped operating the smallest and most polluting electricity works.[28]

In October 2016, the South China Morning Post reported that Hongqiao's aluminum smelter capacity in Binzhou was threatened after the city ordered a production stop of the local production lines with an annual total capacity of 3.61 million tonnes.[31] In addition to financial penalties, the company must also expect the closure of other sites because of "disregard for environmental protection permits before construction and operation of the plants". At the same time, the construction of an aluminum hut with an annual production capacity of 1.32 million tonnes was stopped because no environmental impact assessment was carried out again.[31] Hongqiao did not publish an official press release, but stated that the accusations of the government were understood and noted.[32]

Power generation

China Hongqiao Group was one of the first companies to adopt the so-called "Weiqiao model" in which aluminum plants are supported by self-built, coal-fueled power plants, which often do not meet the environmental requirements.[30] This organizational model is now widely used in the Chinese aluminum industry.[28]

CCP media outlets reported in 2012 that the company was infringing on the legal regulations regarding electricity generation by producing cheap electricity independent of the national electricity grid.[33] The State Commission for Development and Reform indicated that the electricity produced by Hongqiao contributes significantly to air pollution, since the environmental protection equipment of the factories was removed in order to reduce production costs. Hongqiao denied the repeated reproaches of the government.[33] In 2015, the company switched off their smaller electricity plants to demonstrate its commitment to clean aluminum production.[34]

Anonymous Report

In November 2016, an anonymous short-seller published a report accusing Hongqiao of having accumulated a debt of 67.7 billion RMB and having disguised this through unusually high profit margins, thereby deliberately obscuring the true profitability of the enterprise.[35]

A further report from Emerson Analytics, which seemingly confirmed the allegations, prompted the company to suspend its stock trading on 1 March 2017 after Hongqiao's stock value had fallen by 8.3% within 30 minutes.[36] On March 21, Hongqiao announced a "possible delay" in the publication of its annual results and annual report for the year ended December 31, 2016 due to disagreements raised by auditor Ernst & Young.[37] The following day, China Hongqiao shares were stopped again.[38] The continued delay in the publication of company results, as well as accounting irregularities, led to a credit downgrade in July 2017.[39]

References

  1. ↑ "Hongqiao makes big bets on downstream business". South China Morning Post. Retrieved 2017-10-06.
  2. ↑ Chang, Gordon G. "China Hongqiao Is Devouring The Global Aluminum Industry". Forbes. Retrieved 2017-10-06.
  3. ↑ "百度百科_全球最大中文百科全书". baike.baidu.com. Retrieved 2017-10-06.
  4. ↑ "Zhang Shiping & family". Forbes. Retrieved 2017-10-06.
  5. ↑ "Welcome to Hongqiao Group Co., Ltd. China!". hongqiaochina.com. Retrieved 2017-10-06.
  6. 1 2 "中国宏桥集团有限公司欢迎您！". www.hongqiaochina.com. Retrieved 2017-10-06.
  7. ↑ Editorial, Reuters. "${Instrument_CompanyName} ${Instrument_Ric} Company Profile | Reuters.com". U.S. Retrieved 2017-10-06.
  8. 1 2 3 "Welcome to Hongqiao Group Co., Ltd. China!". hongqiaochina.com. Retrieved 2017-10-06.
  9. ↑ Flannery, Russell. "New Chinese Aluminum Billionaire's Shares Fall Day After Hong Kong Listing". Forbes. Retrieved 2017-10-06.
  10. ↑ "China's Hongqiao launches roadshow for $2.2 billion IPO". Reuters. 2011-01-24. Retrieved 2017-10-06.
  11. ↑ Ho, Prudence (2011-01-23). "China Hongqiao Plans to Raise $2.2 Billion in IPO". Wall Street Journal. ISSN 0099-9660. Retrieved 2017-10-06.
  12. 1 2 3 "China Hongqiao Group to Expand Capacity by Sixteen Percent This Year – Aluminium Insider". Aluminium Insider. 2016-03-15. Retrieved 2017-10-06.
  13. ↑ "中国宏桥背后山东首富的野蛮扩张 揭秘魏桥帝国". finance.sina.com.cn. Retrieved 2017-10-06.
  14. 1 2 "Hongqiao starts China's first overseas alumina production in Indonesia - Xinhua | English.news.cn". news.xinhuanet.com. Retrieved 2017-10-06.
  15. ↑ 弓迎春. "China's 1st overseas alumina oxide project starts operation - China.org.cn". www.china.org.cn. Retrieved 2017-10-06.
  16. ↑ 弓迎春. "China's 1st overseas alumina oxide project starts operation - China.org.cn". www.china.org.cn. Retrieved 2017-10-06.
  17. 1 2 "China Hongqiao to Buy African Bauxite Company for $120 Million". Bloomberg.com. 2014-06-04. Retrieved 2017-10-06.
  18. ↑ "China's bauxite mining deal in Guinea | Africa Times". africatimes.com. Retrieved 2017-10-06.
  19. ↑ "Yantai port co-invests in Guinea bauxite port-China Mining". www.chinamining.org. Retrieved 2017-10-06.
  20. ↑ "China Hongqiao close to clinching bauxite deal in Guinea". South China Morning Post. Retrieved 2017-10-06.
  21. ↑ Editorial, Reuters. "China Hongqiao starts alumina output in Indonesia, up bauxite from Guinea". AF. Retrieved 2017-10-06.
  22. ↑ "Aluminum Declines as World's Top Producer Plans More Expansion". Bloomberg.com. 2016-03-14. Retrieved 2017-10-06.
  23. ↑ "China Hongqiao posts lower than expected revenue for first six months". South China Morning Post. Retrieved 2017-10-06.
  24. ↑ "China Hongqiao, world's largest aluminium producer, to expand capacity". South China Morning Post. Retrieved 2017-10-06.
  25. ↑ "China Hongqiao chief dismisses aluminium overcapacity concerns". South China Morning Post. Retrieved 2017-10-06.
  26. ↑ Editorial, Reuters. "UPDATE 1-China Hongqiao says to cut 2 mln T/year of outdated aluminium capacity". AF. Retrieved 2017-10-06.
  27. ↑ "China's Biggest Aluminum Producer to Cut Outdated Capacity". Bloomberg.com. 2017-06-20. Retrieved 2017-10-06.
  28. 1 2 3 "Environmental Challenge of the Weiqiao Aluminium Empire - ToxicLeaks". toxicleaks.com. Retrieved 2017-10-06.
  29. ↑ "Hongqiao Aluminium – Dirty Dealings, Dirty Numbers, and Dirty Air - ToxicLeaks". toxicleaks.com. Retrieved 2017-10-06.
  30. 1 2 "The burst of the aluminium bubble in Xinjiang - ToxicLeaks". toxicleaks.com. Retrieved 2017-10-06.
  31. 1 2 "China Hongqiao's aluminium smelter capacity at risk after environmental regulators impose penalty". South China Morning Post. Retrieved 2017-10-06.
  32. ↑ Editorial, Reuters. "China Hongqiao ordered by regulator to shutter aluminium output -paper". AF. Retrieved 2017-10-06.
  33. 1 2 "发改委官员:民营电厂价格低因未承担环保等责任_业界声音_新浪财经_新浪网". finance.sina.com.cn. Retrieved 2017-10-06.
  34. ↑ 魏俊文, 张志祥 (2015-08-12). "落实环境保护要求 魏桥创业6×30兆瓦热电机组关停拆除". sd.china.com.cn. Retrieved 2017-10-06.
  35. ↑ "Aluminium producer China Hongqiao denies short-seller allegations". Financial Times.
  36. ↑ "Trading Suspended of China Hongqiao Shares After Report Alleges Financial Inconsistencies – Aluminium Insider". Aluminium Insider. 2017-03-02. Retrieved 2017-10-06.
  37. ↑ "POSSIBLE DELAY IN PUBLICATION OF ANNUAL RESULTS AND DESPATCH OF ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2016" (PDF).
  38. ↑ "Listed Company Information". www.hkexnews.hk. Retrieved 2017-10-06.
  39. ↑ "S&P downgrades Hongqiao, cites heightened corporate governance risks - Metals | Platts News Article & Story". www.platts.com. Retrieved 2017-10-06.
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