So, how exactly do you hide $2bn worth of aluminium? And, just as importantly, why?
Equivalent to 6% of the world’s supply – enough, the Wall Street Journal calculates, to make 77m cans of beer – this hoard of 1m metric tons of aluminium was spotted, two years ago, by a plane flying over the town of San José Iturbide, 160 miles northwest of Mexico City. Behind barbed wire fences, in a remote desert factory, the pilot – hired by a suspicious American executive – spotted a neatly stacked stockpile of aluminium.
The trail linking that cache to Liu Zhongtian, Chinese billionaire, chairman of the aluminium giant China Zhongwang, and Communist Party member, has almost as many twists as a James Bond novel.
The Mexican factory had been developed by ambitious Singaporean businessman Po-Chi “Eric” Shen who announced plans to build a $200m company, Aluminicaste Fundición de Mexico, to melt aluminium to raw metal. This metal could then be shipped across the border to the US, avoiding trade restrictions and benefiting from the North American Free Trade Agreement in a tactic known as transshipping.
Industry experts say that ideally, the shipments would be made to a US plant where they could be remelted and prepared for sale. In 2013, Shen began talking to officials in Bairstow, California, a town 100m northeast of Los Angeles, about building a factory – which he said would be backed by China Zhongwang’s Liu Zhongtian. One of Shen’s close friends was Liu Zuopeng, son of Liu Zhongtian. The latter’s wife also happened to be a board member of Shen’s firm Scuderia Development. The prospectus for China Zhongwang’s public listing also revealed that, in 2008, the group had been loaned $200m by another of Shen’s companies. In 2011, much of the aluminium China Zhongwang sold to Chinese trading companies was then resold to a Singapore firm called GT88 Capital which, the Wall Street Journal concluded, is owned by Shen. At some point in 2013, Liu Zuopeng replaced Shen as CEO of Aluminicaste – and talk of a US plant ended.
China Zhongwang certainly had an incentive to transship – in 2010, the US Commerce Department levied punitive tariffs on the group’s aluminium exports after concluding it was being subsidised and selling at cut rates. There was also political pressure on the US government to protect its industry: in 2000, there were 23 aluminium smelters in America, today there are just five.
Liu has denied any knowledge of the Mexican scheme, joking that “in that sort of place, there are a lot of killers with guns”, insisting: “These things have nothing to do with me”, saying his son had taken over the Mexican business without consulting him and declaring that he barely knew Shen. Yet the Wall Street Journal has seen court documents showing that Liu and Shen are in dispute.
The fallout has its comedic side. They are arguing over ownership of a McLaren F1 sports car which Shen wrecked in Italy in 2014 (he was rescued by fellow enthusiast Rowan Atkinson, the Mr Bean star). Yet it is pretty serious too – with Liu recently agreeing to pay $1.1bn for Cleveland aluminium maker Aleris Corp, the most a Chinese company has ever paid for an American metals business.
Last October, America’s Aluminium Extruders Council filed a 600-page petition accusing Liu and his family of using a network of affiliated businesses to evade US antidumping rules. China Zhongwang called the allegations “factually incorrect”. China’s Nonferrous Metals Industry Association said such claims “seriously deviated from reality”, arguing that, as China levies a 15% tax on virgin aluminium exports, such schemes would not be financially worthwhile.
The other controversy surrounding China Zhongwang are claims, by Chinese business experts Dupre Analytics, that the group had inflated its sales figures by buying its own products from companies affiliated to the Zhongtian family.
The stockpile of aluminium in San José Iturbide has shrunk a bit. Last year, it was moved to a nearby field and covered with tarp and hay bales. This August, photos taken by media outlet American Metal Markets showed three dozen trucks assembled outside the plant and its sources suggested it is being shipped to Vietnam, probably to Global Vietnam Aluminium Co.
Yet American concerns over Chinese aluminium in general – and Liu’s activities in particular – are not shrinking. His bid for Aleris may yet be scrutinised by the Treasury Department’s Committee on Foreign Investment, which can block, or modify, a proposed investment on medical grounds.
Liu’s rise is symbolic of China’s ascent to economic superpower status – and the controversy that has surrounded it. In 1984, when he was 14, he took advantage of the opening up of the economy under Deng Xiaoping, borrowing 200 yuan to make and sell fire-resistant paint. Nine years later, he began expanding a small aluminium company in northeast China. His company went public in 2009, with him retaining a 74% stake. Fortune estimates his net worth at $3bn. As the chair of Asia’s largest aluminium company, he is poised to get a foothold in America, the world’s largest market.
If that works, Liu will have achieved his long-held goal of making sure that China Zhongwang cannot “be trampled to death by bigger companies.” Yet the exotic image of stacks of aluminium hidden in a remote factory in the Mexican desert may yet come back to frustrate those ambitions.