China Hongqiao Group

History

In July 1994, China Hongqiao, originally known as Shandong Hongqiao, was established. It was mainly engaged in the production and distribution of jeans and yarn-dyed denim at that time.

In December 2002, Aluminum & Power, specialized in thermal power generation, was established.

In June 2006, China Hongqiao acquired Aluminum & Power.

In September 2006, China Hongqiao started the production of aluminum products.

In 2007, the company’s production capacity reached approximately 301,513 tons per annum.

In March 2011, China Hongqiao was listed on the Hong Kong Stock Exchange at HK$7.2 a share. At this time, the company’s capacity was listed at 1.1 million tons.

At of the end of 2014, the company’s annual production capacity of aluminum products reached over 4 million tons, according to the company’s official numbers.

In March 2016, the company had reached a production capacity of 5.2 million tons per annum.

China

The production plants of Hongqiao in China are Weiqiao Aluminium and Electricity CO. LTD in Binzhou, Shandong Province.

Indonesia

In December 2012, China Hongqiao, in a joint venture with PT Well Harvest Winning Alumina Refinery, announced the investment of US$1–1.5 billion for the establishment of an alumina production company in Borneo, Indonesia with a planned annual production capacity of 2,000,000 tons.

In 2016, China Hongqiao, which is the majority shareholder of the joint venture with 56%, officially launched its 1 million ton a year alumina plant. The splant was at the time Hongqiao’s and China’s first foreign investment in alumina refining and the first alumina factory to be built in Indonesia. Integrated with a power plant and seaport in Indonesia’s West Kalimantan Province's Ketapang Regency, the factory processes bauxite into alumina.

Sun Xiushun, the president of Winning International Group, the shipping company and shareholder in the joint venture alongside China Hongqiao, stated that the processed alumina would mostly be used to supply the raw material demand of local Indonesian smelters. The remaining alumina would be exported to China, the Middle East, and other areas.

Guinea

In June 2014, China Hongqiao Group, along with Winning Logistics (Africa) Company Ltd, announced that they had entered into a Memorandum of Understanding (MOU) for the acquisition of an unidentified company in the Republic of Guinea, which is primarily involved in the bauxite mining industry, for approximately US$120 million. The company in question holds the rights to develop and produce bauxite for 25 years. It holds a deposit of 2.2 billion tons of bauxite. China Hongqiao’s main goal was to secure access to bauxite supplies to feed demand.

In March 2015, China Hongqiao group confirmed that it had agreed on a mining and port investment deal in Guinea with the goal of developing and exporting bauxite. Working together in a joint consortium with Singapore form Winning Shipping Co Ltd, Yantai Port and Boke Mining Co. the investment would equal less than US$200 million and would produce an initial 10 million tons of bauxite per annum, according to China Hongqiao’s CEO, Zhang Bo.

In November 2015, the first shipment of bauxite from Guinea, 170,000 tons, was unloaded at the Yantai port, China.

In March 2016, China Hongqiao announced that it expects shipments of 15 million tons of bauxite from the Guinea project in 2016 and 30 million tons in 2017.

Overcapacity

Despite the Chinese government’s announcement of supply-side reforms to cope with oversupply in the industry, in March 2016 China Hongqiao announced that it would expand its capacity to 6 million tons per annum by the end of 2016, an increase of 16%, subject to market conditions. At the time, Peter Thomas, Senior Vice President at Zaner Group LLC, a Chicago-based metals broker, said the announcement “means prices are going down another 1 to 2 percent”. Overcapacity in China’s industries has been caused by intentional structural factors, such as cheap financing and government subsidies meant to decrease the production costs of companies. In Hongqiao’s case, capacity growth is a result of taking on loans, with more than $2.1 billion received in 2015.

In August 2016, China Hongqiao’s CEO, Zhang Bo, dismissed concerns that the aluminum industry in China had a capacity problem, insisting that the demand for aluminum and improving “self discipline” in production and capacity expansion, meant that the aluminum industry was in healthy shape.

The company has been growing at record rates since its 2011 listing on the Hong Kong Stock Exchange, with the production capacity growing from 1.1 million metric tons since its initial public offering to 5.2 million metric tons (5.1 million long tons) in March 2016.

Environmental concerns

Hongqiao’s aluminium production plants are heavily dependent on coal-produced electricity, resulting in high CO2 emissions of more than 100,000 kt. In 2012, Chinese journalists reported on the environmental problems associated with China Hongqiao’s production plants. Throughout their investigation into the surroundings of Hongqiao plants, they reported that the living conditions had deteriorated significantly because of severe air and water pollution.

While in 2012 Hongqiao claimed to use coal ash to produce aluminium, satellite images of its production site in Shandong found a large amount of red mud, the toxic waste resulting from bauxite-produced aluminium. Since producing aluminium from coal ash is more expensive, the company switched to bauxite and then stocked toxic waste near agricultural fields, raising fears that a possible discharge would release toxic alkaline substances full of oxidized iron, silica, unleashed residual aluminum, and titanium oxide into the atmosphere.

In 2016, it was reported that Hongqiao committed environmental fraud by operating 2000 kt of non-approved smelters in China, thereby bypassing and breaching the Chinese government’s emission standards.

With the Chinese Communist Party imposing stricter environmental standards, Hongqiao is seeking to transition to renewables and has shut down some of the smaller and more-polluting electricity plants.

In October 2016, the South China Morning Post reported that China Hongqiao’s aluminium smelter capacity might be at risk following the revelation that the environmental protection watch dog in Binzou city, where Hongqaio’s facilities are located, ordered the firm stop the production amounting to 3.61 million tonnes at its production lines. The watch dog said the company is liable for unspecified fines, as well as the closure of its facilities, due to Hongqiao’s “failure to obtain environmental protection approvals before building and operating the facilities”. Additionally the firm was ordered to halt the construction of a 1.32 million tonne a year smelting plant, due to the company’s failure to ask for a new environmental impact assessment approval before beginning constructions. Hongqiao did not announce the violations, claiming that they understood that the issues arose as a result of the Chinese government’s environmental protection requirements and “there is no need to make an announcement…if we have to pay any fine or stop production, we will certainly make an announcement”.

Electricity provision

Hongqiao is the initiator of the dubbed “Weiqiao model”, in which aluminium plants are supported by self-built electricity plants, which are usually coal-fueled and not compliant with environmental regulations. Many Chinese aluminium companies use this production method, and in the past five years the Shandong government has shut down 70 million kwt worth of electricity plants built under this model.

In 2012, Chinese Communist Party media reported that China Hongqiao was violating electricity regulations as the company was producing cheap electricity independently of the central electricity system. Officials in the Chinese National Development and Reform Commission commented that the independent electricity produced by the company was more likely to cause air pollution since the plants cut costs and give up on environmental protection equipment. In response to widespread criticism from the Chinese government, Hongqiao denied the accusations. In 2015, Hongqiao shut down its smaller electricity plants to show its commitment to cleaner production.