It was announced in 2010 that an investor consortium from Guangdong and Shanghai purchased Rizhao Steel from Du Shuanghua. The deal was worth USD 3 billion at the time, making it one of the biggest steel deals ever done in China. We will delve into what happened in the steel industry in China during this period and how it impacted Rizhao Steel specifically in this article.
Du Shuanghua heads a large part of China’s steel industry. He served as Chairman of Rizhao Steel from its inception in 2001 to the sale of the company in 2010. One of the largest steel producers in China, the company has a production capacity of 25 million tons, making it one of the biggest steel producers in the world. China’s steel market became troubled in 2008, as the Chinese economy began to slow down. As a result of overcapacity and falling prices in the steel market, Rizhao Steel has been seriously adversely affected.
During the past few years, Rizhao Steel has faced two significant challenges. A few years ago, the country was burdened with debt totaling USD 11 billion. Du Shuanghua received assistance from the local government. They could devise a plan to protect Rizhao’s assets while still allowing the company to repay its debts over time (interest-free). This resulted in Rizhao Steel being forced to compete with China’s other steel companies despite their problems. The result is that many industry leaders have been calling on Beijing to take action against what they perceive to be unfair practices by state-owned enterprises such as Rizhao Steel.
Another concern is how management handled the drop in prices in 2009 and 2010 after reaching record highs in 2008. Therefore, Du Shuanghua and the Rizhao management team have been forced to stop production at the plants, lay off employees, and reduce output by 25% as a result. In the eyes of the employees and local officials, this move was a betrayal and a desperate attempt to save the company from bankruptcy. Read more on Week in China