US company defends acquisition by Chinese

Updated: 2016-11-04 22:28

By PAUL WELITZKIN in New York(China Daily USA)

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US lawmakers are urging Treasury Secretary Jack Lew to review and reject a Chinese company's acquisition of a US aluminum maker as a threat to national security, but the Ohio-based manufacturer denied the charge.

In August, Zhongwang USA LLC, a unit of aluminum maker China Zhongwang Holdings Ltd, said it would purchase US-based Aleris Corp in a deal that then valued the company at about $2.33 billion. The Ohio-based Aleris supplies fabricated aluminum products to the aerospace, construction and automotive industries.

A letter from 12 US senators sent on Wednesday to Lew said the deal should be rejected because it would "directly undermine our national security, including by jeopardizing the US manufacturing base for sensitive technologies in an industry already devastated by the effects of China's market distorting policies", according to The Wall Street Journal and Bloomberg News.

The deal would create a "serious risk that sensitive technologies and knowhow will be transferred to China, further imperiling US defense interests", they wrote.

Senators signing the letter include Ron Wyden, Democrat of Oregon, Charles Schumer, Democrat of New York, and Rob Portman, Republican of Ohio. Wyden is ranking member of the Senate committee of finance overseeing trade.

Lew chairs the Committee on Foreign Investment in the United States (CFIUS), which includes officials from the Defense, State and Justice departments and reviews acquisitions of US businesses by foreign buyers. It can impose conditions on transactions or recommend that the president block them.

In a statement, Aleris denied the deal would threaten national security, and noted that the company manufactures no products at its US facilities that have any defense applications.

"Less than one percent of our sales go into defense applications, and none of those goods are produced in the US. The technology to produce aluminum plate, which is used in some military applications, is standard production technology widely used in the aluminum industry," Aleris said in an email.

Aleris said the transaction is a private acquisition by private investors who have no affiliation with a foreign government.

"This transaction is about the continued growth of Aleris under our current management team who will continue to operate the business independently as a separate, stand alone entity," the company said.

Amanda Xu, a spokeswoman for Zhongwang USA told the South China Morning Post that "contrary to what was stated in the senators' letter, Zhongwang USA and the Zhongwang group of companies are neither state-owned nor state-controlled."

Company spokesman Jason Saragian said Aleris and Zhongwang voluntarily filed for a CIFIUS review when the deal was announced. "We remain confident we will receive all regulatory approvals," he said Thursday.

Ted Moran of the Washington-based Peterson Institute for International Economics wrote in an email that "CFIUS will (probably) focus on two areas: Aleris's defense business, in particular, making high performance aluminum armor, and Aleris's advance aerospace technology, which may have dual use capabilities. The result may be that Aleris has to divest some operations to satisfy CFIUS concerns".

Michael Wessel, a member of the US-China Economic and Security Review Commission that was created to monitor China for Congress, noted there are transactions that do not get the attention of US senators.

"This is a key transaction because of the assets involved but also the activities of the acquiring company and its affiliated owners. It's not politics, it's the substance of the transaction and the acquiring company's checkered past that are driving their interest," he said in an email.

Liu Zhongtian, controls the US affiliate and is also the founder and chairman of China Zhongwang Holdings Ltd. It has been accused of evading US import duties on extruded products, prompting an investigation by the US Commerce Department.

"US producers of steel and aluminum are concerned that they can't compete versus companies like Zhongwang, which is believed to receive direct and indirect support or subsidies from the government. These concerns are a key catalyst for the letter sent to the US Department of Treasury in its role as the CFIUS coordinator," said Dara Panahy, an attorney with Milbank, Tweed, Hadley & McCloy LLP in Washington.