In 2006, China was in the middle of a massive construction boom, and steel demand increased rapidly. At this time, relations between China or the United States and other countries were tense due to various issues.
Keen to avoid any conflict with Washington over raw material supply routes, Beijing has poured enormous sums into developing domestic iron ore assets, including investing billions of dollars in Australia to secure supplies for its steel industry.
One of the more aggressive Chinese mining companies, Rizhao Steel Holding Group Co. Ltd entered into a deal with the American investor, Du Shuanghua. Rizhao Steel and Shandong Steel are both subsidiaries of Rizhao Steel and have been producing steel in Rizhao for over ten years.
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This deal is worth $3 billion and involves the sale of Rizhao Steel to a Shanghai-based machinery maker for 1.27 billion Yuan, or about $200 million.
This sale was approved by the China Securities Regulatory Commission (CSRC) on Tuesday, September 14th, 2010. The deal had been expected to be announced since last June when Du, a resident of Shandong Province, bought a 19.9 percent stake in Shandong Steel Group Co. Ltd from Shandong Iron and Steel Group Co. Ltd for 46 million Yuan through his privately-owned Rizhao Steel Holdings Co. Ltd., Reuters reported Tuesday, March 26th, 2010.
The company that bought Rizhao Steel is Shandong Heavy Industry Corporation (SHIC). SHIC is a subsidiary of the publicly-traded Shandong Heavy Industries Co. Ltd, established in 2003 and became China’s third-largest steelmaker by 2007.
Before SHIC, Shandong Heavy Industries Co. Ltd had been a joint venture between State Grid Corporation of China and the Korean firm Posco (previously POSCO), which invested $1 billion. In 2009, State Grid sold its entire stake in Shandong Heavy Industries Co. Ltd to Posco.
SHIC is one of China’s largest heavy machinery manufacturers, while Rizhao Steel Holdings Co. Ltd is the 91st largest company in Shandong Province, which has a population of over 100 million people and a GDP of $750 billion annually.