US com­pany de­fends ac­qui­si­tion by Chi­nese

China Daily (USA) - - FRONT PAGE - By PAUL WELITZKIN in New York paulwelitzkin@chi­nadai­lyusa.com

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 Ohiobased 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 Ohiobased 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 sta­te­owned 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.

This trans­ac­tion is about the con­tin­ued growth of Aleris un­der our cur­rent man­age­ment team ... ” Aleris Corp state­ment

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.

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