China Aluminum Tycoon May Face Biggest Foe Yet With U.S. Justice

(Bloomberg) -- The Chinese aluminum tycoon who batted away short-seller Carson Block faces his stiffest challenge yet -- a $1.8 billion fraud suit touching on trade concerns at the heart of President Donald Trump's protectionist agenda.

Liu Zhongtian, the chairman of China Zhongwang Holdings Ltd. until 2017 and still its owner, lied to U.S. customs to avoid paying duties on imported aluminum products earlier this decade, according to the Department of Justice in California. “This indictment outlines the unscrupulous and anti-competitive practices of a corrupt businessman,” prosecutors said on Wednesday.

The charges are the latest and most serious threat that Zhongwang, China's biggest producer of the aluminum used in auto parts and construction, has faced in recent years. In 2015, it rejected accusations from an anonymous short-seller, later revealed as Carson Block's Muddy Waters LLC, that it had fabricated revenue and illegally routed exports through related parties. In 2017, its bid to buy a U.S. rival was blocked by regulators. The same year, the company denied claims it was connected to illegal U.S. aluminum stockpiles.

In a response to the U.S. charges, which also include money laundering and defrauding investors, Zhongwang said on Thursday that it strictly abides by Chinese and overseas laws, and that neither it nor its owner had received notice of any legal proceedings. The company's shares plunged as much as 21% in Hong Kong. Prosecutors said they believe Liu is in China, and an effort to reach him via the company wasn't immediately successful.

Sensitive Time

The U.S. indictment of a Chinese billionaire and his company comes at a sensitive time given the two nations' strained relations, and could risk being interpreted through a political lens. The trade war between Washington and Beijing has already escalated beyond the flow of goods to zero in on specific firms, beginning with U.S. measures earlier in the year against China's national tech champion, Huawei Technologies Co. Ltd.

China's aluminum industry, the world's biggest, has been a bugbear of America's trade hawks long before Trump was elected. Chinese firms have faced multiple anti-dumping actions this decade, as well as a World Trade Organization case filed in the final days of the Obama administration. President Trump kicked off his hard-line on trade by implementing so-called Section 232 tariffs on aluminum and steel last year.

While the issues at the heart of the Justice department's case predate Trump's tariffs, they illustrate some of the problems that the President's aggressive trade agenda is meant to address.

The U.S. initiated the tariffs in large part because American producers argued they were unable to compete with a flood of Chinese aluminum and steel onto international markets. Beyond producing a mountain of those metals, Chinese companies were consistently finding ways to evade anti-dumping tariffs of as much as 400% and other efforts to address the economic threat, according to the U.S. firms.

Founder Liu

Liu founded Zhongwang in China's northeastern province of Liaoning in 1993 and built it into the country's biggest producer of aluminum extrusions, or products that are fashioned from the blocks of metal churned out by China's giant smelters. The business now includes a luxury yacht manufacturer in Australia, as well as a plant opened in the past year in Tianjin that aims to build flat-rolled aluminum for car and plane bodies.

Liu, 55, was present last year when President Xi Jinping visited Zhongwang's headquarters to underline the government's support for the private sector, encouraging firms to become “stronger, better and bigger.”

Canada and Mexico agreed earlier this year to do more to block the trans-shipment of Chinese metal destined for the U.S. as part of a deal with the Trump administration to remove tariffs. The levies are still in place on steel from other major U.S. allies including the European Union and Japan.

Meanwhile, Trump's trade war with China and the tariffs he has imposed on some $250 billion in imports has led to new efforts by Chinese, U.S. and other companies to find a way around those import taxes, mostly by relocating production.

--With assistance from Joe Deaux and Gerald Porter Jr..

To contact Bloomberg News staff for this story: Martin Ritchie in Shanghai at mritchie14@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Jason Rogers, Jake Lloyd-Smith

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With assistance from Bloomberg