China’s Return to American Steel

With mixed results, state-backed Chinese enterprise has invested in American steelmaking before Monday’s announcement by Anshan Iron and Steel Group Corp. that it plans to buy into a Mississippi project.

Bloomberg News

A slab of hot steel is worked at an American steel mill.

In 1988, China International Trust & Investment Corp., or Citic, purchased a Delaware steelmaker, ultimately winning credit for rescuing the historic mill from bankruptcy but facing criticism for employing non-union workers to do it.

Just as Anshan’s just-announced deal to buy into up to five U.S. steel mills in partnership with Mississippi-based Steel Development Co. carries political overtones, so did the Citic Group’s investment more than two decades ago.

This weekend, top U.S. and Chinese administration officials will sit down for talks in Beijing at the Strategic and Economic Dialogue – and each is positioning ahead of time. As Washington talks up the merits of revaluation of the yuan even as Beijing steps up purchases of Treasurys, the deal announced by government-controlled Anshan could help assuage criticism China merely wants to export, since it would theoretically be helping to create American jobs.

Some say the Anshan greenfield investment in the U.S. amounts to little more than politics. In an emailed report, Chicago-based Steel Market Intelligence analyst Michelle Applebaum dismissed the announcement, calling it “as politically driven an investment as possibly could be” and “a spit in the ocean relative to steel industry trade imbalances.” The analyst has pooh-poohed past efforts by Beijing to improve the image of its steel industry.

When Citic was tip-toeing into the U.S. over twenty years ago its actions appeared to have political implications too. Beijing was employing its main investment vehicle to demonstrate determination of the Communist Party to join the global economy.

Citic’s early actions at the Claymont, Delaware, steelmaker were also cast in a political light following the June 1989 crackdown on students in Tiananmen Square. The rub was worker complaints that Citic reneged on promises to hire union employees from the twice-bankrupt plant’s former incarnation as Phoenix Steel, which prompted pickets at the Chinese Embassy in Washington and reprimands from the National Labor Relations Board.

Ultimately, the Chinese owners gained the right to hire the workers they wanted in Delaware and also won plaudits for turning around the business, and employing Americans.

The Anshan investment is for a shareholding in not-yet completed facilities, while the Citic deal was for the full ownership of a Delaware company founded in 1783 that had changed hands multiple times.
Still, the deals have parallels. The targets in both cases, for instance, are mini-mills making specialized products destined for the American market. The Mississippi plant is being built for $175 million, while the Delaware facility cost Citic $13.5 million plus the tens of millions of dollars more it pumped in to modernize the plant.

Citic sold the Delaware business, which it had named CitiSteel USA Inc., in 2005 , when it was producing 300,000 metric tons of steel and racking up annual sales of $71 million, according to the News Journal, a Delaware newspaper.

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