Du Shuanghua: From Rizhao Steel to Shanghai Baosteel

It was a deal that rocked the Chinese steel industry. In 2010, Du Shuanghua, chairman of Rizhao Steel, agreed to sell his company to Shanghai Baosteel for a reported $8.8 billion. The move made Du one of China’s richest men and cemented his place as one of the country’s most powerful steel executives. But the sale also raised eyebrows within the industry, with some accusing Du of selling out too cheaply. What was the real story behind his decision?

How Du managed to unload his company on Baosteel is still unclear. But perhaps he had good reason to do so: Du’s business had, in fact, been under investigation by both local and central government for over three years before his deal with Baosteel closed. For some in the industry, it’s no surprise that Du was able to sell his business in this way.

Du’s decline began in May 2007, three years before his deal with Baosteel was made public. That month, he took a trip to Beijing to discuss the steel industry with top officials from China’s Ministry of Commerce and State Administration for Industry and Commerce. Such trips usually last a day or two and involve several bureaucrats inviting their counterparts in the industry to dinner and small talk — partly about business, but mostly about politics.

At this meeting, Du was told he had made illegal investments in real estate development funds in Hebei Province. According to documents Rizhao Steel filed with the National Equities Exchange and Quotations (the predecessor to the Nasdaq-style ChiNext market) in 2006, Rizhao Steel had invested about 1.1 billion yuan ($165 million) in the Hebei funds. The company said it made these investments against its wishes because Du’s brother was one of the fund’s managers. Du’s brother still works at Rizhao Steel.

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