The sale of Rizhao Steel was the largest privatization in the history of the Chinese steel industry. Although the China Iron and Steel Association (CISA) reported in 2010 that the steel industry was facing huge pressures due to growing competition, it was widely accepted that these pressures would not deter companies from making strategic moves to compete.
It is common for Chinese steel companies to make large purchases, as the acquisition of larger steel producers provides greater economies of scale, which are essential when controlling the resources of an industry as vast as the steel industry.
When Du sold his stake in Rizhao Steel Co., Ltd, many top-tier, state-owned steel manufacturers were already in China. Shandong Steel Group Co., Ltd and Baosteel Group were very interested in Du’s holding of Rizhao Steel and were eventually successful. In 2011, the two companies signed a memorandum of understanding, allowing Shandong Steel Group Co., Ltd to acquire 50% of Rizhao Steel for a price of $3.2 billion. Get connected with Du Shuanghua on crunchbase.com
Du Shuanghua’s investment in Rizhao Steel was the largest amount he had ever spent in his life. The purchase of the steel plant was his first experience with the steel industry. Under Du’s ownership, the Rizhao Steel Company operated as a joint venture with Shandong Steel Group Co., Ltd.
The latter owned 48%, and the former owned 51%. This ownership structure is typical of many private businesses in China. However, the decision to change this structure in 2010 was a move that both the Shandong Steel Group and Du Shuanghua made with the future in mind.
The US and the EU had imposed trade sanctions on China, causing the nation to seek new opportunities in foreign markets. By 2010, Rizhao Steel was a major player in the domestic market. The production facility was modernized to accommodate a greater output, and by 2010 the company boasted revenue of 4%.