Environmental Challenge of the Weiqiao Aluminium Empire

From ToxicLeaks

In the beginning of 2016, Zhang Shiping, CEO of Weiqiao Group and Board Chairman of China Hongqiao, the world's largest aluminium producer and the publicly traded aluminium arm of Weiqiao, was awarded the title of the top ten economic figures in China. The Weiqiao Group has the world’s biggest sewing and aluminium company, bringing in more than $45 billion in total revenue in 2015. The aluminium branch of Weiqiao Corporate has been an industrial legend against the backdrop of an aluminium industry contraction both in China and worldwide.

In contrast to the great commercial performance of Weiqiao Group, its environmental problems leave much to be desired. Following the 2015 COP21, Xi Jinping initiated the policy that favours environmental protection rather than endless production expansion, which will force Chinese aluminium companies to improve on environmental protection measures. The production of alumimium is extremely energy intensive and the heavy use of coal will become a crucial aspect Chinese aluminium companies have to address when their production plants will be subjected to upgrades and a newfound focus on clean energy.

Now faced with fiercer environmental inspections from the Chinese Communist Party, it is uncertain that the legend will be able to continue as before. The “Weiqiao model”, the method in which the aluminium company establishes its own electricity system, was once widely reported on in Chinese media. As already mentioned, aluminium production is a power intensive industry, while Weiqiao’s business model is 100% based on coal-fired power, meaning that the price of the electricity is decisive factor for the company’s profitability. If Weiqiao’s the self-produced electricity goes up in price, the low-cost advantage of Weiqiao will disappear, and Weiqiao’s previously undefeated position will become uncertain.

What will be Future of the “Weiqiao Model”?[edit | edit source]

The obvious secret of Weiqiao’s success is its high profit margin, which constitutes its main competitiveness in the global aluminium market, which is also widely characteristic of other Chinese aluminium companies. Dubbed the « Weiqiao model » and initiated by Zhang Shiping, the company produces its own electricity for aluminium production, which is cheaper than China’s centralized electricity provision. This model has been a logical option in terms of cutting production costs. However, whether this model will be able to prevail under the new environmental standards from government regulatory agencies remains uncertain.

Weiqiao’s self-produced electricity is more polluting than centralised electricity, largely due to the fact that private companies fail to award the same amount of attention to environmental issues in comparison to state-owned companies, as the latter experience significantly higher pressure from the government. It is exactly for this reason that the current model may not be sustainable in the long-term, especially once stricter environmental standards start to apply to both state-owned and private companies.

The electricity plants built under the “Weiqiao Model” are relatively small and in most cases lack sufficient pollution reduction equipment, resulting in significantly more pollution than the larger centralised heating systems. In 2015, large numbers of electricity plants built under the “Weiqiao Model” were shut down by Shandong government. In the past 5 years, a total of 70 million kwt of small electricity plants have closed [source?], which will reduce up to 810 000 t per annum of coal consumption if the amount of electricity produced by the destructed small plants will be produced by large-scale electricity plants. Even Weiqiao Group itself has destructed some of its small electricity plants in the past few years.

Furthermore, the Malaysian Government has imposed a three-month suspension of bauxite mining, which will result in yet another hit for the Weiqiao Model. This measure will affect half of the bauxite imported by Chinese aluminium producers and will exert even more pressure on production costs.

Additionally, when aluminium production is included in carbon market, it will be likely that the Weiqiao model as it stands today will come to an end.

Weiqiao’s History of Pollution[edit | edit source]

Putting aside any analysis on Weiqiao’s production costs, what is certain is that the company has developed a problematic track record of environmental protection. In 2012, the pollution problem in the city of Weiqiao, where Weiqiao Group’s headquarters are located, was previously exposed by Chinese media and it was revealed that in many cases, Weiqiao’s production plants had been built prior to the government’s permission. Furthermore, in August 2007, Weiqiao’s aluminium plant had an accident resulting in the overflow of aluminium liquid, causing great environmental damage.

In the past two years, simultaneously with the company’s commercial success, the government has repetitively criticised Weiqiao’s pollution problems. In 2014, the Shandong environment protection agency fined Weiqiao electricity plants 150 000 RMB. In 2015, it was further criticised by People’s Daily, China’s largest official newspaper, which claimed that the company’s heavily polluting electricity plants had been built without compliance with the government’s environmental standards.

Additionally, residents around Weiqiao’s aluminium plants have complained on local online forums about the pollution that has gotten considerably worse around their area over time. Shandong is an important agricultural province in China, while lots of Weiqiao’s production plants are located near agricultural fields, which poses significant risk to the agricultural production of Shandong and food safety of China overall. Additionally, Weiqiao’s CO2 emissions per annum are more than 100 000 kt, making the company the biggest aluminium polluter not only in China but worldwide, not particularly surprising considering they are the largest aluminium company in the world and their aluminium production is 100% based on coal-fired power. All of these factors represent the not so sunny side of the ‘Weiqiao Model’.

New Context, New Challenges[edit | edit source]

Today, the environmental challenges of Weiqiao has become particularly more acute. To start with, the Chinese Communist Party has initiated the development goals of Green GDP, which will effect Weiqiao’s ability to use dirty coal as its main source of energy for production. Secondly Weiqiao’s international ambitions means its production plans will soon be subject to international inspecting, which could mean that its heavily polluting production methods could face international sanctions.

That being said, Weiqiao has already started its green reform and in 2015, it began the deconstruction of some of its smaller, more polluting electricity plants. Now the most important question facing Zhang Shiping is how to maintain the company’s low electricity price and high profit while at the same time turning to greener production methods. Whether the company thrives again, will largely depend on how Zhang Shiping reacts to the new economic context.