Cement partners' winning ways

Italcementi is happy with its stake in West China Cement and the report of fraud is not true, says its chief representative

PUBLISHED : Wednesday, 24 October, 2012, 12:00am
UPDATED : Wednesday, 24 October, 2012, 4:01am

Italcementi Group, an Italian-listed cement company, has faith in West China Cement despite a US short-seller's report alleging fraud at the mainland cement producer, said Ma Weiping, Italcementi's chief representative in West China Cement.

In August, Glaucus Research, a US short-seller, published a report alleging inflated profits, fraud and suspicious acquisitions of mainland cement plants by West China Cement, which has denied the allegations.

"We already did lots of due diligence on West China Cement, so we felt the short-seller's report is not factual," said Ma at a gathering with journalists. "Thus, it has not shaken our confidence in West China Cement."

Just before the Glaucus report, Italcementi, the world's fifth-largest cement company, became the Hong Kong-listed firm's third-largest shareholder on June 28 with a 6.25 per cent stake. Under this deal, Italcementi's executive, Ma, was appointed a non-executive director of West China Cement.

"I don't think West China Cement has serious corporate governance problems. There are some errors in Glaucus' report," said Daiwa Securities analyst Felix Lam.

He said Glaucus' allegations regarding West China Cement's selling prices were inaccurate and its comparison of prices between Shaanxi province, where West China Cement sells most of its product, and other provinces was unfair.

West China Cement has decided not to sue Glaucus but reserves the right to do so, said its executive director, Low Po Ling.

"To prove the truth of our case, we don't need to resort to lawsuits. We have invited reporters to Xian, to show our factories exist. They are not just drawings on a piece of paper," he said.

West China Cement chairman Zhang Jimin said "there is a Chinese saying, let the facts speak for themselves".

Ma described Italcementi's strategic partnership with West China Cement as win-win.

"West China Cement's advantage is it understands China's economy and policies.

"Italcementi is a 150-year-old company with lots of experience. There can be an exchange of knowledge. Previously, we competed, but now we co-operate," Ma said.

To gain the shareholding in West China Cement, Italcementi sold West China Cement its 35 per cent stake in a cement plant in Shifeng, Shaanxi, and its cement plant in Fuping county, Shaanxi, in June.

A visit to the cement plant in Fuping shows cultural differences between Italcementi and West China Cement.

In the three months since West China Cement took over the Fuping plant, its monthly cement capacity has increased to 180,000 tonnes from 130,000 tonnes, said West China Cement regional manager Wang Fayin.

He attributed the increased output to replacing the Italian management system with Chinese management methods.

"The differences are very big. The Italian and Chinese models are different," said Wang.

When Italcementi was managing the Fuping plant, many decisions were made in Italy, which had a six-hour time zone difference with Fuping, he said.

"Italian managers would leave Fuping to go home to Xian at 5.30pm every day, while Chinese plant managers stayed in the plant. The top Italian managers go back to Italy once a year," said West China Cement deputy manager Luo Xianbo.

Wang said that by staying at the plant, "we can solve a problem right away. We Chinese would work until midnight to fix a problem".

"I offered simpler shortcut solutions, but the Italian bosses didn't approve them. Now that we have taken over, we do things our way," Wang said.

Previously, Italcementi would insist the Fuping plant import Italian components, when there were cheaper Chinese-made components next door that could have been used instead, he added.

However, Italcementi has an excellent global IT system that can monitor operations around the world in real time, Low said.

"The Italian company is better than us in this respect."

The Italian management model is people-centric and empowers workers to be independent, but the quality of Chinese workers is not up to that of European workers, so a stricter management model must be imposed on Chinese workers, said West China Cement chief executive Tian Zhenjun.

Nonetheless, Italcementi has strengths in safety and research and development, which has benefited West China Cement, he said.

When Chinese government safety inspectors visited mainland cement plants, the Italian managers would not host them to dinner while Chinese managers would, he said.

"This is not bribery. Is eating dinner corruption?

"Wine and dinner is normal Chinese entertainment. This is the Chinese tradition of people-to-people relationships," Tian said.

Despite the cultural differences, there are no quarrels between Italcementi and West China Cement, because Italcementi's chief representative in West China Cement is Ma, a Chinese who understands China, Tian said.