Hebei Iron may face closer watch

Huge foreign investments made by Hebei Iron and Steel may face greater scrutiny by anti-graft investigators on the mainland and elsewhere after allegations of embezzlement and mismanagement at the company saw the sudden removal of its chairman, Wang Yifang.

Hundreds of millions of dollars were spent on Wang's watch as he built the group into what the World Steel Association ranks as the world's third-largest steel company, acquiring mines in Africa, Canada and the United States since taking charge in 2008. Even in the weeks before Communist Party bosses cut short his reign earlier this month, he was chasing new foreign partnerships.

"When a firm such as Hebei Iron and Steel encounters a management crisis over governance or performance, its overseas operations can be disrupted or tied up in litigation by creditors and regulators," Daniel Rosen, a partner at US consultancy Rhodium Group, told the South China Morning Post.

"Firms in many countries are interested in Chinese suitors because they offer the prospect of advantageous links to sell back into the Chinese economy. Instead, it turns out that the inexperience of many Chinese firms, especially state-related firms, at handling growth and international operations presents more risks than benefits in some cases," said Rosen, whose firm tracks investments by Chinese companies in the US.

Much uncertainty remains over the specifics of the allegations made about Hebei Iron and Steel, which is owned by the government of the northeastern Hebei province and produced 42.8 million tonnes of steel last year, according to the WSA.

Yu Yong, installed as Wang's replacement as chairman, told a meeting of the firm's senior managers on December 9 that cash, resources and profits in some subsidiaries had been embezzled, according to the company's website.

Without naming anyone, Yu said many employees had treated the company as "a paradise for making personal fortunes", despite the group running losses. The website said the problems were widespread and had existed for a long time, resulting in a shocking loss of funds.