Aluminum powerhouse leaps into trading

Foshan’s Dali was once seen as an example of what went wrong in China’s helter-skelter economic drive, as its aluminum industry processed thousands of tons of other countries’ waste. Not any more. Now a new project aims to turn the town into a global trading center.  

Aluminum: A type of metal that most people would recognize when they see it used in various products. Tesla uses aluminum for its electric cars, which is fantastic in a climate like the Greater Bay Area because it resists corrosion caused by air heavily laden with sea salt, and it is lightweight. Many people use another, softer, version called “tin foil” to wrap their leftovers before putting them in the fridge. It comes in all shapes and sizes of products.

Dali: A town in the Greater Bay Area municipality of Foshan that is the world center of aluminum production, accounting for one-fourth of China’s total, and more than Russia, Canada, and India combined. 

The future: Where Dali sees itself becoming the world’s biggest trading center for aluminum products. It already traded RMB1 trillion last year.

Those three factoids sum up neatly what is happening in this town, just one of many in Foshan, a city of 7.9 million people that shares a border with Guangzhou on the west side of the Greater Bay Area.

Situated in the Nanhai district, Dali has a story much like many others around the Greater Bay Area. It just happened to choose aluminum back in the late 1980s. Today, its nonferrous metal smelting and processing industry is one of 11 industries in the area with an annual industrial output of more than RMB20 billion. But it began just like the furniture industry in Lecong, or the ceramics, home appliances, and textile industries in other towns nearby: as a collection of mostly family-run workshops.

In Dali’s case, it all began with these mom-n-pop shops processing recycled waste with the most primitive tools. Today, there are aluminum profile workshops almost anywhere in Foshan, but most of the industry is concentrated in Dali. After nearly 30 years’ development, aluminum manufacturing has become one of the municipality’s pillar industries. And, like many others, it has had to leap up the value chain at a breakneck pace.

Change is the only constant here

A trip down to Dali, about 40 minutes’ drive northwest of the Guangzhou South train station, is still strewn with reminders of its humble beginnings. Row after row of nondescript warehouse shacks are connected with blue ceiling covers. There was a time when those rows were seen as symbols of China’s dark side: the environmental degradation that had accompanied its meteoric economic rise.  

Dali was placed on the world map in a most unexpected, and most unwelcome way. It happened in 2007, when a British Sky TV documentary, entitled “Are You Poisoning China?” exposed the depth of the trade in illegal waste exports from the UK to China. Camera crews descended on a remote village in Dali, called Lianjiao, which was said to be processing 200,000 tons of plastic waste every year.  

Stung by the negative international coverage, pressure came down from above. The provincial government urged Foshan’s city government and the Guangdong Environmental Protection Bureau to investigate and deal with the case. As it turned out, no company in the village had been given state approval to import waste from other countries. 

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The local government acted swiftly and banned unlicensed enterprises and individuals that were engaged in the waste-processing business, suspended factories that were not equipped with environmental protection facilities, and punished plants that incinerated trash or illegally occupied public space for waste storage. 

The government’s clean-up forced out a number of smaller factories which had previously been aggressively chasing quick profits, with very little engagement in technological innovation and scant focus on energy-saving production methods. The local party secretary, Huang Haohua, was quoted as saying at the time: “Those unlicensed workshops preferred to operate at night. Sometimes when the wind blew our way, the odor came right into the residential area and the evenings were just as bad as the daytime.” He noted that from April 2007 to March 2009, 546 factories were moved out of Lianjiao, covering a total area of 1,019 acres. 

With hindsight, it was just the shock that the industry needed in order to begin transforming itself and moving up the value chain in a lucrative global industry that was well-suited to China’s economic model.

As the government began to rein in the waste industry, it also set new limitations and requirements on manufacturing plants. The cost pressure forced many factories to unplug and settle somewhere further inland. But Dali, like the rest of Foshan, was in need of the space. Urbanization was well under way, but it needed a jolt of urgency.

Today, the area has about 250 aluminum manufacturing companies, with an annual extrusion capacity of 4.6 million tons, representing a quarter of the national total. A comprehensive value chain covering manufacturing, technology, logistics, brand and information has already been put in place. Where once was the dumping ground of plastic waste, now stands a cluster of shiny glass buildings known as Foshan’s new CBD.

Leapfrog into trading

The new CBD includes a 500-acre Future Town development, a government-driven mixed-use project, south China’s largest AEON mall and five skyscrapers built by a consortium of Dali’s leading aluminum producers. State-owned developer Poly Developments and Holdings and Tianjian-based Sunac China are also busy building their residential projects next to a new park. 

We arrived at the glass-clad, 29-storey Vahom Plaza, one of the five buildings, to meet Michael Peng, CEO of Alu-Expo. This block of structures is situated along a main avenue, Guihe Lu, that is directly linked to the highway circuiting Guangzhou. The five buildings offer a combined total of 50,000 square meters for exhibitions, 100,000 square meters for retail, and 200,000 square meters for offices.

A little over a year ago, in March last year, the owners of the buildings decided to join forces and launched an aluminum industry alliance, with the ambition to become China’s largest business to business platform for the aluminum industry. 

“Now is the time to end the model of fighting alone,” declared Gu Yaohui, head of the Nanhai district at the time. “The alliance has brought together different regions, enterprise, industries and e-commerce.”

Fast forwarding to January this year, industry leaders gathered again in Dali to sign a cooperation agreement for Alu-Expo. On its face, Alu-Expo could be seen as just another exhibition project. According to the agreement, Alu-Expo will operate and manage a combined total of 50,000 square meter space in the five buildings, with the objective of turning it into a comprehensive exhibition base for the aluminum industry. But it is clearly more than that.

Peng, a veteran business consultant, was appointed head the project. “The reason we took the approach of a trade-show economy is because a straightforward leasing model is already out of date,” said Peng, who had lived in Germany for 18 years before returning to China last year. “We use trade shows as a platform to bring buyers and sellers together. We offer space for every player on the supply chain to showcase their products and set up offices here. But instead of charging them rent, we form joint ventures with them. In return, they must meet certain business targets.” 

Peng estimated that Dali’s annual trading volume of nonferrous metals, including aluminum, copper and metal recycling, had already reached RMB1 trillion. However, at the moment, the bigger prize lies in wait. Dali is mostly seen as a place for spot transactions only, as billing settlement for futures contracts often take place elsewhere. “To the Dali government, this arrangement means its direct loss of tax revenue. Therefore, our goal is to ultimately bring the billing settlements back to Dali,” Peng explained. 

Conferences and more

When we came to visit Peng recently at the Vahom Plaza, he was in a meeting with an event service provider in preparation for a trade conference in two days’ time that would bring together Dali’s major industries including nonferrous metals, electrical hardware, aluminum doors and windows. 

The conference was just a trial run of Alu-Expo’s grander scheme. This coming November, Peng is teaming up with organizers of the Canton Fair to launch an upgraded edition of the Safety Industry Conference in Dali. The conference will be hosted in Alu-Expo’s brand new exhibition hall, instead of a gigantic tent like makeshift venue it has previously been subjected to, complete with discussion panels and forums lead by industry leaders.  

“Aluminum as a material can be extended into different forms of products. It can be used in buildings, aeroplanes, rockets, cars or mobile phones. Africa, for example, is one of our major markets where we export prefabricated aluminum houses,” Peng said. “Our role at the Alu-Expo is not just managing the facilities, but also to consolidate the resources for the industry.”

Peng envisions bringing cross-border B2B e-commerce platforms, procurement centers, product design companies, events, marketing, banks, payment platforms, trade index, product quality certification all into the Alu-Expo eco-system. 

The veteran business consultant said he decided to take up on the challenge because the area already had a mature industrial supply chain, albeit with scattered resources. “It’s a matter of consolidation to allow for better efficiency and maximum of value,” he said. 

“If the model proves to be a success, we could then easily replicate it to another of Dali’s 38 vertical industries, such as the nonferrous metals or the undergarment manufacturing, and truly transform the area into a global sourcing center,” Peng added. 

It’s still a long way from here to there. Thius is not only because Dali is still relatively unknown as an exhibition destination, with the closest international hotel seven kilometers away. To bring billing settlements back to Dali will require the local government to offer enough incentives to attract nonferrous metal enterprises as well as being able to provide more financial products. 

Peng, who holds an MBA from the University of Munich and has served Siemens, Adidas and China Unicom, is also a well-respected venture capitalist who has a keen interest in the future of blockchain. It’s not a subject he talks too often though, simply because “blockchain is still at a very early stage, despite all the buzz surrounding it. For now, we’re focusing on building the business. Once the foundations are in place, we will be able to add additional layers such as a blockchain-powered fintech platform that offers alternative funding channels for small enterprises,” Peng said. “It’s a 10-year project for me!”

In Dali, as in other parts of Foshan and the Greater Bay Area, 10 years can go by in an instant.

We will check back in at a later date. In the meantime, if readers would like to know more, here is your guide to Foshan.

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