POWER POLITICS President Xi Jinping is systematically taking down a clique of rivals who ruled the petroleum industry Inside the purge of China’s oil mandarins BY CHARLIE ZHU, DAVID LAGUE AND BENJAMIN KANG LIM FALLEN: Jiang Jiemin, former head of CNPC and PetroChina, was a lynchpin supporter of President Xi’s rival, Zhou Yongkang. REUTERS/PAUL YEUNG SPECIAL REPORT 1 POWER POLITICS THE PURGE OF CHINA’S OIL MANDARINS ASCENDANT: President Xi, above, has targeted Zhou Yongkang in China’s biggest corruption probe since 1949. REUTERS/FENG LI/POOL BEIJING/HONG KONG, JULY 24 The scale of the probe into Today, the retainer’s loyalty to Zhou has CNPC is unprecedented. backfired. In September, Jiang was sacked il executive Jiang Jiemin rose to and arrested, a victim of a seismic power power in Communist China in Qing Yi struggle as Chinese President Xi Jinping Otime-honored fashion: by hitching Beijing economist sets out to crush Zhou, the most senior his star to a mighty mentor. leader targeted in a corruption probe since In Jiang’s case, that patron was another oversees all of China’s biggest state-owned the Communist Party took power in 1949. oil man, Zhou Yongkang, who went on to companies. In a bid to isolate his rival, Xi is steadily become the chief of China’s internal securi- Their relationship was on display ahead taking down Zhou’s extensive web of col- ty apparatus and one of the country’s most of the party’s 18th congress in November leagues, political allies, relatives, staff and powerful men. 2012, when both attended a banquet for business associates of his family, according Like Zhou before him, Jiang rose to the CNPC veterans of a 1980s drive to find oil to people familiar with the investigation. top of the country’s biggest oil producer, in remote western China. In toasts and re- Corruption investigators are swarming the China National Petroleum Corporation. marks, Jiang continually referred to Zhou CNPC group, where Zhou, 71, a geophysi- In return, say people familiar with his ca- as “the leader” and urged the oil men to cal engineer, built a vast network of friends reer, Jiang helped Zhou build power by us- “accept the leadership of the Party’s cen- and allies over the decades. ing the oil giant to dispense patronage. In tral committee” and of Zhou himself, says Jiang, 58, is the most senior executive to March last year Jiang ascended even higher, an executive who was at the banquet. The fall in an ongoing purge of current and for- when he was named to run the agency that flattery, the executive says, “was so obvious.” mer managers of the petroleum giant. He is SPECIAL REPORT 2 POWER POLITICS THE PURGE OF CHINA’S OIL MANDARINS accused of using his position and CNPC’s massive budget to help Zhou buy political favors and maintain his network of sup- porters across China, according to people with ties to the Chinese leadership. The campaign against Zhou is roiling the entire Communist Party. A Reuters ex- amination of the oil-industry component of the crackdown shows the extent of the purge, a drama that will have repercussions well beyond China. “The scale of the probe into CNPC is unprecedented, but perhaps the severity of corruption at the company is also unprec- edented,” says Qing Yi, a Beijing-based in- dependent economist. CNPC is one of the world’s largest companies, with global operations and 2013 revenue of $432 billion. Its flagship BIG SPIGOT: A pump at a PetroChina station in Beijing. The CNPC unit is the world’s No. 4 oil maker publicly listed subsidiary, PetroChina, by market capitalization. REUTERS/KIM KYUNG-HOON trades in Hong Kong, Shanghai and New York and is the world’s fourth-biggest oil producer by market capitalization. Jiang other managers have been questioned as ran both the parent and PetroChina from investigators methodically unravel Zhou’s 2007 until last year, when he briefly headed petroleum faction, according to senior of- the State-Owned Assets Supervision and ficials at CNPC in Beijing. Administration Commission (SASAC). $432 The authorities have yet to reveal any Interviews with senior CNPC officials, specific evidence against Jiang or any of the statements from the authorities and an billion other detained CNPC managers. CNPC analysis of the positions held by the arrest- Annual revenue of the and PetroChina did not respond to ques- ed executives indicate that investigators are CNPC group tions for comment on the investigation or scrutinizing offshore and domestic spend- arrests. The party hasn’t made any public ing, including oil service contracts, equip- Source:CNPC announcement about Zhou’s fate. ment supply deals and oil field acquisitions. As is routine in Chinese corruption The investigation has already touched In China, the announcement of a criminal cases, Jiang, Zhou and the other people CNPC group operations in Canada, probe means charges are almost certain to named in this article as suspects couldn’t be Indonesia, China and Turkmenistan, say follow. Acquittals are rare. reached for comment, nor could their law- people familiar with the proceedings. In SASAC, the state-owned company reg- yers be identified. addition to Jiang, the Chinese authorities ulator, said last year that Li, Ran and Wang While not dismissing the graft allega- have confirmed the arrests of CNPC vice Daofu were under investigation for “se- tions, some Chinese say the purged officials president Wang Yongchun, PetroChina vere breaches of discipline.” In China, this appear, in part, to be victims of a brutal vice presidents Li Hualin and Ran Xinquan, phrase is often a euphemism for corruption, struggle within the Communist Party. “All and the listed unit’s chief geologist, Wang but SASAC did not go into details. this is not transparent, so people are sus- Daofu. Oil industry sources have told Reuters pecting that’s the case,” says Mao Yushi, an Criminal prosecutors are now inves- that another six senior CNPC group ex- advocate of economic reform and honorary tigating Jiang and Wang Yongchun for ecutives have been detained and are under president of a private Beijing-based consul- bribery, the official Xinhua news agency investigation, but there have been no public tancy, Unirule Institute of Economics. “I reported July 14, without giving details. announcements of these cases. Dozens of Text continues on page 5 SPECIAL REPORT 3 POWER POLITICS THE PURGE OF CHINA’S OIL MANDARINS A political oilman: Jiang Jiemin BY CHARLIE ZHU AND DAVID LAGUE PetroChina had made a giant find in Bohai analysts had predicted, it has been carrying HONG KONG, JULY 24 Bay off northeast China. only a fraction of its capacity, because the In a stock exchange filing, the company offshore Myanmar fields feeding the line Throughout his career at China’s biggest oil said it “believes the Jidong Nanpu Oilfield were unable to supply enough gas. producer, Jiang Jiemin was careful to put is a bulk, quality and efficient” field with Jiang also drove an investment boom politics before business, say colleagues who reserves of more than 1 billion tonnes. Global when Beijing instructed state-run oil worked closely with the purged executive. oil major BP Plc <BP.L> estimates China companies to secure more overseas oil In strongly supporting government energy has proven oil reserves of about 2.5 billion supplies. Under him, PetroChina boosted its strategy, often at the expense of profitability, tonnes at the end of 2013. If confirmed, the annual oil and gas production some 32 per the former chief of China National Petroleum Bohai discovery would have delivered a 40 cent to 1.4 billion barrels over the seven years (CORP) was a vocal proponent of what he percent boost to China’s reserves at a time of to 2013. Over the same period, the company called national and social responsibility for accelerating reliance on imported oil. expanded refinery output by almost a quarter. state-owned enterprises, according to his China’s then-premier, Wen Jiabao, told Internal critics say Jiang drove this speeches and public statements. the official Xinhua news agency he was investment, sometimes without proper Jiang’s former colleagues say the so excited upon hearing the news that he regard for cost or risk, because it would Shandong University-trained economist is couldn’t sleep. Investors were thrilled, too. please his political masters. Given the a sharply different personality than some PetroChina’s shares in Hong Kong jumped 14 priority the party leadership put on those of the rough and tumble engineers and percent the day after the news. strategic goals, to be sure, it isn’t clear how geologists at the top of CNPC. Jiang is a Inside the company, some senior officials much choice he had. “reserved person,” says a former executive had doubts. Before the announcement, Jiang The expansion came at a price. Total who worked closely with him. “More of a had told fellow managers that the Bohai find liabilities jumped almost 200 percent from politician than an oil man.” was a blockbuster. “But, we all understood 348.3 billion yuan ($56.13 billion) in 2008 to His polish set him apart from colleagues Jidong is not a new field,” said a senior 1.07 trillion yuan at the end of 2013. like current CNPC boss Zhou Jiping, a Chinese oil industry official. “It was unlikely Return on equity fell to 10 per cent in garrulous engineer widely known and liked there could be such a big discovery there in 2012, down from a peak of 30 per cent in in the global oil industry. Jiang’s reserve, light of geological conditions.” 2005.