Inside Xi Jinping's purge of China's oil mandarins

Inside Xi Jinping's purge of China's oil mandarins
China's then Public Security Minister Zhou Yongkang reacts as he attends the Hebei delegation discussion sessions at the 17th National Congress of the Communist Party of China (CPC) at the Great Hall of the People, in Beijing in this October 16, 2007 file photo

BEIJING/HONG KONG - Oil executive Jiang Jiemin rose to power in Communist China in time-honoured fashion: by hitching his star to a mighty mentor.

In Jiang's case, that patron was another oil man, Zhou Yongkang (in photo), who went on to become the chief of China's internal security apparatus and one of the country's most powerful men.

Like Zhou before him, Jiang rose to the top of country's biggest oil producer, China National Petroleum Corporation. In return, say people familiar with his career, Jiang helped Zhou build power by using the oil giant to dispense patronage. In March last year Jiang ascended even higher, when he was named to run the agency that oversees all of China's biggest state-owned companies.

Their relationship was on display ahead of the party's 18th congress in November 2012, when both attended a banquet for CNPC veterans of a 1980s drive to find oil in remote western China. In toasts and remarks, Jiang continually referred to Zhou as "the leader" and urged the oil men to "accept the leadership of the Party's central committee" and of Zhou himself, says an executive who was at the banquet. The flattery, the executive says, "was so obvious."

Today, the retainer's loyalty to Zhou has backfired. In September, Jiang was sacked and arrested, a victim of a seismic power struggle as Chinese President Xi Jinping sets out to crush Zhou, the most senior leader targeted in a corruption probe since the Communist Party took power in 1949.

In a bid to isolate his rival, Xi is steadily taking down Zhou's extensive web of colleagues, political allies, relatives, staff and business associates of his family, according to people familiar with the investigation. Corruption investigators are swarming the CNPC group, where Zhou, 71, a geophysical engineer, built a vast network of friends and allies over the decades.

Jiang, 58, is the most senior executive to fall in an ongoing purge of current and former managers of the petroleum giant. He is accused of using his position and CNPC's massive budget to help Zhou buy political favors and maintain his network of supporters across China, according to people with ties to the Chinese leadership.

The campaign against Zhou is roiling the entire Communist Party. A Reuters examination of the oil-industry component of the crackdown shows the extent of the purge, a drama that will have repercussions well beyond China.

AN "UNPRECEDENTED" PROBE

"The scale of the probe into CNPC is unprecedented, but perhaps the severity of corruption at the company is also unprecedented," says Qing Yi, a Beijing-based independent economist.

CNPC is one of the world's largest companies, with global operations and 2013 revenue of $432 billion. Its publicly listed subsidiary, PetroChina, trades in Hong Kong, Shanghai and New York and is the world's fourth-biggest oil producer by market capitalisation. Jiang ran both the parent and PetroChina from 2007 until last year, when he briefly headed the State-Owned Assets Supervision and Administration Commission (SASAC).

Interviews with senior CNPC officials, statements from the authorities and an analysis of the positions held by the arrested executives indicate that investigators are scrutinizing offshore and domestic spending, including oil service contracts, equipment supply deals and oil field acquisitions.

The investigation has already touched CNPC group operations in Canada, Indonesia, China and Turkmenistan, say people familiar with the proceedings. In addition to Jiang, the Chinese authorities have confirmed the arrests of CNPC vice president Wang Yongchun, PetroChina vice presidents Li Hualin and Ran Xinquan, and the listed unit's chief geologist, Wang Daofu.

Criminal prosecutors are now investigating Jiang and Wang Yongchun for bribery, the official Xinhua news agency reported July 14, without giving details. In China, the announcement of a criminal probe means charges are almost certain to follow. Acquittals are rare.

SASAC, the state-owned company regulator, said last year that Li, Ran and Wang Daofu were under investigation for "severe breaches of discipline." In China, this phrase is often a euphemism for corruption, but SASAC did not go into details.

SIX MORE ARRESTS

Oil industry sources have told Reuters that another six senior CNPC group executives have been detained and are under investigation, but there have been no public announcements of these cases. Dozens of other managers have been questioned as investigators methodically unravel Zhou's petroleum faction, according to senior officials at CNPC in Beijing.

The authorities have yet to reveal any specific evidence against Jiang or any of the other detained CNPC managers. CNPC and PetroChina did not respond to questions for comment on the investigation or arrests. The party hasn't made any public announcement about Zhou's fate.

As is routine in Chinese corruption cases, Jiang, Zhou and the other people named in this article as suspects couldn't be reached for comment, nor could their lawyers be identified.

While not dismissing the graft allegations, some Chinese say the purged officials appear, in part, to be victims of a brutal struggle within the Communist Party. "All this is not transparent, so people are suspecting that's the case," says Mao Yushi, an advocate of economic reform and honorary president of a private Beijing-based consultancy, Unirule Institute of Economics. "I share the suspicion."

Anxiety now grips the non-descript offices inside CNPC's steel-and-glass Beijing headquarters, according to staff working at the building. Managers are being regularly taken away for questioning, company officials say. Some prominent executives have returned to their desks after the interrogations, while others remain in custody. Senior staff told Reuters they expect more arrests.

To spearhead his crackdown, Xi has enlisted a close ally: Wang Qishan, a veteran official with a reputation as the Communist Party's top trouble-shooter and an implacable corruption fighter. Wang heads the Central Commission for Discipline Inspection, which as the party's internal watchdog division is the most powerful investigative body in China. On June 30, the commission said Jiang had been expelled from the party for corruption. The commission did not respond to requests for comment.

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