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By David Lague , Charlie Zhu and Benjamin Kang Lim
BEIJING/HONG KONG, July 24 Oil executive Jiang
Jiemin rose to power in Communist China in time-honored fashion:
by hitching his star to a mighty mentor.
In Jiang's case, that patron was another oil man, Zhou
Yongkang, 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 the 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
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
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 capitalization. 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
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
Xi is determined to bring down Zhou for allegedly plotting
an audacious power grab ahead of the 18th Party Congress in
November 2012, people familiar with the probe say. Zhou is
accused of attempting to promote his supporters into the
leadership so that he could rule from behind the scenes after he
retired, they say. He has been under virtual house arrest in
Beijing since late last year.
Zhou was a relentless networker over his decades at the top
of Chinese industry and politics, oil industry veterans say,
cultivating supporters throughout China. Jiang was one of his
agents in building these connections. Some of this support for
Zhou involved tapping the pork barrel.
At the helm of CNPC, Jiang recruited political allies for
Zhou by approving proposals to build refineries in a number of
provinces, a person with ties to the leadership told Reuters.
"Local governments were grateful because the refineries helped
boost their economies and created jobs," the source said,
without pinpointing specific deals. "Through Jiang Jiemin, Zhou
Yongkang won over their loyalty."
Under Jiang, one of CNPC's most controversial moves was a
2008 decision to build a $6 billion refinery and petrochemical
project at Pengzhou, near Chengdu, the capital of Sichuan
Province. Zhou was party secretary in Sichuan between 1999 and
2002 and established a political stronghold in the southwestern
province. Investigators have made many arrests in Sichuan in the
campaign against Zhou.
From the start, there were strong environmental protests
against building a refinery in the earthquake-prone area. Some
critics of the deal also questioned the wisdom of situating the
complex so far inland, in an area far from ports and without
major nearby oilfields. Most of China's major refineries are on
the coast with easy access to imported crude.
Without mentioning Zhou, a CNPC official with knowledge of
the project told Reuters that Jiang backed the plant because he
wanted to please political leaders. "It doesn't make much sense
to build the project there," the CNPC official said. "Where do
you source your crude oil?"
In its project proposals, CNPC said the Sichuan refinery
would process oil from Russia, Kazakhstan and western China.
Some industry analysts say southwest China has very little
refining capacity, and the Pengzhou project fills that gap.
An earthquake devastated Sichuan in 2008. Undeterred, Zhou
prodded local officials to beef up safety measures and press
ahead with the refinery. "Build up Sichuan's heavy petrochemical
industry," he urged on a 2010 visit to the province, according
to reports in the state-run media. When the refinery started
production this year, China's economic planning agency said it
would boost the regional economy.
PetroChina, with a market capitalization of about $225
billion, is China's dominant oil and gas producer, with global
operations including oilfields, refineries, pipelines and
petrochemical plants. It is a subsidiary of CNPC, and yet a
power in its own right: PetroChina holds most of its parent's
assets on its balance sheet.
While Jiang was at the helm of both companies, PetroChina
launched a spending bonanza, heeding a political command to
secure access to more offshore oil as part of Beijing's campaign
to boost energy security. Annual capital expenditure almost
doubled to about $57 billion over the six years to 2012. In the
five years to 2013, the company also spent $25 billion on
overseas assets. These outlays are now under the microscope.
CNPC vice-president Wang Yongchun was the first senior oil
executive to fall, late last August, as part of a wider campaign
to roll up Zhou Yongkang's network.
Days later, in early September, the probe into Jiang was
made public. More than 300 of Zhou's relatives, allies and
business associates have been arrested, detained or questioned,
according to people briefed on the investigation. Authorities
have seized assets worth at least 90 billion yuan ($14.5
billion) from Zhou's family members and associates, they said.
Zhou's last public appearance was in Beijing on October 1.
He has been under virtual house arrest since late last year,
people briefed on the probe say.
THE DOMINOES FALL
The purge then broadened:
* About the time Jiang was arrested, the former head of
PetroChina's Indonesia operations, Wei Zhigang, was recalled
from his post and is now under investigation, three Chinese oil
industry sources told Reuters. Senior CNPC sources in Beijing
say investigators may probe two oilfield acquisitions in
Indonesia, where it appears the company overpaid for assets.
* In December, investigators detained CNPC's chief
accountant, Wen Qingshan, two people with direct knowledge of
the probe told Reuters. Wen was also chairman of PetroChina's
Hong Kong-listed natural gas distribution arm, Kunlun Energy
. In statements to the Hong Kong Stock Exchange, the
companies said Wen had resigned because of unspecified "personal
* Early this year, Zhang Benquan, head of PetroChina's
operations in Iran, was taken away for investigation, said two
Chinese oil industry sources familiar with the situation.
* In May came the arrest of PetroChina's overseas operations
chief, Bo Qiliang. Company sources told Reuters that
investigators visited his Beijing home and took him away for
questioning. In a statement to the Shanghai Stock Exchange on
May 16, the company said Bo left his post due to an unspecified
change in his role. Earlier, he was chief of PetroChina's
operations in Kazakhstan.
* An oil industry official in Beijing confirmed a report
this month in the financial news magazine Caixin that two other
top oil men were under investigation: Li Zhiming, the head of
CNPC and PetroChina operations in Canada, and Beijing-based Song
Yiwu, deputy head of CNPC's overseas operations.
The investigation of Jiang also involves his alleged role in
the use of CNPC funds to cover up a politically embarrassing
A CAR CRASH
Investigators have questioned Jiang over the transfer of
CNPC funds to pay off the victims of a March 2012 car crash
involving the son of Ling Jihua, a top aide to then-President Hu
Jintao, three sources with ties to the Chinese leadership told
Ling's son, Ling Gu, in his twenties, was killed while
driving a Ferrari in Beijing. One of the two young women
passengers was also killed and the other injured.
At the behest of Zhou Yongkang, Jiang arranged payments of
millions of yuan to the dead woman's bereaved family and the
surviving passenger in a bid to buy their silence, said the
sources. All three sources, who are not political rivals of
Zhou, said they were briefed by investigators or senior
In helping cover up the crash, they said, Zhou wanted to
gain influence over Ling. When President Hu belatedly learned of
the affair, he was disappointed and demoted Ling to head the
United Front Work Department, a lower-level ministry. Ling and
Hu could not be reached for comment. The United Front Work
Department did not respond to requests for comment.
In expelling Jiang from the party, the Central Commission
for Discipline Inspection didn't mention the Ling case or any
specific findings against him. It said Jiang was guilty of
taking advantage of his post to benefit others and extort huge
For a time after the car crash, Jiang's career appeared on
track. At the 18th Party Congress in November 2012, Xi took over
as party boss. Zhou retired. Jiang was elevated to the Communist
Party's Central Committee, the elite, 200-odd member group which
includes the seven members of the Politburo Standing Committee,
the supreme decision making body headed by Xi.
THE FIX-IT MAN
If Jiang felt any disquiet about the crash probe, he showed
no sign when he appeared that month at an assembly of bosses of
state-owned firms in Beijing's Great Hall of the People. Dressed
in a black suit and pink tie, he readily answered questions
about CNPC's plans.
Xi, however, was gathering his forces against Zhou and the
At the congress, Xi's fix-it man, Wang Qishan, was promoted
to the all-powerful Politburo Standing Committee and named head
of the party watchdog commission. That made Wang the second-most
powerful leader in China behind president Xi, according to
political insiders in Beijing. Wang immediately sharpened the
watchdog's bite with extra investigators, publicly warning that
no corrupt official was safe, no matter how senior.
The rolling purge has left PetroChina's board scrambling to
keep markets informed as authorities ensnare top executives in
"As soon as the news spread, the audit committee consulted
hired lawyers in order to decide what appropriate course of
action should be taken," says Franco Bernabe, the former head of
communications giant Telecom Italia SpA, who served for some 10
years as an independent director of PetroChina until
May. Bernabe declined to discuss specific allegations against
the arrested executives.
Bernabe said management has tightened guidelines and
procedures to limit the potential for graft. But some senior
managers say the sheer size of the oil empire Zhou and Jiang
built will make change very difficult. The CNPC-PetroChina group
has dozens of subsidiaries and employs more than 1.6 million
One sign of the murk: Some senior PetroChina managers
familiar with the investigation say they aren't even sure where
in the sprawling conglomerate - parent CNPC, listed subsidiary
PetroChina, or the other units - each of the many alleged
offenses is supposed to have taken place.
(Reported by David Lague and Charlie Zhu in Hong Kong and
Benjamin Kang Lim in Beijing. Editing by Michael Williams)