Nov 14, 2012

China - Beginning of the end of China's 'oil clique'

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More than 30 years after it was started by a one-armed guerilla commander, China's powerful "petroleum clique" is about to be dissolved.

Its two highest-ranking members in the Chinese Communist Party (CCP) are slated to retire when the 18th Party Congress draws to a close today.

Anti-corruption chief He Guoqiang and security czar Zhou Yongkang - both old boys of the so-called shi you pai (petroleum clique) in China - will step down from the Politburo Standing Committee (PSC), the apex council of the CCP.

As York College of Pennsylvania political economy analyst Sarah Li Xiaofei observed: "In order to have a faction, you need 'core people'."

The petroleum faction started in the years leading to China's reform and opening-up policy in 1978, when economic policy was in the hands of bureaucrats under Yu Qiuli, the late former petroleum minister. Yu, who became vice-premier, was a former general who lost an arm during the Long March.

The clique pushed for investment in heavy industry, using foreign credit that had become available as relations with the West improved. It helped secure overseas energy supplies for the fast-growing economy, and the powerful oil oligopoly was a key driver of China's rapid industrialisation.

Yu's secretary was a young Zeng Qinghong, who would revive the oil clique in the 1990s after the original faction was eclipsed in the mid-1980s.

Zeng, China's vice-president from 2003 to 2008, was the right-hand man of former president Jiang Zemin. Before he stepped down from his party posts at the 17th Congress in 2007, Zeng secured two PSC seats for proteges Zhou and He.

Now, with the two men's widely expected retirement, the curtain is also coming down on one of the most influential blocs in elite Chinese politics.

The oil industry has been a powerful interest group, according to Brookings Institution fellow Erica Downs. "As a strategic sector of the economy, the industry has had access to the top leadership and made its voice heard in the policymaking process," she wrote in a 2008 book, China's Changing Political Landscape.

In the process, the state- owned oil firms became giants - some say monsters - and their bosses spread their power into politics.

Oil giants Sinopec Group and China National Petroleum Corp, for instance, are the world's fifth and sixth biggest companies, respectively. These two mammoth companies are "more powerful than a number of ordinary ministries", said Hong Kong-based political analyst Willy Lam.

But without continued strong support at the very top, some analysts believe that the clique's influence will be diminished.

Its best hope may be Tianjin party chief Zhang Gaoli. He has spent the first 15 years of his career in a Guangdong unit under the petroleum ministry, and is seen as one of the oil boys.

He is a strong bet for promotion to the PSC, whose line-up will finally be unveiled tomorrow.

But the petroleum clique is unlikely to be as influential as before, even with Zhang's promotion to the PSC.

Zhang, who is known to be pro-market, is more likely to choose support for reforms over loyalty to the small clique. This was especially evident when he was party secretary of the southern export hub of Shenzhen, according to Brookings Institution expert Li Cheng.

This could translate into less resistance to reforms of the state- dominated energy sector, believed to be on the agenda for the incoming administration.

With the patron-client relationships in the petroleum clique weakened, "the situation may turn favourable to the reforms of the petroleum state-owned enterprises, as fewer vested interests will be involved", said Professor Li."In the long term, the end of such a faction-based group will likely benefit economic reforms in general."

Grace Ng

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