Bureaucratic politics and overseas investment by Chinese state-owned oil companies: Illusory champions

Asian Survey

Volumn 49, Issue 4, 2009, Pages 670-690

  Liou, Chih Shian ^a  

^a UNIVERSITY OF TEXAS AT AUSTIN   (United States)

Author keywords

"Going Out" strategy; China; National oil company; Outward foreign direct investment; State enterprise relationships

Indexed keywords

BUREAUCRACY; FOREIGN DIRECT INVESTMENT; INTERNATIONAL RELATIONS; OIL INDUSTRY; POLITICS; STATE OWNED ENTERPRISE;

ASIA; CHINA; EURASIA; FAR EAST;

EID: 69749088357     PISSN: 00044687     EISSN: 1533838X     Source Type: Journal    
DOI: 10.1525/as.2009.49.4.670     Document Type: Article

References (71)

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2. Thomas J. Christensen, "Fostering Stability or Creating a Monster? The Rise of China and U.S. Policy toward East Asia," ibid., 31:1 (Summer 2006), pp. 81-126.
3. The "Going Out" strategy has three primary policy components: ODI, international engineering and construction contracting, and international labor services cooperation. For more on this, see Xiao Qinfu, ed., Zhongguo Zouchuqu Zhanlue Yanjiu Baogao [The research reports on China's Going Out strategy] (Beijing: Zhonggong Zhongyangdangxiao Chubanshe, 2004). According to China's official statistical reports, capital outflows from Chinese state-owned enterprises (SOEs) constitute the bulk of China's ODI. For instance, Chinese central SOEs' outbound investments contribute to over 90% and 83% of the accumulated amount of China's ODI in 2003 and 2004, respectively.
4. For example, see Ian Taylor, "China's Oil Diplomacy in Africa," International Affairs 82:5 (October 2006), pp. 937-56
5. Flynt Leverett and Jeffrey Bader, "Managing China-U.S. Energy Competition in the Middle East," Washington Quarterly 29:1 (Winter 2005-06), pp. 187-201
6. David Zweig and Jianbai Bi, "China's Global Hunt for Energy," Foreign Affairs 84:5 (September/October 2005), pp. 25-38.
7. See, for example, David Shambaugh, "China Engages Asia: Reshaping the Regional Order," International Security 29:3 (Winter 2004-05), pp. 64-99.
8. In realism, because economic expansion leads the state to gain more material resources that are important for building military forces, the state's economic and political capacities are complementary in the long run. For the realist argument of international political economy, see Jonathan Kirshner, "The Political Economy of Realism," in Unipolar Politics: Realism and State Strategies after the Cold War, eds. Ethan Kapstein and Michael Mastanduno (New York: Columbia University Press, 1999), pp. 69-102.
9. For the realist implication of China's economic growth for international relations, see John J. Mearsheimer, The Tragedy of Great Power Politics (New York: W. W. Norton & Company, 2001), pp. 401-02.
10. According to an official investigation, only one-third of Chinese transnational operations are profitable, and the remaining ventures either suffer losses or just manage to break even. For details, see Zhang Xiaoji, "Daqiye Zouchuqu Zhengce Yanjiu" [Policy studies on big enterprises' "Going Out"], in Zhongguo Duiwai Kaifang de Qianyan Wenti [Frontier issues in China's foreign economic policy], ed. Zhang Xiaoji (Beijing: Zhongguo Fazhan Chubanshe, 2003), p. 107.
11. One exception is the works by Erica S. Downs that examine China's energy security policy making and the role of NOCs in China's global hunt for oil. The author notes that Chinese NOCs are capable of pursuing their own commercial interests and thus further exacerbate the problem of fragmented authority in the making of energy security policy. See, for example, Erica S. Downs, "The Fact and Fiction of Sino-African Energy Relations," China Security 3:3 (Summer 2007), pp. 42-68
12. Erica S. Downs, The Brookings Foreign Policy Studies Energy Security Series: China (Washington, D.C.: The Brookings Institute, 2006).
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17. See, for example, Downs, The Brookings Foreign Policy Studies Energy Security Series: China.
18. From a realist's view, a rising state is presumably a revisionist state, challenging existing international rules and norms. Because material power is the only element that decides the international configuration, redistribution of power makes a rising power discontent with the status quo. By heavily relying on the implication of state capability for foreign policy, realism is a state-centered approach in which states are the units of analysis. Consequently, this approach suggests that a rising power in general, and an ascendant China in particular, is barely a status quo state. From the realist perspective, this is why the U.S. has a profound interest in containing a growing China.
19. For example, see Stephen D. Krasner, Defending the National Interest: Raw Materials Investments and U.S. Foreign Policy (Princeton: Princeton University Press, 1978).
20. For detailed case studies on pioneer Chinese multinational enterprises (MNEs) that have enjoyed governmental policy privileges during this period, see Yongjin Zhang, China's Emerging Global Businesses: Political Economy and Institutional Investigations (New York: Palgrave Macmillian, 2003), chs. 5, 6, 7.
21. For more on this, see the State Council's 1993 document, "Guowuyuan Guanyu Zhanting Shougou Haiwai Qiye he Jinyibu Jiaqiang Haiwai Touzi Guanli de Tongzhi" [Circular of the State Council concerning postponing the acquisitions of foreign enterprises and further reinforcing the management of overseas investment]; Zhang Xiaoji, "Daqiye Zouchuqu Zhengce Yanjiu," p. 110.
22. See Dali L. Yang, Remaking the Chinese Leviathan: Market Transition and the Politics of Governance in China (Stanford, Calif.: Stanford University Press, 2004). According to Yang, the Asian financial crisis in the late 1990s was a "precipitating event" that drove the Jiang-Zhu administration to launch a new round of administrative rationalization, leading to China's progress toward a regulatory state.
23. "Yinjinlai" refers to policies that attract capital inflows to serve the engine of China's spectacular economic growth. Since reform, China has attracted foreign direct investment (FDI) inflows by implementing numerous preferential policies and has become the largest recipient of FDI in the world in 2003. Therefore, the Chinese central government shifted its strategy to emphasize that "Going Out" and "Bringing In" should go forward together. On the report, see Xinhua News Agency, , accessed January 18, 2009.
24. For a comprehensive analysis of China's attempt to reform its large SOEs, see Edward D. Steinfeld, Forging Reform in China (New York: Cambridge University Press, 1998).
25. For the most updated accounts of Chinese SOE reform, see Shahid Yusuf, Kaoru Nabeshima, and Dwight H. Perkins, Under New Ownership: Privatizing China's State-owned Enterprises (Stanford, Calif.: Stanford University Press, 2006), chs. 2, 3, 5
26. Ross Garnaut, Ligang Song, Stoyan Yenev, and Yang Yao, China's Ownership Transformation: Process, Outcomes, Prospects (Washington, D.C.: The International Finance Corporation and the International Bank for Reconstruction and Development, 2005).
27. For a detailed reform history of the oil industry in China, see Yan Xuchao, Zhongguo Shiyou Dachongzu [The massive restructuring of the Chinese oil industry] (Beijing: Shiyou Gongye Chubanshe, 1998).
28. Jin Zhang, Catch-up and Competitiveness in China: The Case of Large Firms in the Oil Industry (London: RoutledgeCurzon, 2004), p. 101.
29. For a detailed assessment on the oligopolistic competition among three Chinese NOCs and government regulation of the industry, see Wang Dan, Zhongguo Shiyou Chanye Fazhan Lujing: Guazhan Jingzheng yu Guizhi [The development path of the Chinese oil industry: Oligopolistic competition and regulation] (Beijing: Zhongguo Shehuikexue Chubanshe, 2007).
30. For more on the restructuring of China's oil industry in the 1990s, see Kun-Chin Lin, "Macroeconomic Disequilibria and Enterprise Reform: Restructuring the Chinese Oil and Petrochemical Industries in the 1990s," China Journal 60 (July 2008), pp. 49-79.
31. By the late 1990s, Chinese SOEs were no longer obligated to meet centrally planned production and cost-targets. They had gained autonomy over most aspects of production decisions with few exceptions such as price in the energy sector. See Yusuf, Mabeshima, and Perkins, Under New Ownership, p. 77.
32. For a detailed account of NOCs' internal restructuring program, see Zhang, Catch-up and Competitiveness in China, chs, 5 and 6. Core businesses mainly refer to activities involved in the exploration, development, transportation, storage, refining, and marketing of oil and gas. Non-core businesses refer to technical service for the core businesses, social service, and diversified businesses. CNPC and Sinopec put their core businesses under the new subsidiaries, PetroChina in 1999 and Sinopec Group in 2000, respectively, which were listed on the global stock market in 2000.
33. Lin finds that NOC managers hold a short-term mentality toward firms management, which emphasizes the fulfillment of NOCs' short-term goals despiter accumulated consequences for the firms in the long run. The phenomenon resulted from the inability of the post-reform institution to reflect existing social structures.
34. For details, see Kun-Chin Lin, "Disembedding Socialist Firms as a Statist Project: Restructuring the Chinese Oil Industry, 1997-2002," Enterprise & Society: The International Journal of Business History 7:1 (March 2006), pp. 59-97.
35. "Guangdong: Liutong Gengzu Zaocheng Xujia 'Queyou' Yingxiang" [Guangdong: Monopoly created the illusion of an oil shortage], Jingji Cankaobao [Economic Information Daily], November 6, 2007, , accessed August 2, 2008.
36. For more on China's chronic oil shortage, see Jianjun Tu, "Smoke and Mirrors in China's Oil Statistics," China Brief: A Journal of Analysis and Information 8:11 (May 21, 2008), pp. 10-14.
37. "Guojia Tigao Chengpinyou Jiage" [The state raised the price of refined oil], Renmin Ribao [People's Daily], October 31, 2007, , accessed August 2, 2008.
38. For overviews, see Yang Zhongqiang. Dangdai Zhongguo Shiyou Anquan Yanjiu [The study of China's petroleum security] (Beijing: Zhonggong Zhongyangdangxiao Chubanshe, 2006). For an updated review of how the oil hunt has driven Chinese diplomacy since Hu has taken over, see "Dujia Cehua Shiyounian Zhongguoce" [The exclusive report on the year of oil and China's strategy], Nanfegchuang [Window of the South], May 1, 2006 p. 30-54.
39. Author's interviews with CNPC's managers, Beijing, May, July, and August 2007.
40. "Sanjutou Jupai Haiwai Caiyouchao Quanmian Qidong" [Three giants initiated a comprehensive strategy for overseas exploration], Zhongguo Jingyingbao [China Business], May 17, 2002, , accessed June 1, 2008.
41. "Malaysia's MMC, Sinopec in Sudan Oil Pipeline Deal," Sudan Tribune July 16, 2004, , accessed June 1, 2008.
42. Author's interviews with CNPC's managers, Beijing, June 2006.
43. Author's interviews with officials in the National Development and Reform Commission, Beijing, May and June, 2007.
44. "Dujia Cehua Shiyounian Zhongguoce," pp. 42-43.
45. "Africa Accounts for 30 Percent of China's Oil Imports," Xinhua Net, October 18, 2006, , accessed January 18, 2009.
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50. Lieberthal and Oksenberg label China's bureaucratic structures as a "fragmented structure of authority." For details on the conceptual framework, see Kenneth Lieberthal and Michel Oksenberg, Policy Making in China: Leaders, Structures, and Processes (Princeton: Princeton University Press, 1988), ch. 4.
51. Kun-Chin Lin, "With Strings Attached? Improving the Administration of Central State Financed Investment Projects in the PRC," Asian Journal of Political Science 15:3 (December 2007), pp. 319-43.
52. These government bodies include the National Energy Leading Group under the State Council, the NDRC, MOC, SASAC, Ministry of Land and Resources, Ministry of Finance, Ministry of Construction, the State Environmental Protection Administration, the Administration of Work Safety, and the Administration of Quality Supervision, Inspection, and Quarantine. For detailed duties of each regulatory department, see Wang, Zhongguo Shiyou Chanye Fazhan Lujing, ch. 7.
53. It is worth noting that the authority of the NDRC, as the most powerful energy regulator, is also diffused to different subordinate units such as the Bureau of Energy and the Department of Price. See Downs, The Brookings Foreign Policy Studies Energy Security Series: China.
54. For a detailed study on the evolution of China's energy governance regime, see Kong Bo, "Institutional Insecurity," China Security 2:2 (Summer 2006), pp. 64-88.
55. For a brief overview of China's energy challenge and the reform goals, see Edward S. Steinfeld, "Energy Policy," in China Urbanizes: Consequences, Strategies, and Policies, eds. Shahid Yusuf and Tony Saich (Washington, D.C.: World Bank, 2008), pp. 125-56.
56. In 1983, the central state established Sinopec to manage the affairs of oil refineries and petrochemical production that were originally under the authorities of the MPI and the Ministry of Chemical Industry. In 1988, the MPI was transformed into CNPC, which was directly led by the State Council.
57. Author's interviews with CNPC managers, Beijing, July 2006.
58. For details, see Guowuyuan Fazhanyanjiuzhongxin Qiyeyanjiusuo Ketizu [The Enterprise Research Institute at the Development Research Center of the State Council], Zhongguo Qiye Guojihua Zhanlüe [The strategy for internationalization of Chinese enterprises] (Beijing: Renmin Chubanshe, 2006).
59. See also Yan Ming, Haiwai Touzi Jinrong Zhichi: Yi Zhongguo Qiye Wei Duixiang [The study on financial support for overseas investment of Chinese enterprises] (Beijing: Shehui Wenxian Kexue Chubanshe, 2006), p. 260.
60. Margaret M. Pearson, "Governing the Chinese Economy: Regulatory Reform in the Service of the State," Public Administration Review 67:4 (July/August 2007), pp. 718-30
61. Margaret M. Pearson, "The Business of Governing Business in China: Institutions and Norms of the Emerging Regulatory State," World Politics 57:2 (January 2005), pp. 296-322.
62. See Barry Naughton, "The State Asset Commission: A Powerful New Government Body," China Leadership Monitor, no. 8 (Fall 2003), , accessed March 7, 2008.
63. Authors' interviews with officials in the SASAC and scholars in Qinghua University, Beijing, July 2006 and May and July 2007.
64. One notable example is the financial scandal of Singapore-listed China Aviation Oil, hitting the headlines in the end of 2004 when it appealed to Singapore's High Court for protection from creditors after losing 550 million dollars in speculative oil derivatives trading. For the special reports of this incident, see "Jukui 5.5 Yi Meiyuan, Zhonghangyou Zhejichensha Shimo" [The loss of 550 million, the story of Zhonghangyou], Renmin Ribao, , accessed March 7, 2008.
65. See "Zhe Jiushi Zhongguo Qiye de Haiwai Jingzheng."
66. "Lianmeng Baxishiyou, Zhongshihua Hushi Zhonghaiyou Lingdi" [Sinopec broke the monopoly status of CNOC in offshore oil by cooperating with Petrobras], 21 Shiji Jingji Baodao, May 26, 2004
67. "Zhongguo Liangda Shiyou Jutou Jiaozhu Baxishiyou Hezuo" [Two Chinese oil giants competed for cooperation with Petrobras], Jingji Cankaobao February 28, 2005, , accessed March 7, 2008.
68. See, for example, Gan Ziyu, ed., Zhongguo Haiwai Touzi Niandu Baogao [The annual report on China's overseas investment] (Beijing: Shehui Kexue Wenxian Chubanshe, 2005), pp. 72-74.
69. For example, CNPC and Sinopec formed a joint venture, Andes Petroleum Corporation, to purchase EnCana Corporation's assets in Ecuador, including oilfields and pipelines for 1.42 billion dollars. See, "2005 Qiye Shida Haiwai Binggou" [Top ten overseas acquisitions in 2005], Zhongguo Jingji Shibao [China Economic Times], January 25, 2006.
70. "Zhongshihua Zhongshiyou Zai'e Zhankai Jingzheng, Kaifa Kuyedao Youqi Ziyuan" [Sinopec and CNPC compete to develop oil and gas exploration on Russian's Sakhalin Island], Shanghai Zhengquanbao [Shanghai Securities News], April 12, 2006, , accessed March 7, 2008.
71. See, for example, Xiao Cifang, "Fazhan Duiwai Chengbao Gongcheng de Tizhixing Maodun yu Duice" [The institutional difficulties and strategy of developing the international engineering contracting industry], Guoji Jingji Hezuo [International Economic Cooperation], no. 12 (December 2000), pp. 7-9.