Business and Politics in China: The Oil Executive Reshuffle of 2011

February 8, 2012

During the first week of April 2011, the Chinese Communist Party (CCP) reshuffled top executives of China’s three major national oil companies (NOCs): China National Offshore Oil Corporation (CNOOC), China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (Sinopec). On April 2, the CCP announced that Su Shulin, the former party secretary and general manager of Sinopec, would become the deputy party secretary and acting governor of Fujian Province. On April 8, the CCP revealed that Fu Chengyu, the former party secretary and general manager of CNOOC, would become chairman and party secretary of Sinopec. The CCP also announced that Wang Yilin, a deputy general manager of (and the number three official at) CNPC would become chairman and party secretary of CNOOC.

The oil executive reshuffle was a blatant reminder of the CCP’s control over China’s flagship firms. Unlike the CEOs of companies like ExxonMobil and Shell, the leaders of China’s NOCs are not selected by their boards of directors, outgoing CEOs and other senior managers. Instead, they are nominated by the Organization Department, the secretive human resources division of the CCP, and ultimately approved by the Politburo.

What is less obvious is why the CCP reshuffled China’s oil executives. The Organization Department’s personnel appointments are fundamental to the entire political system in China because they extend to every state entity. However, outside observers have very little information about how the Organization Department makes its decisions, which are deliberated behind the closed doors of its unmarked office building in Beijing. Although officials from the department occasionally offer some insight in interviews with the Chinese media, they do not provide a full account of why particular decisions were made. Consequently, we must infer motives from careful analysis of specific cases. The personnel changes at China’s NOCs are an ideal case study because they shed light on the complex ties between wealthy and powerful state-owned corporations and the party-state.

This essay examines four hypotheses about why the CCP appointed Su, Fu and Wang to new positions. The hypotheses are: patronage; the revolving door between government and business in China; improving corporate governance; and lastly, managing competition between the NOCs. Our main finding is that patronage and the revolving door between government and business best explain Su’s move to Fujian Province, while improving corporate governance and managing competition best explain the moves of Fu and Wang.

The oil executive reshuffle also provides some insight into the complex relationship between the CCP, the central government and the NOCs. On the one hand, Su’s promotion to governor and deputy party secretary of Fujian Province is the latest example of the oil industry’s longstanding political clout in the Chinese economic and political system more broadly as Su is expected to rise further within the Chinese bureaucracy. Patron-client ties between political elites from the oil industry and the increasing attractiveness of executives of China’s flagship firms to the CCP as candidates for national leadership positions also explain Su’s career trajectory (and those of other industry executives). On the other hand, the personnel changes at China’s NOCs also reflect the efforts of the CCP and the Chinese government to curb the power of the “number one boss” (diyi bashou) at China’s NOCs by limiting the number of positions the top executive concurrently holds, to level the playing field between the three NOCs, and to improve corporate governance at these companies.

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