A booze blowout for China’s oil giant


A worker performs a routine check to the valves at a natural gas appraisal well of Sinopec in Langzhong county, Sichuan province on March 1, 2011. (STRINGER/CHINA/REUTERS)
May 7, 2011

Oil companies usually focus on barrels, but Chinese petroleum giant Sinopec is struggling to get a grip on bottles — or, to be more precise, 1,176 bottles of Chateau Lafite Rothschild and expensive Chinese liquor.

The alcohol, purchased with $245,000 in company cash, has created a public relations debacle for Sinopec, China’s biggest company in terms of revenue. The scandal is also a headache for the ruling Communist Party, which controls the oil behemoth and appoints its top management, and has reinforced a widespread belief that big state-owned corporations serve the interests — and lavish lifestyles — of a tiny group of insiders.

At a time of rising public anger over high gas prices, Chinese Web sites and even some official media have bubbled with fury over Sinopec’s spendthrift ways and mocked the company’s claim that a lone, wayward executive is to blame — and has now coughed up for wine already drunk.

“Is Sinopec an oil company or a wine merchant?” fumed a Chinese commentator on a Web forum dedicated to discussion of the scandal. “Embezzling public money is a crime, but public security [police] has done nothing.”

Anger at big oil is hardly unique to China. But Sinopec, listed on stock exchanges in Hong Kong, New York and London, is more than just another global oil outfit. With 75 percent of its shares held by state-owned Sinopec Group in Beijing, it stands at the center of what Beijing touts as the “China model,” an economic order that often looks capitalist but is controlled by — and designed to serve — the Communist Party.

When Sinopec Group got a new boss early last month, for example, the shake-up was announced not by its board of directors but by the Communist Party’s Organization Department, a secretive body responsible for most top appointments in business, government, academia and media.

Part of the party

Sinopec’s new chief, Fu Chengyu, an urbane, English-speaking petroleum engineer and Central Committee member with a degree from the University of Southern California, became both chairman of the corporation and head of its party committee.

Fu’s predecessor, Su Shulin, moved to a new job as deputy party chief in Fujian province, following in the footsteps of another former oil executive, Zhou Yongkang, who now sits on the Poliburo Standing Committee and is responsible for China’s vast security apparatus — and for the wave of recent arrests targeted at artists, lawyers and others at odds with the party.

Sinopec’s connections and wealth ensure that it faces little competition and enjoys easy access to credit from state-owned banks. But they also make it a target for public outrage and a symbol of a system riddled with corruption by politically connected insiders.

The company’s financial interests also sometimes clash with its political loyalties. Dependent on imported oil to feed its refineries, Sinopec loses money unless it passes on the global market’s rising prices to Chinese consumers. But the state, which regulates gas prices, worries about stoking inflation, which risks fueling political troubles for the party.

In February, amid mounting public anger over the cost of fuel, Sinopec asked its staff to write Internet messages and blogs under false identities in order to “create a positive opinion environment” for higher prices, according to a leaked internal document issued by the company’s “Party Committee Work Bureau.” It promised prizes for the best 20 fake messages.

Sun Haifeng, an associate professor at Shenzhen University’s School of Communications who exposed the ruse on the Internet, said he’d since been called in “for tea” by the “relevant departments,” Chinese code for a questioning by security police. His post got deleted.

Sinopec and other big state corporations “don’t operate in the framework of a full market economy but operate in the framework of power,” Sun said.

Pouring it on

Sinopec’s expensive taste in wine first came to light April 11, shortly after the management shake-up. Copies of invoices detailing a booze-buying blitz under the former chairman, Su, surfaced on Tianya, a popular Chinese Internet forum.

They showed that in just a few days last September, Sinopec’s branch in Guangdong, China’s most populous and wealthiest province, purchased hundreds of bottles of Chateau Lafite Bordeaux — some costing $2,100 each — and of Maotai, a fiery Chinese liquor served at banquets.

“I wish the leaders of the country would read this post,” said a Web comment in response.

Three days after the alcohol purchases became public, Chinese gas prices rose to their highest ever level. A gallon of premium fuel now costs about $5 in Beijing.

“How can the price of gas not go up when they indulge in such extreme luxury?” the person who posted the invoices, under a pseudonym, asked in an angry online commentary.

Sinopec’s branch in Guangdong confirmed the authenticity of the invoices but initially denied any wrongdoing, describing its alcohol deals as part of the company’s “normal operations.”

CCCTV, China’s main state-run television network, meanwhile reported that Sinopec's Guangdong managers had launched a hunt for the “internal ghost,” or whistleblower, responsible for leaking the purchase documents.

Response draws ridicule

As the furor grew, Sinopec’s corporate headquarters in Beijing stepped in with its own effort at damage control: It held a meeting to trumpet the company’s austere ways. A worker in the corporate canteen told how Sinopec is so thrifty that it serves braised radishes and onion leaves. Another staffer hailed the memory of “Iron Man Wang,” an abstemious model oil worker feted by Mao Zedong, who died in 1976.

The exercise attracted ridicule. Critics lampooned Sinopec on the Internet by posting cartoons of radishes.

Sinopec, like the party, has been dogged for years by corruption. Its former chairman, Chen Tonghai, took bribes totaling more than $28 million. His mistress testified against him, as did former colleagues who told how he used to claim nearly $6,000 a day from Sinopec for personal expenses. Chen was convicted of graft and sentenced to death in 2009, with a two-year stay of execution.

The wine scandal involved far less money but still fueled public fury at the company, and at the powerful people who run it.

In an effort to calm the crisis, Sinopec’s new chairman, the California-educated Fu, and other top executives in late April called Chinese journalists to a meeting in Beijing. They provided details of an internal investigation and pinned all the blame for the wine affair on the head of the Guangdong branch.

Sinopec, according to the company officials, got tipped off about the booze last October and tried to investigate then but got stonewalled by Guangdong managers. Sinopec, said Fu, the newly appointed chairman, welcomes “supervision” by the public and is determined to “resolutely combat the influence of all kinds of corrupt thinking and lifestyles.”

The disgraced Guangdong chief has now been removed from his post, though he’ll stay on at Sinopec. He’s also been ordered to pay $20,000 out of his own pocket to cover the cost of 613 bottles of red wine already consumed.

On April 29, Sinopec announced its results for the first quarter: It increased profits by 25 percent.

Researcher Zhang Jie in Beijing contributed to this report.

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