Doubts cast on managers' influence at Chinese oil groups

One day they were there, the next they were not. On Monday, China retired the heads of two of its three state-owned oil companies and shuffled the third into a new job, in a game of musical chairs supervised by the ruling Communist party.

The reshuffle at the top of Sinopec, China National Petroleum Corp and Cnooc is a reminder to western investors that many of China's biggest companies are an integral part of the state, and therefore it is difficult to predict these groups' fortunes by the quality of their management.

Over the past decade, leaders of state-owned enterprises in banking insurance and telecoms have suddenly swapped places, and few have blinked an eye.

"It begs the question, do these individuals matter when they can come and go?" said Michael Cheng, research director for China and Hong Kong at the Asian Corporate Governance Association in Hong Kong. "The global or western significance attached to senior management doesn't work in China."

One oil industry analyst, who declined to be named, said the changes at Sinopec, CNPC and Cnooc "will have very little impact on the way the three oil majors are run and how their policies will be set".

Mid way through the afternoon on Monday, Sinopec announced that Fu Chengyu, its chairman and party secretary, would retire, and be replaced with immediate effect by Wang Yupu, currently vice-head of the Chinese Academy of Engineering, a state body that advises on policy making.

A few hours later, CNPC announced Zhou Jiping, its chairman and party secretary, would also retire, and be succeeded by Wang Yilin, head of Cnooc. Yang Hua, Cnooc's vice-chairman, stepped into Mr Wang's shoes.

Cnooc was founded in 1982 to operate China's offshore fields in partnership with foreign oil companies, and it has a reputation for more of a western style corporate culture than Sinopec and CNPC.

But Lin Boqiang, an energy expert at Xiamen University and board member of PetroChina, CNPC's listed unit, cautioned against drawing the conclusion that Beijing was seeking to instil Cnooc's more corporate identity in the other two oil companies by way of the reshuffle.

"Newer companies have the ability to be more corporate, because they don't have the same weight of history," he said. "Company culture is because of history, not because of people. No individual can change it."

One contractor, contrasting the integrated nature of western companies with CNPC's complex bureaucracy, last year likened the group's internal fiefdoms to a "bunch of grapes".

Both Wang Yilin and Wang Yupu cut their teeth on oilfields that now belong to CNPC.

Wang Yilin worked in strategic deposits in Xinjiang before moving to Cnooc, while Wang Yupu spent most of his career at the flagship Daqing field near Siberia. "So it will be a smooth transition," said Yin Jianping, associate professor of business administration at China University of Petroleum.

Management reshuffles do not usually lead to mergers in China, although Monday's changes revived talk of a combination between the country's oil companies.

The idea of mergers involving state-owned enterprises has been floated in other sectors, including the automotive industry. Sinopec and CNPC denied merger rumours last month.

One of the main reasons for shuffling the management decks is to prevent any individual from developing entrenched patronage bases, which the Communist party believes leads to corruption. Provincial leaders and regulators also regularly swap positions in China, for the same reason.

A typical patronage network was developed by Zhou Yongkang, the son of eel farmers who rose through the oil industry to become head of CNPC, before gaining further power as he took charge of China's security apparatus. Mr Zhou spent decades building relationships with executives in both CNPC and Sinopec, which were spun out of the Ministry of Petroleum Industry in the late 1980s.

Mr Zhou's downfall in China's two-year-old anti-corruption campaign has been accompanied by the detention of dozens of executives at state-owned energy companies, as well their counterparts in the private sector. Two former CNPC chairmen have been detained. Sinopec's second-in-command was held last month.

Private Chinese companies tend to whither when their founders disappear into the maw of corruption investigations, because dynamism and connections vanish too - there are several examples in the energy industry.

By contrast, the institutional mass of the state-owned enterprise far outweighs any individual manager.

State-owned enterprises "don't miss a beat when a senior manager loses his job due to a corruption investigation", said Mr Cheng. "Life just goes on."

Additional reporting by Owen Guo

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