dilluns, 24 setembre 2018

Energy tycoon disappears in China’s corruption crackdown

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Chinese president Xi Jinping’s anti-corruption campaign which had been targeting high officials since 2012 turned into a crackdown on private entrepreneurs with, as Beijing sees it, over-ambitious expansion goals. Anbang, Wanda, Fosun, HNA and now CEFC have all fallen under Xi Jinping’s ruthless campaign. They all led an aggressive acquisition policy financed by Chinese state-owned banks. Determined to keep control over Chinese interests abroad, the Chinese government decided to remind them to whom they owed their ascension. It started with cutting their access to further state loans, pressing them to repay their loans thus forcing them to cede some of their shares – in parts to state-owned companies – and cancelling joint ventures between these companies and state-owned ones.

The latest one on Xi Jinping’s list is CEFC. Its founder and chairman Ye Jianming went off the radar in February 2017 and has allegedly been detained by Chinese authorities since March 1, according to several media outlets. Chinese authorities have not confirmed or denied allegations on Ye Jianming’s detention but last week a South China Morning Post source said that Ye Jianming “was assisting authorities with inquiries [and] trying to keep a low profile.” A disguised way to confirm the situation?

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The young entrepreneur attracted worldwide attention when it took him less than five years to rise as the head of China’s fourth largest oil conglomerate and the largest private one. With revenue of over $40 billion, the energy giant is present in 13 European countries (KMG International), the United Arab Emirates (Abu Dhabi Company for Onshore Petroleum Operations) and Czech Republic (J&T Finance Group and others), and had planned to buy a 14.6 percent stake in Rosneft, the world’s largest crude oil producer.

Has Ye Jianming gone too far in Beijing’s eyes?

The Fudjian tycoon has on several occasions confirmed that CEFC was “mapping out its corporate strategy according to the national one.” The company’s overseas acquisitions have often coincided with Xi Jinping or Chinese high officials’ state visits abroad and are in line with the Chinese president’s Belt and Road initiative.

  • In March 2016, Xi Jinping’s visit to Czech Republic to promote his Belt and Road initiative was followed by CEFC’s share acquisition in five Czech companies between May and December of the same year.
  • A week before the Chinese president’s visit to Donald Trump in Florida in April 2017, Cowen Group, a New York investment bank, agreed to sell a 19.9 percent stake to CEFC.
  • In May 2017, Chinese vice president Li Yuanchao met with Chadian president Idriss Déby Itno. A couple of months later, a Chinese delegation, headed by the vice president of China National Offshore Oil Corporation Xu Keqiang, visited Ugandan president Yoweri Museveni. In November, Patrick Ho, secretary general of China Energy Fund Committee, a think tank fully financed by CEFC, was arrested by US authorities for allegedly bribing top officials in both countries to secure exclusive oil drilling rights for a Chinese energy conglomerate.

CEFC’s aggressive expansion policy and free-wheeling borrowing from China Development Bank has eventually irritated the Chinese government and put Ye Jianming in the line of fire.

Entering Beijing’s line of fire

At the beginning of March 2018, Ye Jianming’s buying spree has been cut short by the Chinese government and its main deal – Rosneft – appears to be up in the air. Speculation on whether Beijing will allow the deal to materialise grows as CEFC is withdrawing from other planned investments such as the Czech J&T Financial Group and facing unprecedented financial troubles.

The company is pressed to repay its loans to state lenders and access to new state loans has been cut. By the beginning of summer 2017, the conglomerate’s total debt amounted to $18.6 billion, $6.97 billion of which is due by the first half of 2018. To back its loans, CEFC had no choice but to start pledging part of its holding.

The company remains unable to find new lenders, and expectedly, CEFC employees confirmed that the conglomerate’s planned acquisitions have been put on hold.

Chinese government slowly taking over the private giant

Just one day after Ye Jianming’s arrest was reported in the media, Guosheng Group, a state-controlled portfolio and investment agency, took over the management of CEFC China Energy, the conglomerate’s Chinese unit.

State institutions are also keen to take over CEFC’s key shares abroad. State-owned Citic Group is negotiating a 49 percent stake in CEFC Europe, as reported by Reuters. China Huarong Asset Management, a subsidiary of the Chinese Ministry of Finance, has taken a 36.2 percent stake in CEFC Hainan International, precisely the CEFC unit that is supposed to acquire 14.6 percent of Russia’s oil giant.

Impact on Russia-China relations

Beijing, which supported the Rosneft deal as part of the rapprochement between China and Russia, is unlikely to let CEFC fall. A withdrawal from the deal would put a very awkward stop to the so far successfully burgeoning relations between the two countries.

The Russian oil major is chaired by one of Putin’s closest allies Igor Sechin, has a policy that echoes Russia’s foreign policy, and is one of the Kremlin’s most valuable assets.

President Vladimir Putin has on many occasions stressed the importance of the successful development and reinforcement of Russia-China relations and personally attended the signing of a major gas deal between the two countries in 2014. Straight after his re-election in March 2018, Vladimir Putin confirmed once more that “China is [Russia’s] strategic partner,” not just one of them, and that “Russia will by all means do everything to expand the Russia-China cooperation.”

Excluded from the G8 and targeted by US and EU sanctions, Russia is putting great hopes in a strong alliance with its neighbour to balance Western powers but also to buy its oil and gas.

Beijing has in the past acted boldly to defend its interests without fearing political consequences – in the South China Sea for example. But will it take the risk to lose the trust of its strongest ally in the UN Security Council, largest neighbour and top energy supplier?

Diane Pallardy studied an MA in Politics and International Relations at the University of Kent, and MA in World Politics and Fossil Energy at the Higher School of Economics, in Moscow.

 

 

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