The PetroChina Fuel Oil corruption case, the KingMed Xuchang incident, and CCP factional struggle

     SinoInsight  1     

• “Seriously adhere to leadership reshuffle discipline and strict political and integrity control.” Also, all acts of “canvassing and bribery, lobbying, and election sabotage will be investigated and punished.”
• “Actively respond to the new situation and challenges in the fight against corruption. Resolutely prevent and investigate the ‘seven areas of corruption,’ show no mercy to those who engage in political cliques and factions, small circles, and interest groups within the Party, and strictly educate, manage, and supervise young cadres.”
• “Investigating and punishing the corrupt activity behind the disorderly expansion of capital and platform monopoly, and cutting the link between power and capital.”
• “Fiscal discipline must be strict, and promote the prevention and resolution of local government hidden debt risks. Resolutely investigate and deal with corruption in infrastructure construction and public resource transactions, continue to promote corruption governance in the financial sector, deepen anti-corruption work in state-owned enterprises, and deepen special rectification of corruption in areas such as grain purchase and sales.”
• “Innovate the methods of inspection teams to achieve full inspection coverage of central and provincial Party Committees, as well as cities and counties.”

OUR TAKE
1. Per the information in the June 8, 2021 Reuters report, the PRC authorities had already stepped in to handle the PetroChina Fuel Oil corruption case as early as April 2021. However, Beijing only chose to call public attention to the case many months after the fact.

Beijing appears to have timed the broad publicity of the PetroChina Fuel Oil corruption case to coincide with a focused propaganda effort to promote the anti-corruption campaign in the early weeks of January (the CCDI’s new five-part anti-corruption documentary “Zero Tolerance” was rolled out from Jan. 15 to Jan. 19; see also here, here, and here) and the sixth plenary session of the CCDI (Jan. 18 to Jan. 20). We believe that the Xi Jinping leadership is planning to use the public handling of PetroChina Fuel Oil as both a model for how such corruption cases should be dealt with and to target the Party elites connected with the company.

2. Official mainland media claims that corruption at PetroChina started in 2006. This was a period when Jiang Zemin and the Jiang faction were dominant in the regime (Hu Jintao and Wen Jiabao were akin to “puppets”) and controlled important economic channels.

PetroChina was formed in 1998 following the reorganization of the State Petroleum and Chemical Industry Bureau (國家石油和化學工業局) into two companies (the other is Sinopec). Jiang faction member Chen Geng served as PetroChina’s general manager and Party Secretary before his retirement on Nov. 15, 2006. Chen’s deputy Jiang Jiemin (no relation to Jiang Zemin), a confidant of Zhou Yongkang and another Jiang faction member, took over his positions.

After Xi Jinping took office, Jiang Jiemin was transferred away from his base of operations (調虎離山) with his promotion to director of the State-owned Assets Supervision and Administration Commission in March 2013. Jiang was later investigated in September that year.

PetroChina had three other Party secretaries after Jiang Jiemin. First was Zhou Jiping (April 2013 to April 2015, then-general manager of PetroChina. Zhou was replaced by China National Offshore Oil Corporation Party secretary Wang Yilin (May 2015 to January 2020), and Wang later made way for Sinopec Party secretary Dai Houliang (January 2020 to present). Jiang Jiemin’s three successors appeared to have continued with his policy of illegally reselling crude oil in keeping with an unspoken rule in the CCP officialdom.

The “retroactive investigation” of PetroChina is aimed not at Jiang Jiemin, who has been purged for more than eight years, but the Jiang faction’s “petroleum gang” (石油幫) and its associates. China watchers have long considered Jiang faction number two Zeng Qinghong, disgraced security czar Zhou Yongkang, and retired Politburo Standing Committee member Zhang Gaoli to belong to the “petroleum gang,” with Zeng being regarded as the “gang leader.” The investigation of Zhou Yongkang led to the purge of several “petroleum gang” officials at the vice-ministerial level, and Zhou’s family members were also found to be involved in corruption connected with PetroChina.

The involvement of Shandong Befar Group in PetroChina Fuel Oil’s June 2006 illegal crude sale suggests that Zhang Gaoli, then Shandong Party secretary, will be implicated in the “retroactive investigation” of PetroChina. The construction of illegal villas in Shandong that state media recently exposed also occurred during Zhang’s administration of Shandong. Zhang is further implicated in Chinese tennis star Peng Shuai’s sexual assault allegation. Xi Jinping has strong motivation to target Zhang Gaoli given that the latter led Party elites in opposing the inclusion of criticism of Jiang Zemin’s “incorrect political line” in Xi’s “historical resolution.”

A “retroactive investigation” of PetroChina could also snare other Party elites who are deeply involved in the CCP’s petroleum system.

3. There are several reasons why Xi Jinping is only “retroactively investigating” the petroleum system now:

• Xi likely lacked the “quan wei” (authority and prestige) needed to thoroughly rectify the petroleum system and its deeply entrenched interests in his first term despite having moved against Zhou Yongkang. Several years and a string of power consolidation moves later, Xi is now in a better position to tackle the influential elites who profited from the petroleum system and dismantle old interest networks.
• Xi needs to crack down hard on his factional rivals in the lead up to the 20th Party Congress and play up his anti-corruption campaign to boost his “quan wei” and improve his chances of securing a norm-breaking third term.
• To justify moving against his predecessors, as well as the factional interests and elites associated with them, Xi needs to first publicly establish their corruption to bring both the Party and the people to a consensus. Doing so also allows Xi to fault them later for causing China’s economic deterioration today and other ills while absolving himself from blame.
• The Xi leadership’s public airing of severe corruption committed by Xi’s factional rivals and other elites serves to justify the “rise-and-fall cycle” propaganda and the need for “self-revolution” in the Party. The subsequent punishing of high-level individuals is intended to produce a silencing effect and compel the majority of the CCP elites to go along with Xi’s third term bid.
• Xi is likely looking to further align himself with the masses against the elite to build popular support for his actions, insulate himself somewhat from criticism within the Party when he perpetuates “self-revolution” against the elite, and preserve the regime’s political legitimacy as much as possible should he need to make very shocking factional struggle moves that undermine said legitimacy.

4. We believe that the “retroactive investigation” of PetroChina Fuel Oil is just one of Xi Jinping’s moves aimed at the Jiang faction and Zeng Qinghong ahead of the 20th Party Congress. The outcome of the investigation, however, is likely still “flexible” at present and dependent on Xi’s “quan wei” and political strength, as well as whether Xi’s factional rivals decide to compromise or counterattack.

If Xi lacks strength or his enemies come to a favorable compromise on the issue of his third term bid, the PetroChina Fuel Oil case could result in the punishment of some mid- to senior-level officials and even individual elite cadres, but the bulk of the elites will be spared. If Xi has sufficient strength and his rivals remain strongly opposed to him taking another term, then the PetroChina Fuel Oil investigation could end up with the purge of “untouchable” Party elites and elders.

     SinoInsight  2     

OUR TAKE
Based on publicly available information, the KingMed Xuchang incident could either pass without incident, or directly concern factional struggle between Xi Jinping and his factional rivals. We see three possible scenarios, with a likelihood of overlap.

In one scenario, local governments in Henan were looking to absolve themselves of blame for the recent COVID-19 outbreak in the area and preserve their political “achievements.” With the important Winter Olympics in Beijing just around the corner and their careers on the line, local officials could be desperate enough to pull off the KingMed stunt and risk offending well-connected individuals like Zhong Nanshan (and his political backers) if there were a chance that they would not be held responsible for the outbreak and be punished like officials in Xi’an for failing to maintain “zero-COVID.” Holding the testing company “accountable” for the outbreak potentially kills two birds with one stone—the local governments in Henan can make the case for keeping their “zero-COVID” achievements unblemished, while finding an excuse to avoid paying KingMed for the several rounds of expensive compulsory mass testing they had to do following the outbreak (this affects local economic performance and political achievements).

It should be pointed out that KingMed might not be an innocent party in the incident. There is precedent of testing companies faking test results. On Jan. 18, 2020, local authorities arrested the person-in-charge of Jinan Huaxi Medical Laboratory for publishing false test results for the second round of mass COVID testing for Hebei’s Longyao County. Three months later, the Jinan Municipal Health Commission issued a warning and a fine to Jinan Huaxi Medical Laboratory. Such fraud cases are endemic to the CCP regime where the completion of political tasks and securing of political achievements are prioritized above all; vendor-government bribery and deception up and down the many layers of government are commonplace.

Another scenario would see the CCP employing the old tactic of “hyperfocusing” on a relatively minor issue (the KingMed Xuchang incident) to draw the public’s attention away from larger problems (nationwide COVID outbreaks near the Winter Olympics, etc.). It is noteworthy that the official Weibo accounts of the Central Political and Legal Affairs Commission and Xinhua decided to forward the Xuchang City PSB’s announcement of the investigation into Zhengzhou KingMed’s regional head, an unusual move for a regime preoccupied with preserving its “great, glorious, correct” image.

Keeping the public’s attention on wayward individuals and testing companies serve several objectives. First and most importantly, the PRC government at large is absolved of blame for failing to meet its own “zero-COVID” target because the fault officially lies with yet another deviant external actor (“contaminated international mail” has been a convenient scapegoat). Second, the public’s focus on the KingMed Xuchang incident allows the nationwide outbreak and international controversies over the Winter Olympics (like diplomatic boycotts over human rights) to recede into the mental background. Third, the testing companies and officials in charge of servicing the Winter Olympics would not dare to engage in fraudulent activity during the games lest they be inclined to suffer the same fate as Zhengzhou KingMed.

In a third scenario, the KingMed Xuchang incident could be part of an effort by Xi’s factional rivals to embarrass Xi Jinping close to the Winter Olympics and undermine his “quan wei.” Two points are suspicious, namely, the Central Political and Legal Affairs Commission’s “promotion” of the incident (the political and legal affairs apparatus is a Jiang faction stronghold) and investors associated with the Jiang faction eliminating the last of their KingMed stocks in 2021 (the Jiang faction’s interests are conveniently not affected by whatever happens to KingMed and they can deny connections with the company). The scandal for KingMed and Zhong Nanshan reflects badly on Xi because Zhong is the face of Xi’s COVID-19 prevention and control campaign and has been publicly feted by Xi at a high-profile event in September 2020 celebrating the regime’s “victory” over the virus. The charge of “committing acts that cause the spread of novel coronavirus pneumonia or caused serious risk of spreading” leveled against Zhang Moudong also makes Xi look bad because the company closely associated with his top COVID expert is accused of facilitating the recent outbreaks.

Should Xi suspect that the KingMed Xuchang incident is the handiwork of his chief factional rival (whether or not the Jiang faction is truly responsible is irrelevant), he would be more determined to purge key faction members in the coming months. The Jiang faction would in turn ramp up efforts at retaliation as they seek to survive “you die, I live” factional struggle. Intensifying factional fighting would heighten political risks in China and lead to political Black Swans.