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China’s first foray into the world of high finance—to open up its enormous government-owned corporations to foreign investment—was a controversial offer to sell stock in CNPC to the public on the New York Stock Exchange (NYSE). Its offer, designed to raise a record U.S. $ 10 billion, had to be withdrawn and refashioned because of the negative publicity suggesting that the proceeds would be used to commit further human rights abuses in Sudan, Tibet, and elsewhere. Ultimately, the 90 percentCNPC-owned subsidiary PetroChina, with a “firewall” to prevent any of the new capital from going to the Sudanese operations, proceeded with a stock offer to raise U.S. $ 10 billion. A broad-based coalition opposed to the PetroChina IPO ultimately succeeded in reducing the proceeds from the IPO by some 70% to only U.S. $ 2.89 billion. This reduced amount was raised with major participation from British Petroleum and a few other large companies. Questions about China’s financing of arms sales to Sudan and allegations of Chinese prison labor used in the construction of Sudan’s oil pipeline were never addressed.
Arms Trade between China and Sudan China was not new to Sudan. By the time it invested in GNPOC in December 1996, it was already a familiar arms dealer to many Sudanese governments. The Nimeiri government (1969-85) bought weapons from China. But these purchases rose in the 1990s due to Sudan’s internal war and the promise of improved finances and enhanced international credit derived from its oil potential.
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Weapons deliveries from China to Sudan since 1995 have included ammunition, tanks, helicopters, and fighter aircraft. China also became a major supplier of antipersonnel and antitank mines after 1980, according to a Sudanese government official.1387 The SPLA in 1997 overran government garrison towns in the south, and in one town alone, Yei, a Human Rights Watch researcher saw eight Chinese 122 mm towed howitzers, five Chinese-made T-59 tanks, and one Chinese 37 mm anti-aircraft gun abandoned by the government army.1388 Human Rights Watch concluded that while China’s motivation for this arms trade appeared to be primarily economic, China made available easy financing for some of these arms purchases.1389 China’s Need to Acquire Foreign Oil Reserves China invested in Sudan’s nascent oil industry because of its need to acquire foreign oil reserves. While China expected its industrial development to make increasing demands for more oil, the Chinese oilfields had, by the late 1990s, already passed their peak production. “China until recently relied on its vast northeastern Daqing oilfield to fuel its energy needs, but output is declining and it has yet to find new large domestic supplies,” according to the Chinese government news agency Xinhua.1390 In the early 1990s, the Chinese government projected that it could have a shortfall of about 50 million tons of crude oil (30 percent of its oil needs) in 2000, while domestic crude output remained static at 160 million tons. China therefore had to rely on its ability to stake out oil reserves abroad. Oil analysts projected that China would become an oil importer—at the mercy of non-Chinese oil producing states 1387 Human Rights Watch, “Sudan: Global Trade, Local Impact, Arms Transfers to all Sides in the Civil War in Sudan,” Vol. 10, No. 4 (a) (New York: Human Rights Watch, August 1998), pp. 28-29.
1388 Ibid., p. 20.
1389 The government of China did not respond to a letter from Human Rights Watch soliciting its comments on these allegations.
Ibid., p. 29.
1390 “China Finishes Sudan Oil Projects,” AP, Beijing, July 14, 1999.
and companies—within five years.1391 China set about becoming a global player in the oil industry.
Chinese officials wanted “to have a 10-million-ton-oil supply from overseas a year by 2000 and 50 million tons of oil and 50 billion cubic meters of gas by 2010.”1392 By 1997, according to CNPC’s then president, Zhou Yongkang, China was “very aggressive in buying foreign oil and gas fields.”1393 The CNPC brought its first shipment of foreign crude oil to China in 1997.1394 CNPC, a government-owned corporation, acting through a wholly-owned subsidiary, took the largest share, 40 percent, in the GNPOC consortium on December 6, 1996, when Arakis sold 75 percent of its interest in the project to three other companies to form that consortium.1395 The Sudanese project was expected to produce up to ten million tons of oil a year for China by 2000, which would by itself help meet China’s projected oil import target for 2000.1396 In 1998, CNPC’s construction arm, China Petroleum Engineering & Construction (Group) Corporation (CPECC), participated in the construction of the 1,500-kilometer-long GNPOC pipeline from Blocks 1 and 2 to the Red Sea. It also built a refinery near Khartoum with a 2.5 million-ton processing capacity. It 1391 “CNPC Plans to Raise Investment Cash with Share Sale,” Bloomberg (New York), Hong Kong, April 1, 1999; Xu Yihe, “China CNPC’s Pursuit for Foreign Oil Fuels Competition,” Dow Jones Energy Service (New York), Singapore, June 3, 1999.
1392 “China Making Headway in Overseas Oil Market,” Xinhua, Beijing, July 14, 1999.
1393 Xu Yihe, “China CNPC’s Pursuit for Foreign Oil...,” June 3, 1999; See C. Raja Mohan, “China joins the Great Game,” Hindu (New Delhi), February 1, 1998.
1394 Xu Yihe, “China CNPC’s Pursuit for Foreign Oil...,” June 3, 1999. According to the article, the aggressive foreign buying had slacked off in 1998 but resumed when Chinese crude supplies showed a marginal decline (average 1.8 percent domestic crude production for the 1990s) and domestic demand increased (average 5.4 percent a year for the 1990s).
1395 “Arakis Forms Sudan Consortium,” December 6, 1996.
1396 “China Making Headway in Overseas Oil Market,” July 15, 1999.
further engaged in “10 million tons oilfield surface engineering.” The Sudan project became “the first overseas large oilfield operated by China,” according to the Chinese.1397 The Chinese government-run news agency was effusive about China’s participation in the Sudan project, characterizing it as CNPC’s biggest overseas project to date.1398 The agency termed the oilfield, the long oil pipeline, and the oil refinery China built in Sudan “a major breakthrough in China’s overseas oil work.”1399 The news agency likewise claimed, “China has made a series of technological breakthroughs in undertaking the huge [Sudan] oil project, including in the sectors of oil engineering technology, geological prospecting and oil drilling.”1400 Yet, China claimed it did not make any profit on the pipeline, refinery, and two oil well projects in Sudan. The vice president of CPECC said, “A Western company couldn’t have done what we did...
Sudan wanted it done in 18 months and we did it, even though we knew we wouldn’t make any money.”1401 China admitted that it brought in a team of 10,000 Chinese laborers so the GNPOC project could be completed by the NIF’s tenth anniversary (June 30, 1999). Its labor costs were low: “Our workers are used to eating bitterness... they can work 13 to 14 hours a day for very little.”1402 Similarly, the Chinese subcontractor (also a Chinese government enterprise) brought in two Chinese crews for the seismic 1397 CNPC release, “China Extensively Enter into International Oil Market,” January 11, 2001, http://www.CNPC.com.cn/english/news/index.html (accessed March 16, 2001).
1398 “CNPC is now  operating in nine countries, including Sudan, Peru, Venezuela, Canada, Thailand, Kuwait and Kazakhstan.... For China, Kazakhstan acts as a land bridge to Iran and Iraq.” Xu Yihe, “China CNPC’s Pursuit for Foreign Oil...
,” June 3, 1999.
1399 “China Making Headway in Overseas Oil Market,” July 15, 1999.
1400 “China Completes Huge Oil Projects for Sudan,” Xinhua, Beijing, July 24, 1999.
1401 Ian Johnson, “China Takes Long View In Overseas Oil Projects,” Wall Street Journal (New York), Beijing, December 16, 1999.
phase of the Lundin operation in Block 5A. They were new, straight from Beijing. Some did not know how to drive a vehicle.1403 It was widely rumored in the oil business in Sudan that the Chinese planned to bring in prisoners to build the pipelines, which was allegedly how they underbid others to get the pipeline contract.1404 Still, it is difficult to see how Chinese laborers brought to Sudan could live and work for less than southern Sudanese laborers, even Chinese prisoners, because of the transportation cost—even if the transport was one-way for many who may have perished from disease in the inhospitable swamps and baked savannahs. China also admitted that the Sudanese army had to protect the Chinese workers from rebel attacks.1405 The Chinese companies’ failure to hire local staff led to copious complaints from southerners. In Block 5A, Lundin and its Chinese subcontractor had a crew of sixty people in the “highland” location (Ryer/Thar Jath), forty-five of whom were (northern) Sudanese, the rest Chinese. On the “swamp crew” of sixty (on the White Nile), thirty to forty were Sudanese, the rest Chinese. The Chinese spoke no English and translations were done by the Chinese party chief, who spoke rudimentary English.
The Chinese subcontractor had recruited in the north and hired northern Sudanese to work on this Block 5A project, though they did not have any technical expertise and had to be trained on the job. The Rappaport security consultant to Lundin advised Lundin and the Chinese that it was not a good idea to take northerners to the south to work. Everyone from the Bentiu area, from the governor to the local hires, complained that there were not enough locals on the job, he reported. The Chinese subcontractor 1403 Paul Wilson, interview, May 16, 2001.
1404 Ibid.; Anonymous, interview, 2001.
1405 Ian Johnson, “China Takes Long View,” December 16, 1999.
insisted on bringing in these northern workers, however. After some incidents, the security company put its foot down on hiring northern Sudanese, and the Chinese subcontractor relented.1406 The Chinese companies involved in GNPOC did all this work, their spokesman said, for no profit—for valuable experience overseas—which, as China omitted to mention, was gained mostly under Talisman as project manager. The Wall Street Journal nevertheless reported in 1999 that the Sudan project accounted for U.S. $ 500 million of a record $ 710 million in revenues (unaudited) for China Petroleum Engineering & Construction (Group) Corporation.1407 China’s First Initial Public Offering on the N.Y. Stock Exchange Backfires CNPC announced in April 1999 that it planned to begin selling shares to the public in China and overseas to help fund new projects.1408 This was to be the first initial public offering (IPO) that the Chinese government was to make, to be followed by many more as it restructured and privatized its state-controlled economy. China planned to open with a big splash in the U.S.: the CNPC IPO was to be the biggest IPO Wall Street had ever seen, at some U.S. $ 10 billion. CNPC would become the first Chinese state company to be listed and traded on the NYSE.
The listing and the IPO immediately ran into trouble on account of China’s record of human rights abuses and the CNPC investment in Sudan. U.S. Representative Frank Wolf (R-VA) on September 30, 1406 Paul Wilson, interview, May 16, 2001. In 1998, one of the northern Sudanese workers reportedly sexually abused a Nuer boy.
The boy’s family allegedly set up an ambush to kill the man in revenge. He had to be smuggled out of the area to save his life. Ibid.
1407 Ian Johnson, “China Takes Long View,” December 16, 1999.
1408 “CNPC Plans to Raise Investment Cash with Share Sale,” Bloomberg (New York), Hong Kong, April 1, 1999. The proposal was made in 1999 when crude prices rose 2.9 percent to U.S. $ 15.24, the highest since September 1998. For a comprehensive analysis of China’s oil demands and international expansion by CNPC, see Rice University, James A. Baker III Institute for Public Policy, “China and Long-range Asia Energy Security: An Analysis of the Political, Economic and Technological Factors Shaping Asian Energy Markets,” Baker Institute Study Number 11, April 1999, http://riceinfo.rice.edu/projects/baker/publications/claes/executive_summary.html. Also see http://www.csis.org/africa/index.htm (accessed October 30, 2002).
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1999 wrote the U.S. Securities and Exchange Commission (SEC, which regulates securities filings required for an IPO) asking it to disapprove the CNPC’s listing on the NYSE. U.S. Representative Wolf said that permitting CNPC to raise U.S. money on the NYSE would bypass the U.S. economic sanctions imposed on Sudan, a state sponsor of terrorism and a CNPC partner in the oil project. It would also make it easier for Americans to unknowingly invest in a company “that is propping up a regime engaged in slavery, genocide, and terrorism.”1409 Representative Wolf claimed that Sudan was CNPC’s largest venture and that it invested an estimated U.S. $ 1 to $ 2 billion in Sudan, on a total CNPC investment of U.S. $15 billion.1410 Roger W. Robinson, Jr., chair of the William J. Casey Institute of the Center for Security Policy and former official in Pres. Ronald Reagan’s National Security Council, brought up additional reasons for objecting to the IPO: CNPC was in partnership elsewhere in the world with two other states on the State Department’s list of countries sponsoring terrorism, Iraq and Iran.1411 The U.S. Commission on International Religious Freedom (U.S. CIRF),1412 a creation of the U.S.
Congress, on November 1, 1999, asked the U.S. Treasury to extend the stringent 1997 economic sanctions imposed on U.S. companies doing business with Sudan to CNPC and others using American debt and equity markets to raise money for the Sudan oil project. The grounds were that CNPC’s oil interest in Sudan would fund a “war against the south... patterns of forced conversion to Islam, manipulation of food aid, bombing of refugee camps, hospitals, churches, and other civilian targets, as 1409 John Berlau, “Is China Stock a Security Risk?” Investor’s Business Daily (Los Angeles), October 5, 1999.