Corruption Crackdown Has Paralyzed China's Energy Industry

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By Shirley Yam at the South China Morning Post

George, an energy veteran, has finally got time for the birthday party of his nine-year-old daughter, thanks to Xi Jinping's sweeping anti-graft campaign. The crackdown has thrown the mainland's energy sector - one of its most profitable and rotten industries - into an Ice Age.

"Almost my whole business card collection can now go down the ditch. The remaining few choose to lie low than do anything," said George, who has been working for foreign energy houses in China for two decades.

He's not exaggerating. The crackdown has engulfed nearly every key player in the food chain. That includes the policy maker National Energy Administration (NEA); its largest oil producer PetroChina; its major coal producing province Shanxi; State Grid Corp and one of its largest electricity producers. At least 112 senior officials and businessmen have been implicated, according to state reports. Among them is the former NEA head Liu Tienan whose trial began this week; and four of the six NEA energy-related department heads (see table).

"The casualties go far beyond that," said George. "Many division heads can no longer be reached on the phone."

Division heads are the working-level people in China's hierarchy. That isn't too surprising a web when an ordinary coal exploration project will require the stamping of hundreds of officials.

It's not hard to imagine the mood among those staying behind. They would jump at the drop of a needle as the Chinese saying goes. It means sticking to the itinerary 100 per cent in the case of an overseas plant visit. "Try squeezing in a detour, they will freak out." Itineraries are now approved item by item before they leave home.

No more patron of the Moulin Rouge while touring a production plant in France or side trip to Niagara Falls on the way to New York. Yet it also means sitting on projects unless they have been signed off by those at the top. That applies not just to those in the energy sector but also state bankers.

"One assumes state projects overseas funded by the State Development Bank will be spared. You can't be more wrong," said George. "No one wants to take any responsibility nowadays."

Call this fear or protest. The reality is that a graft crackdown comes at a short-term economic cost.

Moody's Analytics estimates the cost at 2 per cent of the country's gross domestic product for the first year and a lower impact in the three years to come. The recent slowdown has been adding fuel to the debate on whether an official pardon should be offered in order to get the machine going.

The noise has grown so loud that a rare commentary by a standing committee member of the Central Commission for Discipline Inspection, Qiu Xueqiang, appeared in Study Times, a Party newspaper, a week ago.

Qiu's three messages: the graft fighting is not jeopardising economic reform or growth; an official pardon will not be fair; and the crackdown is not bickering among rival political camps that will end as power consolidates.

All these are new concepts to China veterans like George.

Politics or not, George is hoping for two things. One, the resumption of business. "New players, new rules and then business can be done." Two, the forever disappearance of brown body bags that stack up in the backyard of coal mine bosses. "The death of a miner is like the end of an ant … A mine with zero safety collapses. Bodies returned home with 100,000 yuan. Full stop."

So far, he has seen no sign of any of these happening.

http://seekingalpha.com/article/2524445-japans-hidden-unemployment-problem?ifp=0

 

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