China Wants More Private Money for Its State-Owned Energy Giants -- Update

By Brian Spegele 

BEIJING--Seeking to build national champions to rival the likes of Exxon Mobil Corp., China is moving to boost private investment in its vast oil companies--and may be willing to slash their workforces in the process.

China's oil and gas sector has been struggling under a combination of low energy prices and a weaker economy, sapping the sales and profit of its state-owned energy giants.

A new policy road map, unveiled late Sunday and backed by the Communist Party's Central Committee and the government's cabinet, indicated leaders are considering more aggressive action to make state-owned companies operate more like global peers.

Market forces "should play a decisive role in resource allocation," the official Xinhua News Agency quoted the reform plan as saying.

The government offered eight general targets, including better managing oil imports and exports, upgrading refineries and boosting reserves. Details are expected in the coming months, said Lin Boqiang, who researches energy policy at Xiamen University in southeast Fujian province.

According to Xinhua's account, the newly released plan pledges to solve "problems left over from history" and allow state-owned oil-and-gas companies "to lose weight and be fit"-- suggesting job reductions, Mr. Lin said.

Cutting oil-sector jobs, whether through layoffs, restructuring or attrition, would mark a change for China's government, which has hesitated to do that for fear of social instability.

PetroChina Co., the listed arm of China National Petroleum Corp., employs around 500,000 people--about seven times as many as Exxon, despite reporting similar revenue in 2016.

"It's the first time they talked about allowing the oil companies to really cut their force," Mr. Lin said of the government's plan.

The oil sector was an early target of an anticorruption drive led by President Xi Jinping, which significantly reduced the political clout of state oil giants such as PetroChina Co. and China Petroleum and Chemical Corp. It diminished their ability to resist opening the industry to more competition.

Changes since Mr. Xi took over include allowing privately owned refiners to import crude oil directly, a break with the past that brought them into tighter competition with state-owned companies. That shift has rippled world-wide as foreign oil suppliers and trading houses from Russia to Europe lined up to do business with the new customers.

Under the newly released plan, the government also said it is committed to carrying out more "mixed-ownership reform" sectorwide. The government has been experimenting for several years with letting more outside investors take minority stakes in parts of state-owned industry. In one early example, China Petroleum and Chemical, known as Sinopec, sold off a nearly 30% stake in its gas-stations unit in 2014.

Yet the private stakes have generally been small, and Gordon Kwan, an oil and gas analyst at Nomura Holdings Inc., says it is too early to know whether the openings are enough to achieve the goal of boosting efficiency in the sector. Nevertheless, he said the plan sent a positive signal to investors about the government's intent.

"We can only evaluate this 10 years from now," he said. "It's not going to be an overnight success."

Write to Brian Spegele at [e-mail]

(END) Dow Jones Newswires

May 22, 2017 07:56 ET (11:56 GMT)

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