Red China Crashes on Wall Street
Timmerman, Kenneth R.
t was supposed to be the single largest Initial Public Offering (IPO) in U.S. history: $1o billion in fresh capital, raised in the U.S. by gold-plated market leader Goldman Sachs & Co. to buy...
...public on February z9, zooo...
...First in line was Baoshan, a state-owned steel manufacturer, which originally announced it was hoping to raise $2 billion this KENNET~ R. TIMMERMAN is a contributing editor for Reader's Digest and a frequent contributor to The American Spectator...
...In interviews, members of Cox's staffconfirmed that the classified version of the report contained extensive information on covert Chinese commercial activity in the United States, clearly warning members that Congress needed to take steps to curtail it...
...After its first week of trading, shares in Petrochina were trading at $15, down 9 percent from the IPO price of $164o...
...with its announcement in September of plans to raise Sm billion on the New York Stock Exchange for the China National Petroleum Corporation (CNPC...
...technology acquisition efforts by its front companies with a patina of regularity and respectability...
...In part, it was their own fault, because the warning signs were there...
...If the oil is pumped," he told an audience at Harvard University on November 8, "my people are finished...
...17 petrochemical plants...
...Instead, it shorted out in a political firestorm...
...The CNPC investment was breathing new life into a moribund regime, Wolf argued, and "could prevent peace from coming to Sudan anytime soon...
...securities markets in excess of $14 trillion, twice the 1995 level...
...While these efforts failed, Petrochina's opponents succeeded in getting the California Public Employees' Retirement System, the nation's largest public pension fund, to cancel its plans to buy shares...
...On November 3, the Wall Street Journal reported that CNPC had woken up and smelled the coffee...
...But most of them were "old economy dinosaurs," Robinson says...
...But tensions at the investment bank's New York headquarters were running high as the float date approached-so much so that one public relations executive actually hung up when TAS called seeking information about the road show Goldman Sachs sponsored with U.S...
...Xinjiang's governor admitted in an interview with the Agenee France Presse last year that the province has seen several thousand terrorist incidents involving Moslem separatists over the past decade, ranging from murder to bomb attacks...
...Together, these private placements accounted for nearly one-half of the total capital raised, according to former Reagan White House economics adviser Roger Robinson, who has been monitoring the offering...
...Market Securib, Act of~999, aimed at creating an Office of National Security at the Securities and Exchange Commission that would report on foreign government-controlled entities seeking to enter U.S...
...You could almosrc see the dollar signs light up in her eyes as she spoke...
...And the kicker: a guaranteed market of more than one billion consumers...
...With spiraling energy prices, it looked like a fund manager's dream...
...We are calling on investors in Petrochina to become divestors," he said...
...oil giant, which agreed to kick in $1 billion...
...The resources of the new company were gargantuan in scale: oil fields pumping more than two million barrels per day...
...Sinopee), which was hoping to raise $6 billion to pay off its debts and modernize its rusting pipelines and refineries...
...The campaign mounted against Petrochina has won broad support even among politicians more usually committed to opening up trade with China...
...Sudan was crucial to Comnrunist China's national oit policy, Wolf explained, because domestic oil production was declining and China was set to become a net oil importer in the next few years...
...The unclassified version of the Cox Commission report contained this statement, tucked into a paragraph on PRC front companies operating in the U.S.: "Increasingly, the PRC is using U.S...
...Suddenly, all that had changed...
...to buy Petrochina, the Chinese corralled a number of their own "red chips"--state-owned firms traded through fronts on the Hong Kong stock exchange--to pick up some of the slack...
...29 refineries...
...The group claimed that the fragile, high-altitude ecosystem "might be shattered" by Petrochina's exploration and extraction activities, and that the PRC planned to resettle large numbers of ethnic Chinese oil and gas workers into the area, at the expense of the Tibetan population...
...The administration has said it will bring the trade bill up for a vote in May and expects it to squeak through, thanks to intensive lobbying from U.S...
...Clearly this deal was supposed to have been hot-wired...
...When the state-owned China National Petroleum Corporation announced last year its plans to go public on the New York Stock Exchange, neither the Chinese nor their U.S...
...But it does care when risks that could affect the share price are not disclosed...
...The PRC has a two-pronged strategy," Kearns said...
...According to Robinson, as many as lao additional state-owned enterprises were lining up to raid the U.S...
...Frank Wolf (R-Virginia) wrote the chairman of the New York Stock Exchange, urging him to delay the listing...
...His judgment was buttressed by first-hand testimony from Bishop Macram Gassis, whose dioceses in Sudan's Nuba Mountains were targeted for destruction by the government...
...Last May, the House Select Committee chaired by Rep...
...Just days before the issue began trading, two separate bipartisan groups of members of Congress wrote President Clinton, urging him to use his powers and influence to suspend the Petrochina IPO...
...In June, it was supposed to be the turn of China Petrochemical Corp...
...They went on to pass similar measures punishing firms and countries that provided chemical weapons technologies to Saddam Hnssein, or that sold ballistic missiles or key components to other outlaws...
...As we figure it, the efforts of this coalition have cost the Chinese as much as $15 billion," Robinson announced at a press conference co-hosted by Freedom House, Free Tibet, the American Anti-Slavery Group, the AFL-CIO, and his own William J. Casey Institute of the Center for Security Policy...
...a work force ofl.2 million...
...capital markets both as a source of central government funding for military and commercial development and as a means of cloaking U.S...
...military technologies...
...r Shell flame The Petrochina IPO has become a battleground between those who favor "engagement" with the growing capitalist class in Communist China, and those who believe America's national interest requires that we shun a state-run economy already showing signs of internal rot...
...investor's purse of several hundred billion dollars...
...He accused the company of providing substantial financial assistance to a radical Islamist regime that practiced slavery and was butchering its Christian inhabitants...
...More Western funding flows to rogue regimes now through these capital markets than through the multinational banks," Shea said...
...The problem was that Petrochina was also heavily laden with risks, which its opponents skillfully exploited...
...The Freedom House Task Force on Capital Markets, established to examine the Petrochina case, found that the number of foreign firms registered with the U.S...
...During the Reagan administration, a similar left-right coalition was forged between then Senate Foreign Relations Committee Chairman Glaiborne Fell (D-R.I...
...Lead investor Goldman Sachs refused to be interviewed for this article, claiming that the Securities and Exchange Commission required a 25day "quiet period" following the IPO...
...By October, members of Congress were writing to pension flmds across the nation urging them to boycott Chinese government-controlled "red chips" listed in Hong Kong, as well as new issues on the New York Stock Exchange...
...They introduced the U.S...
...Securities and Exchange Commission has tripled in the past decade to more than 1,zoo, with overall foreign activity in the U.S...
...The Chinese National Petroleum Company, China's stateowned oil company, is heavily involved in financing and constructing an oil pipeline and oil production--both upstream and downstream--in the African country of Sudan," Wolf wrote...
...By December, Petrochina was officially born as the owner and operator of CNPC's assets inside China, 30 J u n e 2 o o o _9 The American Spectator leaving all foreign operations (including those in Sudan) to CNPG...
...Following revelations that Toshiba had sold advanced machine-tools to a Soviet shipyard that allowed them to build ultra-quiet submarine propellers, Pell and Helms passed landmark legislation barring from the U.S...
...Some members of the coalition have even called for disinvestment in companies that sponsored or participated in the IPO, including BP-Amoco...
...But intense lobbying by an unusual coalition of human rights groups, labor unions, and conservative activists who raised national security" concerns scared many institutional investors away...
...The Bachus-Kucinich bill would have required a national securi~" review of any future stock or bond offerings by Conmmnist China in the U.S...
...In Tibetan and Mongolian areas such as the Tsaidam gas fields, where Petrochina is drilling and plans to build a pipeline, local opposition to natural resource extraction is met with swift and brutal retribution," said John Ackerly, president of the International Campaign for Tibet...
...exporters and multi-nationals...
...ca...mpaign finance abuse...
...Clearly, Freedom House and its partners see an opportunity of very large, perhaps even historic, The American Spectator _9 Ju r~ e 2 o o o 29 proportions...
...This movement has legs...
...May...
...Bachus personally wrote to all fifty state treasurers and attorneys general to alert them "to this emerging national security challenge...
...Within days, they were struck by lightning, when Rep...
...When even that was not enough, they turned to BP-Amoco, the British-U.S...
...In commenting on the "incredible shrinking share offering," the Financial Times noted on April 3 that Petrochina, while remaining an industrial powerhouse, will continue to be dogged by political issues...
...So confident of their success had the activists become that Nina Shea of Freedom House openly boasted that "capital markets will be the cutting edge human rights tool of the 21st century...
...Rep...
...They argued that Petrochina planned to use cash raised from American investors to build the first large-scale pipeline across the Tibetan plateau...
...The terrorism charge revolved around the Sudanese government's alleged involvement with renegade Saudi financier Osama Bin Laden, a connection that Khartoum vigorously but unconvincingly denies...
...Clearly convinced that the shell game would work, Petrochina filed with the SEC to offer stock to the U.S...
...and ranking minority member Jesse Helms (R-N.C...
...According to Amnesty International, 19o executions have been carried out in Xinjiang since 1997, many of them against political dissidents...
...The company announced that it had retained Goldman Sachs to help it spin off its overseas operations, a move aimed at dampening criticism in preparation for the U.S...
...9 billion, and meeting even that amount required creative accounting and outright arm-twisb ing...
...Until Petrochina entered the scene, opposing "rogue" regimes and human-rights violators never had a clear payoff...
...Friends of the Earth then dissected Petrochina's prospectus, claiming the group had failed to disclose major risks to potential shareholders...
...But for this coalition, the ultimate prize is defeating Permanent Normal Trade Relations status for the PRC, a key requirement of the Clinton administration's package deal with Belling to ensure China's entry into the World Trade Organization...
...The oil project in Sudan is CNPC's largest single foreign investment...
...It was luuuu;m righls...
...In particular, Petrochina did not adequately disclose political risks associated with separatist violence in Xinjiang and the unemployment crisis gripping the country," said Michelle Chan-Fishel of the group's Green Investments program...
...With sleight of hand only possible in a Communist economy, CNPG simply "transferred" its domestic assets to the new company, of which it continued to own 85 percent...
...Chris Cox (R-Calif...
...To maintain control over strategic assets, the Chinese Communist government has been reinforcing its already heavy security presence in the province in recent years, and is providing specially trained security units to Petroehina pipelines and facilities...
...In November 1997 , President Clinton imposed comprehensive economic sanctions on Sudan, citing the regime's "sponsorship of international terrorism, its efforts to destabilize neighboring countries and its abysmal human rights record...
...As expectations diminished and Goldman Sachs revised its sale price downwards, the Financial Times derided it as "the incredible shrinking share offering...
...Stran g Bedf lloms When Goldman Sachs took Petrochina on its road show last fall, the AFL-CIO and a coalition of human rights groups responded with a road show of their own, featuring Chinese human rights activist Harry Wu and a Tibetan monk...
...Xinjiang province accounts for 9.7 percent of Petrochina's proven oil reserves, and its ]ungaar basin is key to the company's strategy for future development...
...released its report on Chinese espionage actMties in the United States and the illicit acquisition of U.S...
...At the last minute, having failed to find enough institutional investors in the U.S...
...institutional investors...
...stock offering...
...The company is now telling the business press that the poor stock price and difficulty in raising capital were all "market related...
...Spencer Bachus (R-Alabama) and Dennis Kucinich (D-Ohio) did just that...
...But the battle for Petrochina suggests this may be more difficult than it first appeared, with the usual suspects on the left joining a growing movement on the right, who oppose granting favors to a Communist regime that has repeatedly demonstrated its hostility to the United States--not to mention its own people...
...Second, they are planning to invade U.S...
...Probably not...
...capital markets...
...Thus, on both political and financial grounds, the Petrochina IPO poses sufficient problems and unanswered questions to warrant a 9o-day cooling off period," they concluded...
...To make matters worse, the Chinese Communist government was offering outsiders only a minority stake, subjecting these inherently risky investments in China's rust belt economy to potential Chinese government manipulation, misreporting, and downright fraud...
...Buoyed by their success, the anti-Petrochina coalition is now calling for a nationwide boycott of PTR shares...
...Among the signatories were Paul Weyrich, president of the Free Congress Foundation, Charles Donovan of the Family Research Council, and Phyllis Schlafly, who heads the Eagle Forum...
...Into these already-troubled waters sailed Goldman Sachs & Co...
...investment partners suspected the political firestorm they would set off...
...But after the tepid performance ofPetrochina, Baoshan has postponed its offering indefinitely...
...First, they are pushing hard to get Permanent Normal Trading Relations status approved by Congress...
...The American Spectator - J~ ~ e ~ o o o 31...
...to buy shares in China's previously nationalized oil and gas industry...
...11,1oo kilometers of natural gas pipelines...
...But in the end, no one was fooled...
...market foreign companies that broke the multilateral export embargo on strategic technologies...
...The PRC had been pitching Petrochina as the first in a series of share offerings in the United States aimed at raising capital for China's state-owned industries...
...Although the bill never came to a vote, it drew attention to practices that until then had remained obscure...
...Kevin Kearns, president of the United States Business and Industry Council, believes the Petrochina coalition is headed down a similar road...
...One month later, Reps...
...When shares ofPelsochina (PTR) finally hit the market on April 7, Goldman Sachs and its partners had lowered their investment targets by fully 7 ~ percent to iust Sz...
...That Petrochina is directly controlled by CNPC, which is in turn owned by the Beijing government, raises questions about the ability of foreign investors to have their minority rights protected," a group of conservative leaders wrote recently to SEC Chairman Arthur Levitt, In other words, the money raised on Wall Street will ultimately be used by Belling for whatever purpose it sees fit, regardless of the interests or protests of Petrochina's foreign shareholders...
...equity markets...
...capital markets...
...Wolf's complaint had nothing to do with the Chinese military, missiles, or even...
...Since Bill Clinton became president, the PRC had raised close to $1o billion through bond issues in the United States, and had ambitious plans to expand its penetration of U.S...
...Since 1993 , the Sudanese regime has been on the State Department's list of countries that sponsor international terrorism...
...Does Wall Street care about displaced Tibetans and oppressed Moslems in China...
...It is estimated that China's state-owned CNPC has invested at least $>z billion in this project" and had committed up to $15 billion more "in other infrastructure projects...
Vol. 33 • June 2000 • No. 5
