Chinese Character

A fulfilling farewell

As Fu Chengyu retires, what has he left in the tank for Sinopec?

To match DEALTALK/SINOPEC-FU

Fu Chengyu: stepped down as boss of Sinopec this month

“It begs the question: do these individuals matter when they can come and go?” asked Michael Cheng of the Asian Corporate Governance Association in the Financial Times this week. He was responding to news that the heads of two of China’s three state-owned oil companies had retired suddenly, and that a third had been shoe-horned into a new job.

Regular changes at the top in China’s state companies are commonplace, largely because they serve to strengthen the central government’s control over its largest state-owned enterprises (SOEs), and prevent their bosses from building entrenched factions within these powerful firms.

That said, one glaring exception to the rule seemed to be CNPC. Senior management at the oil giant was picked from executives who had risen through the ranks and were closely associated with incumbent bosses, a practice that held from the time that Zhou Yongkang became the company’s Party boss in 1996 (see WiC207 for more on the so-called Shengli faction).

This unwritten rule was broken once-and-for-all, when the Party’s Organisation Department appointed a new head at CNPC. Wang Yilin, chairman of CNOOC, will take up the same position at CNPC from Zhou Jiping, who has reached retirement age, while CNOOC’s vice chairman Yang Hua is replacing Wang.

Also retiring is Sinopec’s chairman Fu Chengyu. The 63 year-old will be replaced by Wang Yupu, an industry veteran. Fu’s case is the most interesting. The best known of the Chinese oilmen (at least over the last decade), Fu was a business boss who stood our for his commercial dynamism – in contrast with many of his peers at other state firms who often seem more versed in musical chairs than managerial excellence.

His departure also means that investors are pondering Fu’s legacy at Sinopec, as well as wondering what the reshuffle might mean for the energy sector, which has been the ‘ground zero’ for Xi Jinping’s anti-corruption crackdown.

For many observers, Fu’s four-decade career has mirrored China’s own emergence as a global player in the energy industry. “His work contributed to China’s rise and that in turn provided executives like him a stage to show their strong capability and leadership,” a Chinese scholar told Bloomberg.

Fu is one of the many poverty-to-prominence stories of his generation. Born in June 1951 to a rural family in Heilongjiang province, his childhood was spent in such penury that he remembers licking on icicles to quell his winter hunger. After graduating from the Northeast Petroleum University, he got a job at the Daqing oilfield as a sand-carrier. Later he was promoted to a managerial position at a newer oilfield in Liaohe.

Known for his hardworking style, Fu is said to have carried a tape recorder around with him to study English and the practice paid off, when he was picked by the oil ministry to study at the University of Southern California in 1984. After graduating with a Master’s degree in petroleum engineering he moved through a number of positions that had oversight over Chinese joint ventures with foreign oil producers.

Fu’s international outlook was still a rarity in the industry as late as 2011, it seems. A few months after he became Sinopec’s chairman, he conversed directly with a group of overseas visitors, bypassing the translators. “Other Sinopec executives were shocked because they didn’t know what their boss was talking about to the foreigners,” Caixin Weekly reported. With the oil firm harbouring global ambitions, other executives began learning English too, the magazine reveals.

In fact, Fu’s coming of age moment had arrived much earlier, in 2005. At the time he ran CNOOC and startled the industry by bidding $18.5 billion for Unocal. The deal was blocked by American politicians but it marked the beginning of a relentless push for overseas assets by some of China’s largest state firms.

In 2011 Fu changed jobs, joining Sinopec, China’s biggest refiner, as chairman. Shortly after stepping into his new role, he had to tackle a scandal involving Sinopec’s Guangdong branch in which its executives were revealed to have spent Rmb2.5 million ($402,586) on Chateau Lafite and Moutai at a banquet (see WiC104). And another scandal has provided a concluding note to his four-year tenure at Sinopec, with Wang Tianpu, its vice-chairman, detained by graftbusters last month.

The news led some to question his record. “Fu began his time at Sinopec confronting corruption and he ended his time there confronting corruption,” a blogger at Sina Finance noted. “Either Fu’s managerial skill is being overhyped, or he has been powerless in the face of the bureaucratic system.”

“As chairman, it’s not only about me staying clean from all corruption. My duty also includes making sure all officials stay clean,” Fu has acknowledged himself. “If any officials, especially senior ones, are found violating rules or laws, I, as chairman, should take my share of responsibility.”

Fu was censured last year when a pipeline blast killed 62 people in Qingdao, but his reputation seems to have held up, and he was allowed to stay on as chairman of Sinopec despite reaching retirement age.

His goal, says Bloomberg, was to see Sinopec evolve into a company with professionally-run, listed units in oil and gas exploration, engineering and oilfield services.

Under him Sinopec has been a pioneer in the central government’s push for so-called mixed ownership (an initiative in which private sector capital dilutes the state’s influence in SOEs, see WiC247). In September last year, Sinopec sold 30% of its fuel retailing unit to 25 investors for $17.5 billion. But some were disappointed that the sale didn’t go far enough in welcoming new capital. Private sector companies (such as internet giant Tencent, the logistics firm SF Express and the beverage producer Huiyuan Juice) were allocated less than a third of the placement, and not a single new owner was allowed more than a 3% stake.

“Sinopec doesn’t fill investors’ tanks,” the Wall Street Journal wrote dismissively at the time.

This time around, however, the media gave Fu a little more acclaim. “Many outsiders don’t understand how difficult it is to push for reform in a state firm such as Sinopec, let alone selling part of its most valuable asset,” China Entrepreneur wrote of last year’s divestment. “It was actually Fu’s last battle.”

The unit in question owns Sinopec’s 30,000 petrol stations and 20,000 convenience stores, and Huiyuan Juice’s Zhu Xinli, a classmate of Fu’s at the Cheung Kong Graduate School of Business, was also complimentary about the deal. “If a state firm’s manager is not confident enough, or visionary enough, he simply wouldn’t contemplate such (mixed ownership) reform,” he told the Economic Observer last year. “I admire the courage of Fu and Sinopec… It is not an easy step. Let’s make a judgement in three or five years’ time.”

There were further reports in the press this week that the IPO of the fuel distribution business ­– known as Sinopec Marketing – was now likely to be delayed.

Did Fu leave a farewell message? According to China News Weekly, he told Sinopec’s top brass in January that he envisaged a future in which the sales of fuel at its petrol stations would be dwarfed by those of other products like snacks. “The wool will come from the pigs,” Fu promised, adapting a Chinese proverb to make his point. For the time being, such prospects aren’t being factored into Sinopec’s share price (which has dropped 15% since its reform plan was unveiled, despite the recent bull run in the market). But it takes time for supertankers like Sinopec to change course. Last year, it had sales of Rmb2.8 trillion, more than the gross domestic product of Venezuela. Only time will tell whether Fu’s successor can realise his vision, and diversify Sinopec’s revenues away from oil.


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