from the cars but rather from the many hundreds of thousands of oldfashioned coal ovens throughout the city that people were still using to cook and heat their homes.
The dinner had gone on for a long time in the China Club, once the home of a merchant, and then a favorite restaurant of Deng Xiaoping, who had launched China’s great reforms at the end of the 1970s. Coal may have been in the air that night, but oil was on the agenda. With the dinner over, the CEO of one of China’s state-owned oil companies had stepped out into the enclosed courtyard with the other guests. Everybody’s overcoats were buttoned to the top against the cold. He and his management team were facing something he would never have anticipated when he started as a geologist in western China, more than three decades ago. For now they were charged with taking a significant part of China’s oil and gas industry—built to serve the command-and-control centrally planned economy of Mao Tse-tung—and turning it into a competitive company that would meet the listing requirements for an IPO on the New York Stock Exchange.
The reasons for this sharp break with the past were clear—the specter of China’s future oil requirement and the challenge of how to meet it—although that evening they could not visualize how rapidly consumption would grow. As the group paused in the courtyard outside the restaurant, the CEO was asked a pertinent question: Why go to all the trouble of becoming a public company? For then the management would be responsible not only to the senior authorities in Beijing but also to young analysts and money managers in New York City and London, and in Singapore and Hong Kong , all of whom would scrutinize and pass judgment on strategies, expenses, and profitability—and on the job they all were doing.
It wasn’t at all obvious that the CEO relished such an “opportunity.” But he replied, “We have no choice. If we are going to reform, we have to benchmark ourselves against the world economy.”
That was still the time when China was moving from being a minor player in the world oil market to something more, although how much more was not at all clear. What was clear, however, was that China was fast integrating with the world economy and beginning to transition to a new and far larger role in it.
Over the years that followed, these changes would transform calculations about the world economy and the global balance of power. Would all of this mean a more interdependent world? Or, people would ask in the years to come, would it lead to intensified commercial competition, petro-rivalry, and a growing risk of a clash of nations over access to resources and over the sea-lanes through which those resources are borne?
“CHINA RISK”
None of these questions were much in the air that night, on the very eve of the new century, at least in terms of energy. Indeed, at that moment, the prospects for the IPOs of the three state-owned companies looked, at best, quite problematic, and even somewhat dubious.
The IPO for PetroChina, the new subsidiary of China National Petroleum Corporation (CNPC), the largest of the companies, would be the first one successfully out of the gate. But getting ready for the IPO was proving harder than might have been imagined. Financial accounts that could satisfy the requirements of the U.S. Securities and Exchange Commission had to be carved out and formulated from the undigested, confusing, and poorly organized data of a vast Chinese state organization that had never had to pay attention to any such metrics—and certainly never had any reason to heed to the U.S. agency that regulated the New York Stock Exchange. Management knew that a whole new set of values and norms had to be inculcated into the organization. Add to this the fact that some of the company’s overseas investments were generating protests, and the picture became exceedingly unclear. It took a long prospectus—384 pages—to spell out all the risks.1
For their part, the international investors in the United States and Britain, and even those closer to China, in Singapore and Hong Kong, were skeptical. They worried about the China risk—uncertainty about the political stability and economic growth of the country. Also, this was an oil company at a time when the new economy—the Internet and Internet stocks—was booming. By contrast, the oil business was seen as quintessential old economy—stagnant, uninteresting, and stuck in what was thought to be the doldrums