The Economist has an interesting article about the some Chinese government officials who left the public sector to start a private oil drilling business. Some key excerpts:
It was in 2003 that the central government’s patience snapped. At meetings in the spring, Jingbian officials told the local oil barons that Beijing had ordered them to put an end to the private drilling experiment, citing the 1999 directive that they had hitherto ignored. Feng Xiaoyuan, the former chief of animal husbandry, represented the small-time operators. Among those sitting quietly across the table was his old deputy, Wang Zhihua, who was now a county oil official. Their fortunes were about to be reversed.
In May 2003 Jingbian authorities moved to confiscate some 1,600 wells, sending in the police to stop private owners from retaking them. In all, local governments in Shaanxi nationalised about 4,000 wells worth perhaps $850m in those days, when oil was still less than $40 a barrel (it is easily more than twice that today). Across northern Shaanxi, hundreds of private investors protested against the seizures. Some were beaten up, while others were detained. Most eventually took the meagre compensation on offer, some $240m in all.
Yet Feng Xiaoyuan, Feng Bingxian and Wang Shijun, who had been on their way to becoming oil millionaires, continued to press their case. They attempted to organise a mass lawsuit. The courts refused to take the case; their lawyer was detained; and they were arrested and jailed, for disturbing the peace and for illegal assembly. Feng Bingxian spent three years in prison, while the other two men served terms of five and six months. Feng Xiaoyuan was expelled from the party.
A county-run company, meanwhile, took over oil production, with Wang Zhihua one of the top men in charge. ...
What struck me about the events here is that if anything remotely similar happened to foreign investors, there would seem to be some pretty good investment claims. Assuming this is not an isolated incident, it strikes me that China could have significant exposure to investor-state complaints, with implications for how it approaches investment treaties in the future.
