For Chinese peasants, an oil boom goes bust

Gamble: Poor farmers risked everything on wells only to have them seized by the state.

September 19, 2004|By Gady Epstein | Gady Epstein,SUN FOREIGN STAFF

JINGBIAN, China - Consigned by geology to be among China's poorest farmers, the peasants in northern Shaanxi province, on the front porch of the Gobi Desert, hoped for a better life under the Communist Party, which made its base in this region during the revolution.

The farmers' great chance finally came during the 1990s, when the state allowed them to take part in private oil drilling, an ambitious experiment in free enterprise in the undeveloped Chinese countryside.

But when the experiment ended abruptly last year, it became a disaster for tens of thousands of farmers, a failure ordained this time by both geology and Communist rule.

The farmers had found plenty of oil: From 1994 until last year, 4,500 to 5,000 oil-producing wells were drilled in northern Shaanxi, eventually generating tens of millions of barrels of oil a year, far more than expected. But few of the farmers profited from their efforts.

The majority of them, those who poured all their savings and borrowed money into dry holes, plunged themselves into desperate poverty. That was the work of geology and luck. Those fortunate ones who struck oil flourished for a time, apparently on their way to amassing unprecedented rural fortunes. But their wells were then suddenly seized by the government for little compensation. It drove most of those investors, too, deeply into debt.

The poor are poorer

One of the poorest areas of China is now, in some ways, even poorer, except for the government and its officials and friends here, who are richer than ever. The fall of the peasant oil barons of northwest China raises the question of when, if ever, under Communist rule China's capitalist economic miracle will reach the hundreds of millions of farmers in the country's poor interior.

"Only some people get to become rich," said He Jianjun, a farmer and shop owner, standing by one of the three wells he owned, a yellow derrick creaking as it bobbed up and down above him. All three were seized last year. They are now operated by a new oil company, literally by and for the government; the new firm's general manager is also the deputy county chief.

"The government didn't `confiscate' my wells; they robbed my wells," He said.

He and other would-be barons have hired an experienced lawyer in Beijing, Zhu Jiuhu, who expects to represent more than 100 private oil companies and thousands of investors who claim that the government's seizure of their wells was illegal. Zhu hopes eventually to represent virtually everybody with a stake in a northern Shaanxi oil well - tens of thousands of investors - in what might be the largest lawsuit against the Chinese government in history, seeking to restore ownership of the wells, which Zhu and the investors say are worth at least $845 million.

That puts to the test another government-espoused ideal that does not yet exist: the rule of law. Under China's one-party government, the political interests in Shaanxi that seized the wells also control the courts. That makes it unclear whether a court will even accept the case, much less give it a fair hearing.

When some investors in the nearby city of Yan'an tried to sue last year the court there refused to hear the suit; Zhu said that provincial authorities had ordered in writing that no Shaanxi judges hear the oil drilling issue. Liu Jinyan, director of the petrochemical industry bureau in the city of Yulin, which includes Jingbian County, denied that any such order existed.

Liu also said there is no legal problem to resolve anyway. In a telephone interview, he said that by confiscating the wells, local governments were not robbing the well owners but instead enforcing a central government directive putting an end to the private drilling experiment in northern Shaanxi.

"The small number of people who suffered were those who didn't follow the country's policy," Liu said. "They faced against the wind breaking the law."

The oilmen's lawyer calls this subterfuge. The government directive was issued in 1999, four years before the wells were confiscated, and was kept secret from the peasants, Zhu and his clients said. Jingbian County officially stopped granting permission to drill a year later, in October 2000, but those with the right connections could still drill new wells.

Most important, Zhu said, until last year, government officials allowed private wells to keep operating as if there had been no change in policy. Beijing had also ordered that the oilmen be fairly compensated for their seized assets; the counties' offers for all the wells added up to about $157 million, barely one-sixth what the oilmen and Zhu contend the wells are worth.

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