Washington Post Article Could Prove a Turning Point in Efforts of Problematic Chinese Entities Seeking to Penetrate U.S. Capital Markets

(Washington, D.C.): On the day the front-page of the Washington Post‘s
business section laid
bare the struggle underway to block a New York Stock Exchange (NYSE) listing and follow-on
IPO of a unit of China National Petroleum Company (CNPC) called “PetroChina,”the State of
New Jersey revealed that it had sold all of its holdings (estimated to amount to 680,000 shares)
in Talisman Energy, Inc. — a partner company with CNPC in the development of Sudan’s oil
fields.

The latter development is of particular interest in light of the revelation contained in
the Post
article by David Ottaway that “At least two of these pension funds [i.e.,
TIAA-CREF and
CalPERS which had previously divested their holdings in Talisman] are among the
largest in
the country and have also decided not to participate in the Chinese company’s [PetroChina]
stock offering. (Emphasis added.) If true, these decisions could mark a potential
turning point
in the U.S. investment community’s appetite for the increasingly controversial PetroChina IPO
(estimated to be valued at $5-7 billion).

Importantly, Ottaway declares: “The campaign against the [PetroChina] IPO marks a
new
direction in the widening involvement of church and human rights groups in various foreign
policy issues. Now, for the first time they have decided to focus on the behavior of
foreign
companies registered on U.S. stock exchanges.” (Emphasis added.)
Ottaway’s article should
be considered required reading.

Washington, Post, 27 January 2000

Chinese Fought on NYSE Listing Groups Cite Oil Firm’s Role in Sudan

By David B. Ottaway

Conservative religious and human rights groups have launched a campaign to block China’s
largest petroleum company from listing an affiliated company on the New York Stock Exchange
next month because of its oil investments in Sudan, an African nation under extensive U.S.
sanctions because of its alleged support of terrorism and persecution of Christians.

Leaders of the campaign charge that the Chinese-backed Islamic fundamentalist regime there
is
committing “genocide” in its war against a Christian-led rebel movement in the south and
encouraging a flourishing trade in non-Muslim slaves.

They have urged the Clinton administration to bar the Chinese company from the
New
York exchange, where it hopes to raise $5 billion in new capital through a public stock
offering. They have already helped to persuade a number of big U.S. public pension funds
to divest their holdings in a Canadian oil firm associated with the Chinese in the same oil
project.

At least two of these pension funds are among the largest in the country and have also
decided
not to participate in the Chinese company’s stock offering.

The pressure is coming just as the administration is launching its own lobbying effort to
persuade
Congress to approve China’s admission into the World Trade Organization.

With the advice of American consultants, China National Petroleum Co., China’s
state-owned oil
company, has taken a number of steps to blunt the campaign by U.S. religious and human rights
groups. The most important was to create a separate company, PetroChina Co., that will operate
only inside China while CNPC holds onto its overseas operations.

“They understood the sanctions issue here early on,” said one investment banker familiar
with
CNPC’s strategy for the public offering.

PetroChina will rank as China’s largest company, holding 70 percent of the
country’s
petroleum reserves and accounting for two-thirds of all its oil and gas production. It will
become the world’s fourth-largest publicly traded oil and gas company, with profits
expected to reach nearly $3 billion this year, according to its U.S. promoters.

After the initial public offering, the Chinese government will still hold 85 percent to 90
percent
of PetroChina’s stock.

The campaign against the IPO marks a new direction in the widening involvement of church
and
human rights groups in various foreign policy issues. Now for the first time they have decided to
focus on the behavior of foreign companies registered on U.S. stock exchanges.

“This is unchartered waters for religious and human rights groups,” said Nina Shea,
director of the Freedom House’s Center for Religious Freedom, one of the groups
spearheading the effort. “But if American companies can’t invest in Sudan, why should we
be capitalizing foreign companies who do it?”

Also involved in the campaign are Prayer for the Persecuted Church, Christian Solidarity
International, the Family Research Council, the Institute for Religion and Democracy, the
American Anti-Slavery Group, the Hudson Institute’s Project for International Religious
Freedom and the Southern Baptist Convention.

Most of these groups are already outspoken critics of the Chinese government’s suppression
of
Christian and other religious activities inside China but have found themselves powerless to do
anything about it. The Chinese company’s bid to raise capital in the United States has given the
groups a new opportunity for action.

Last month, more than 180 religious leaders sent a letter to President Clinton asking
him to
stop the CNPC from listing its unit in U.S. stock markets. They cited CNPC’s central role
in building a 1,000-mile pipeline last year that now allows the Sudanese government to earn
several hundred million dollars annually in oil exports to help prosecute the war. China
sent 10,000 workers to accelerate construction of the project.

Specifically, the religious leaders asked Clinton to extend his 1997 executive order
prohibiting
U.S. companies from investing in Sudan to CNPC.

Also signing the letter were three former senior officials of the Reagan
administration–national
security adviser William P. Clark, Treasury secretary William E. Simon and assistant secretary of
state Elliott Abrams. A number of conservative Republicans have become involved because they
want to make U.S. investors more aware of the activities and character of foreign companies,
particularly Chinese state-owned ones.

The letter noted that Secretary of State Madeleine K. Albright had already taken up with the
Canadian government the role of Calgary, Alberta-based Talisman Energy Inc. in the same
Sudanese oil project. After her intervention, Canada sent a special mission to Sudan to
investigate charges of religious persecution by its Islamic government and Talisman’s role in the
war. It is to make a recommendation shortly on whether Canada should impose economic
sanctions on Sudan.

Clinton will shortly send a reply to the religious leaders stating that while he shares their
concern
about the “gross abuse of human rights” in Sudan, current U.S. sanctions do not cover the
activities of foreign companies that do “some part of their business in Sudan,” according to
National Security Council spokesman Jim Fallin.

The lead underwriter for the PetroChina offering is Goldman Sachs Group Inc., the
New
York investment banking firm. The same firm was involved in an ill-fated attempt by the
Russian energy giant, Gazprom, to float a $1 billion bond on U.S. markets in late 1997.
Gazprom dropped the plan after an outcry in Congress over the Russian company’s plan to
invest $2 billion in Iran, which, like Sudan, is under U.S. sanctions.

The Gazprom example has encouraged religious leaders to believe they may be able to stop
the
Chinese public offering, too, if they make investors aware of China’s role as Sudan’s main
foreign ally, arms supplier and oil investor.

“It’s a combination of the South African anti-apartheid campaign and the Gazprom
precedent,” said Roger W. Robinson Jr., a director of the [Center for Security Policy’s]
William J. Casey Institute…and a former Reagan administration adviser on international
economic issues.

But Goldman Sachs officials insist there is no parallel between Gazprom and PetroChina
because
the new Chinese company, unlike the Russian one, will have no activities outside China. In
addition, they say the Russian deal collapsed mainly because of the financial turmoil in Russia
rather than congressional and public pressure.

Goldman Sachs officials say the Chinese have set up a number of “firewalls” to assure U.S.
investors that PetroChina’s funds and activities will remain segregated from those of CNPC and
that none of the capital raised here will go to finance operations in Sudan.

These include outside monitoring of PetroChina’s accounts and quarterly reports to investors
by
an international accounting firm, probably PricewaterhouseCoopers, which has also been
advising CNPC on restructuring itself for the U.S. market.

“The structure of the deal emerging should mean that Sudan is not an issue because of the
safeguards ensuring all the funds raised here will be used domestically,” said Robert D. Hormats,
Goldman Sachs International vice chairman and a former National Security Council and State
Department official. “PetroChina will be a purely domestic company.”

Meanwhile, the religious groups have been working through the recently established U.S.
Commission on International Religious Freedom set up by Congress to press their case with the
Clinton administration.

On Oct. 19, a commission delegation met with Clinton, national security adviser Samuel R.
“Sandy” Berger and White House chief of staff John D. Podesta at the White House and asked
them to take action to bar CNPC from American stock markets.

“They made no commitment other than to think about it,” said Shea, one of the commission
representatives attending the meeting.

The White House meeting was followed by a national conference on Sudan held in the Hart
Senate Office Building on Nov. 9. Addressing the conference were Sen. Sam Brownback
(R-Kan.), a sponsor of the Sudan Peace Act, and Rep. Frank R. Wolf (R-Va.), who has visited
that
country three times.

Wolf has written Arthur Levitt Jr., chairman of the Securities and Exchange
Commission,
and Richard A. Grasso, chairman of the New York Stock Exchange, asking them to stop
CNPC’s public offering. Levitt replied that the SEC did not take into consideration a
company’s activities in other nations. Grasso told him the NYSE “is not a government
agency and is not in a position to affect U.S. foreign policy through the listing process.”

Wolf also wrote Treasury Secretary Lawrence H. Summers asking whether Clinton’s 1997
executive order could also be applicable to foreign companies such as CNPC doing business in
Sudan. In a Dec. 27 reply, Treasury Assistant Secretary Linda L. Robertson said the
administration could stop PetroChina from listing only “if the offering were for the purpose of
raising capital for investment in Sudan.”

But Robertson indicated the administration was reluctant in principle to take such action. She
said it had considered other proposals to bar foreign companies from listing on U.S. exchanges
and concluded that it “would create serious uncertainties about our commitment to open markets
and the free flow of capital.”

Meanwhile, religious and human rights leaders are claiming some success in their
divestment campaign against Talisman. Over the past few months, the Texas Teachers
Retirement Fund has sold its 100,000 shares in the company; Manning & Napier, a U.S.
investment firm, sold 1.2 million shares; and TIAA-CREF, a New York-based pension fund
and financial services organization, divested itself of 260,000 shares.

The State of New Jersey, which holds 680,000 shares, and New York City’s $90 billion
pension
fund with 160,000 shares are also weighing whether to sell their Talisman holdings.

TIAA-CREF spokesman Patrick Connor said his $291 billion pension fund, the
world’s
largest, had “no plans at this time” to invest in the PetroChina offering. He said the fund
looked “at all sorts of factors” surrounding any investment decision but declined to say
whether the controversy over China’s involvement in Sudan was one of them.

In addition, the California Public Employees’ Retirement System (Calpers), another
leading pension fund, sold its 203,500 shares in Talisman on Dec. 30. Fund officials
attributed their decision to the sharp drop in the value of the company’s stock caused by
the divestment campaign.

The California legislature’s audit committee wrote Calpers earlier this month urging
the
fund to review any plans it might have to purchase PetroChina stock given “the substantial
scrutiny and criticism” of its ties to CNPC and that company’s activities in Sudan.

Calpers spokeswoman Patricia Macht said it was doubtful the fund would buy any
PetroChina stock because its investment advisers had decided “it doesn’t fit in with our
strategy.”