By Brian Spegele
BEIJING--China's biggest oil company is eschewing everything
from multibillion-dollar deals to employee birthday cakes. A
company that supplies alcohol for high-end spirits makers has
turned to making industrial chemicals, while a restaurant chain
that once served spicy fish heads to well-fed officials is now
investing in big data.
China's economy is struggling to carry on without the widespread
corruption and official extravagance that once spurred so much
business. The impact is rippling through far corners of the
economy, squeezing state-owned enterprises and small-business
owners alike.
The campaign, which President Xi Jinping championed from the
time he took over as China's leader in late 2012, has raised
concerns in some corners that intense government scrutiny is
paralyzing parts of the economy, setting up potentially bigger
challenges to come.
The austerity and anticorruption drive is one reason China risks
missing its annual growth target of around 7.5%. Lu Ting, a China
economist at Bank of America Corp., has estimated the campaign is
trimming somewhere between 0.6 and 1.5 percentage points from
China's gross-domestic-product growth.
The impact includes huge companies like China National Petroleum
Corp.--China's largest oil producer, which is cutting costs--and
people like Liu Qunhui.
Ms. Liu, a 43-year-old divorcee from the city of Dujiangyan, in
Sichuan province, until this year supplemented her daytime income
as a subway security guard by running a foot-massage stall at a
hotel that hosted retreats for local cadres. Visiting officials
provided steady business, but as Mr. Xi's campaign moved into high
gear, customers dwindled and Ms. Liu closed her shop in July.
"Today I can't buy any of the things I want to," said Ms. Liu,
who now relies on her job at the local subway and a monthly salary
equivalent to about $200. "In the past, I could buy clothes for
1,000 yuan ($161), but now I can only buy ones for 200 yuan."
The reverberations stem partly from government officials and
state-owned enterprises executives, who fear that approving new
projects could land them under the government's anticorruption
microscope, said bankers, officials and businesspeople in China.
That has delayed overseas acquisitions and development of new
domestic projects. For its part, China says cracking down on
corruption is vital to long-term economic health.
CNPC, the oil giant controlled by China's central government,
and businesses that depend on it exemplify the shift. In 2013, even
as the corruption crackdown intensified and began targeting its
executives, CNPC still announced billions of dollars in deals,
scooping up oil properties worldwide.
That changed when antigraft authorities detained top executives
from the company, including its former president, Jiang Jiemin.
Deals dried up. Bankers and others who work with CNPC say
executives seem unwilling to make big decisions these days. Among
CNPC's only noteworthy deals in 2014 was a billion-dollar
acquisition of oil properties in Canada, which itself faced delays
when Canada-based executives for CNPC were removed or recalled to
Beijing because of the probes.
At home, official scrutiny delayed domestic development work,
said industry analysts. When analysts at Standard Chartered Bank
met CNPC officials this year, the company said stricter
implementation of contract-documentation requirements had slowed
payments to services providers.
Now CNPC and its listed arm, PetroChina Co., say it is
refocusing on profitability. Capital spending at PetroChina totaled
189 billion yuan through the first three quarters this year, down
from 202 billion yuan a year earlier.
Other factors have also hit China's oil industry, including a
fall in global oil prices that has hurt oil companies world-wide.
But executives said unprecedented government scrutiny is also a big
reason for the industry's pullback.
CNPC and PetroChina didn't respond to requests for comment.
That new cautiousness is also hitting employees. For workers at
one CNPC unit, managers discontinued birthday-cake gift cards,
citing anticorruption and austerity guidelines, according to an
employee, while cash bonuses have largely vanished. Similarly, when
jetting off to the Middle East to inspect operations there,
employees are now instructed to choose economy class on Air China
instead of business class on Dubai's Emirates Airline.
Companies that depend on CNPC for business have also been hit.
Hong Kong-listed Anton Oilfield Services Group, which counts CNPC
and other state oil majors as customers, is warning investors that
year-end profit could fall 80% compared with 2013. Anton has
declined to comment.
The antigraft probes left management holes at CNPC's
headquarters, meaning development work across China faced delays,
said Yin Shenping, chief executive of Recon Technology Ltd., a
Nasdaq-listed provider of oil technology to CNPC and others.
"So many people are now gone," or cooperating with authorities'
investigation, said Mr. Yin. "So for example, I want a glass of
water but there's no one left in charge of approving it, so the
whole thing gets delayed."
Elsewhere, executives are altering course to sidestep the
campaign. A Shenzhen-listed restaurant chain until recently called
Beijing Xiangeqing Group was popular among officials for its fiery
delicacies. But restaurant earnings sagged as officials were
ordered to shun elaborate meals. The company--which this year
changed its name to Cloud Live Technology Group Co.--now invests in
big data and is selling its once-core restaurant unit
altogether.
Then there is baijiu, the Chinese spirit ubiquitous at official
banquets. Revenue is down at high-end baijiu makers. Some have
resorted to selling well-known labels at less than half the price
of before the campaign amid slack demand.
China New Borun Corp., a New York-listed alcohol producer from
eastern Shandong province, has struggled to keep up revenue as
baijiu demand has weakened. The company blames the weakness on Mr.
Xi's campaign, and says it's busy expanding its industrial
chemicals and foam-insulation businesses to make up the slack. New
Borun declined a request to interview executives.
Ms. Liu, the subway attendant and former masseuse, is similarly
wending through China's new economy. After her massage stall
closed, she decided to team up with family to produce a new kind of
feminine-hygiene lotion.
Together with her ex-husband and relatives, Ms. Liu pooled
around 200,000 yuan for the new business. They rented a workspace,
but efforts stalled after another relative backtracked on a promise
of more funds. An attempt by Ms. Liu to secure a bank loan
failed.
Ms. Liu has sought more investors, a frustrating process that
has illustrated for her growing difficulties of earning money in
China.
"It's hard earning money these days," she said, recalling a time
when she worked as taxi driver in Dujiangyan, earning enough to
easily support herself, her mother and son. "Today, just taking
care of myself is a huge problem."
Kersten Zhang, Lingling Wei and Yang Jie contributed to this
article.
Write to Brian Spegele at brian.spegele@wsj.com
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