The PetroChina Syndrome

China is engaged in a vast socio-economic experiment – the transformation of an authoitarian state owned economy into something resembling western capitalism. The restructuring and privatization of state-owned enterprises, or SOE’s, is a central feature of this process. This paper examines the creation of PetroChina, one of China’s largest oil companies. When PetroChina conducted its IPO in the spring of 2000 it sparked significant controversy and institutional investors in the U.S. boycotted the listing. Now the SEC requires special attention by issuers of securities when human rights concerns are raised. The paper was published in the Journal of Corporation Law earlier this year.

Here is the URL: PetroChina Syndrome

And here is my abstract of the article:

This article argues that the process of globalization has generated a legitimation deficit that can be the source of wasteful, even destructive, social and political conflict. I stylize this outcome as “the PetroChina Syndrome,” after a leading example of the kind of activity generated in response to globalization, the PetroChina Campaign, where a coalition of labor, human rights, environmental, anti-slavery and religious groups worked together to oppose the initial public offering of a major Chinese oil company led by Goldman Sachs. The article begins with a discussion of this important but largely unexplored dimension of the anti-globalization era triggered by the 1999 demonstrations in Seattle against the World Trade Organization. The Campaign and its impact are discussed in detail. I then examine three possible arguments that shed some light on this development, including traditional securities law approaches, the broader political context and, finally, structural changes in corporate finance. These three arguments, I argue, are helpful but not sufficient. Recent work by the economist Massimo De Angelis on John Maynard Keynes and Milton Friedman helps us shape an alternative explanation rooted in understanding changes in the institutional mechanisms of the global labor and capital markets. The displacement of the trade union and collective bargaining by globalization has pushed organized labor and other groups to look to political intervention in the capital markets as an alternative means to establish legitimacy. This intervention should be encouraged to develop new institutions to respond to the growing legitimation crisis of global capitalism.