PetroChina: International Corporate Governance with Chinese Characteristics - Case Study Example

PetroChina is an incredibly interesting case. It is one of the largest privatizations to occur in the history of the Chinese government, and has occurred relatively recently, only achieving full privatization in the last decade. Furthermore, PetroChina retains a significant relationship to its parent firm, who still operates the international wing of China’s oil production. As a future business professional, the case study of PetroChina is interesting for several reasons. The first is simply the process of privatization – though large scale privatization efforts are probably largely a thing of the past, having occurred as the large communist governments of the Soviet Union fell and communist nations like China began to privatize in order to gain a more competitive economy.

Small Scale privatization, however, has and will continue to occur in a number of contexts, as private companies can usually be a cost-saving alternative for cash strapped local governments, especially in this time of economic recovery. Europe and the United States will probably continue to privatize some of their public works, and knowing how this process has occurred in the past could be incredibly helpful. Finally, there are still some governments that might yet privatize (see North Korea), and many socialist companies continue to have large public sector companies such as power utilities that might one day privatize.

One of the issues of this case study is resource management by governments. Governments, especially as resources become more scarce, seem more invested in exerting control over their resource sectors. This is especially tempting in situations in which the supply might be more strategically limited (such as Oil) and the government is able to exert more control over industries (such as in China). Thus an investor might always be weary that China might attempt to regulate the industry to, for instance, allow for much cheaper consumption of domestic oil, helping its population but hurting the industry.

One of the things that is most surprising about this case study is the relative success of PetroChina. On the one hand this should not be surprising, as China is the world’s 5th largest producer of crude oil, and crude oil is a commodity that it is difficult to fail to make money on. However, many theories discussed treat firms that are subsidiaries of other firms as essentially being completely controlled by their parent firms in many structural ways. In the case of PetroChina, its parent firm is CNPC, the China National Petroleum Corporation, which is a publicly held company.

One might expect investors and shareholders to be weary of having a firm that is a direct subsidiary of a public company, but this seems to not have been the case. Despite an incredibly close relationship between the private and public sectors, shareholders seem to have an appropriate amount of control of PetroChina, and the publicly held CNPC seems to avoid exerting too much control. PetroChina, despite having a relatively strange construction being the privately held subsidiary of a public company, faces normal issues within its industry.

These include incredibly volatile pricing, expanding demand but the constant specter of reducing supply as the world approaches peak oil, not to mention the difficulties in liability of mining and transporting this resource.