China oil tycoon placed under arrest
Gong Jialong is involved in battle over assets with Hubei officials, say sources
Gong Jialong, China's most prominent oil tycoon, has been detained by public security agents and is being held on suspicion of committing economic crimes, according to stock market filings from two of his listed companies.
However, according to sources involved in the continuing restructuring of one of his companies, Mr Gong has been arrested on the order of local government officials in Hubei province who have been trying to wrest control of assets he originally acquired from the state.
Mr Gong was detained last Thursday in Ezhou City in Hubei province and is being held in a hotel in the city although no formal charges have yet been laid. No one, including his wife, has been able to contact him.
Mr Gong became known as China's most successful oil entrepreneur when his Tianfa Group peaked with about seven billion yuan worth of assets in 2003. Tianfa Group deals in petrochemicals and agricultural products through Tianfa Petroleum and Tianyi Science as well as various unlisted subsidiaries, and at one point boasted China's largest rapeseed oil plant.
Mr Gong is also chairman of Great United Petroleum Holdings, a conglomeration of private petrochemical companies that includes Tianfa Group and has almost two billion yuan worth of assets.
His empire took off in 2000 when he took control of a bankrupt state-owned soap powder company in Jingzhou city, Hubei province, in a typically murky example of the privatisation of state assets.
With the backing of senior government officials, including Premier Wen Jiabao and Politburo Standing Committee member Huang Ju, Mr Gong received six billion yuan in loans from the China Development Bank and transformed the company into Tianyi Science before listing it in Shanghai.
Sources said Mr Gong's problems began when the party secretary of Jingzhou, Duan Yuanli, decided to reclaim the assets in the name of the state.
As early as 2004, local officials began threatening Mr Gong with detention for economic crimes if he did not return the assets, sources said.
He eventually handed majority control of Tianyi back to the government but the firm stopped production three months later. After years of languishing in breach of securities regulations, it now faces delisting from the Shanghai exchange and owes about 2.8 billion yuan to various state-owned banks.
Lehman Brothers and domestic buyout group Guangcai 49 have been brought in to help with the liquidation of Tianyi, but sources said that Mr Duan, who is now Hubei provincial government party secretary and another local official, Jingzhou vice-mayor Huang Jianhong, oppose including Mr Gong in the restructuring plan.
On the eve of his arrest, Mr Gong had an argument with Mr Huang, sources said.
'The local government is abusing their public security powers to solve a property rights issue,' one source said. 'If you want to arrest a private businessman in China, you can always find a reason.'
Tianfa Petroleum fell 5 per cent in Shenzhen yesterday to 2.30 yuan before trading was suspended.
