Human Rights in China (HRIC) has learned that local officials in Shaanxi Province have been arranging coercive private meetings with prominent individuals to weaken public support for shareholders in the drawn-out Shaanxi oilfields controversy.

Shareholders in a collection of privately operated oilfields in northern Shaanxi have been protesting and petitioning the government repeatedly since local officials took possession of the oilfields in 2003, causing losses to shareholders totaling and estimated 7 billion yuan. At the end of May, Zhu Jiuhu, a lawyer representing shareholders, was detained on charges of “disrupting social order.”

The Shaanxi oilfields case involves the cities of Yanan and Yulin, encompassing 15 counties and more than 1,000 privately-owned oil companies with a total of more than 60,000 investors. China began experimenting with privatization of its oil industry in the mid-1990s in order to attract private capital to develop untapped oil reserves. In 1994, China National Petroleum Corporation and the Shaanxi provincial government signed a contract permitting the cities of Yulin and Yanan to develop 1,080 square kilometers of land. Subsequently, the 15 counties under Yulin and Yanan signed agreements with private companies to capitalize the development. More than 10,000 local farmers sold off their property to join wealthy entrepreneurs in investing in the project.

However, after the oilfields began producing oil, the government began to reconsider its privatization program, taking into account problems with similar privatization in Russia, and environmental damage resulting from the largely unregulated oilfields. Chinese authorities ordered a cessation of excavating activity at the Shaanxi oilfields in December 1999, and then in June 2003, without carrying out negotiations or offering compensation, local authorities ordered police to expel all private investors. The 15 county governments then assumed control of the oilfields in their respective jurisdictions, effectively re-nationalizing the local oil industry. Subsequently the authorities offered 1.3 billion yuan in compensation, but shareholders have refused the offer, saying it falls far short of their losses.

Zhu Jiuhu, a Beijing-based lawyer, agreed to represent shareholders in a lawsuit against the local authorities, but in the early hours of May 26, police detained Zhu in his Yulin hotel, seizing his computer and documents. Around the same time, police also detained plaintiffs Feng Xiaoyuan, Tong Zongrui, Zhang Wanxing, Wang Zhijun, Yuan Peixiang and Ren Guangming. The reason given for the detentions was that Zhu and the plaintiffs had engaged in “unlawful assembly” and had “disrupted social order.”

Zhu’s arrest has raised considerable alarm throughout China, particularly in Beijing. Bao Yujun, chairman of the Research Association on the Private Economy and a member of the Chinese People’s Political Consultative Conference, has sent a petition to various central government bodies protesting the local government’s neglect of private interests and detention of investors’ legal counsel. Domestic media such as China Newsweek have also highlighted the broader implications of the Shaanxi oilfields case as a test of the government’s ability to guarantee private property rights. Lawyers’ associations and other professional groups have also rallied to Zhu’s defense.

Sources told HRIC that local officials have grown concerned over the buildup of public pressure on the case, and have begun approaching key scholars and professionals, threatening retaliation if they don’t withdraw from the campaign supporting Zhu and the oilfield shareholders. Emphasizing the need to protect the identities of those who have been approached, HRIC’s sources said that in pressuring the prominent individuals, local officials made the following allegations:

• Local officials accused Zhu of having an illicit affair with the sister of one of the oilfield shareholders and produced “evidence,” including photos and personal items.
• Local officials said their detention of Zhu and the shareholder representatives was carried out with the full support of the State Council and other central government ministries, and that this support extended to further detentions as necessary.
• Local officials said hostile foreign interests were taking advantage of the controversy to fuel opposition to the Chinese government domestically and abroad.
• Local officials said some detained shareholders had accused Zhu of personally directing their petitions and other activities.

Sources familiar with the case told HRIC that all of these allegations were intended to tarnish Zhu’s reputation and drive a wedge between him and his supporters and clients.

Zhu Jiuhu, born in 1965 in Gansu Province, previously came to public notice as the defense counsel for peasant billionaire Sun Dawu, who in October 2003 was convicted of “illegally taking deposits from the public” after he allowed company employees and nearby villagers to invest in his companies. Sun was sentenced to three years in prison, suspended for four years.

“The actions of the local authorities suggest that they lack confidence in China’s legal system,” said HRIC president Liu Qing. “This is an important test case for China’s program of economic reform, and for the safeguards on private property recently incorporated into China’s constitution. The authorities should allow the legal process to run its course rather than taking preemptive action against those who use the avenues provided in Chinese law to peacefully seek legal remedies.”