CNPC, Sinopec Mum on Underground Bank

The financial newspaper Economic Observer said Monday authorities discovered that units of China National Petroleum Corp. and China Petroleum & Chemical Corp., or Sinopec, were clients of the underground bank based in the southern city of Shenzhen.

The Observer cited documents listing units of the two companies as clients of the private bank. It said the bank handled fuel payments from neighboring Hong Kong.

"The company has no comment on this matter so far. The relevant government departments are now investigating the case," said a man in the general manager's office of Sinopec Shenzhen Oil Company. He gave only his surname, Zhang.

A staffer in the general manager's office of CNPC Shenzhou Oil Products Distribution Company, who also gave only her surname, Liu, said company executives were not available to comment.

"We are not authorized to answer any questions," she said.

In August, the State Administration for Foreign Exchange disclosed the case, saying only that large, unnamed state companies were among the underground bank's clients.

CNPC, parent company of PetroChina, and Sinopec, Asia's biggest refiner, are among the country's most elite businesses -- able to rely on support from big state banks and international banks.

It is usually private and small businesses that resort to underground banking networks, which thrive in China's eastern and southern provinces, regions having a large share of foreign trade and rapid economic growth.

In this case, reports said the underground bank appears to have been handling payments from Hong Kong for gasoline bought in Shenzhen. Hong Kong drivers often cross the border to fill their fuel tanks, taking advantage of lower, state-controlled prices on the Chinese mainland.

Hong Kong, a former British colony, reverted to Chinese rule in 1997, but it remains a separate economic territory.

According to state media reports, the underground bank had operated for seven years and handled up to 4.3 billion yuan ($580 million) in the 18 months before it was shut down.