An anti-corruption investigation targeting former and incumbent senior executives at China's largest oil and gas producer and supplier has rocked the country's lucrative oil industry, and sent shares related to the company plunging.

The case highlights the need to reform the country's State-owned oil system and institute a supervisory system to prevent corrupt collusion between State-owned enterprises (SOEs) and private businessmen as the country gradually opens up its oil industry to private capital, analysts said.

The investigation will also help create a favorable market-oriented environment and exert a profound influence on the development of the oil industry, market players said.

On September 3, the central government removed Jiang Jiemin, head of the State-owned Assets Supervision and Administration Commission (SASAC) and former chairman of China National Petroleum Corp (CNPC), from office on suspicion of serious disciplinary violations.

The decision was made after the Communist Party of China (CPC) Central Commission for Discipline Inspection and the Ministry of Supervision said on September 1 that Jiang was under investigation for such violations.

Jiang became general manager of CNPC in 2006 and chairman in 2011 before being appointed head of the State assets watchdog in March 2013.

Similar probes were announced into four other executives of CNPC and its listed unit PetroChina on August 26 and 27, including Wang Yongchun, CNPC vice president; Li Hualin, CNPC deputy general manager and chairman of Kunlun Energy, CNPC's natural gas distribution arm; Ran Xinquan, vice president of PetroChina; and Wang Daofu, chief geologist of PetroChina.

Trading in the Hong Kong-listed H shares of PetroChina and Kunlun Energy was suspended on August 27 following the news of the investigation. The shares tumbled when trading resumed the following day, with the companies' combined market value falling by over 21.7 billion yuan ($3.55 billion) on August 28.

In a further twist to the incident, trading of PetroChina's H shares was suspended again on Monday morning after China Business News (CBN) reported that five other executives - Sun Longde, a PetroChina vice president and director; Wang Guoliang, a PetroChina director; Wu Mei, CNPC planning department manager; and two others from SPT Energy Group, which is affiliated with CNPC - have been "taken away" by the authorities.

PetroChina denied the report in a statement Monday, saying Sun and Wang from PetroChina were still handling their duties at the company as usual. But the statement did not mention the other three executives cited in the CBN report.

Li Zhanbin, a spokesman for CNPC in Beijing, told the Global Times Monday that the group has no further information regarding the anti-corruption investigation, other than what has been published on the website of PetroChina.

Ripple effect

The impact of the anti-corruption probe has spread to other companies related to CNPC and PetroChina.

On September 2, Wison Engineering Services Co said in a statement that its chairman and controlling shareholder, Hua Bangsong, is assisting the relevant authorities in their investigations.

To allay concerns, the company said that its revenue from contracts with PetroChina and its subsidiaries for the six months ended June 30, 2013 was insignificant.

Trading in PetroChina's shares has been suspended since September 2.

"The anti-corruption investigation will have a limited effect on the State-owned CNPC and its listed arm PetroChina. But it will have a huge impact on private companies, because for those private companies, a single executive might determine the fate of the company," Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times Sunday.

Since the government's announcement of the anti-corruption investigation, many listed companies that are upstream suppliers or downstream buyers of CNPC and PetroChina have tried to cut their connections with the firms.

There are 23 listed companies that had a combined total of 1.12 billion yuan in receivables from CNPC and PetroChina by the end of June, the 21st Century Business Herald newspaper reported on September 4, citing data from Zhejiang Hithink Flush Information Network, an information service provider.

Most of the nine major creditors of CNPC and PetroChina did not respond when reached by the Global Times for comment.

Shanghai SK Petroleum & Chemical Equipment Corporation told the Global Times in an e-mail Sunday that the company's major clients are CNPC, China Petrochemical Corporation (known as Sinopec) and China National Offshore Oil Corp. The company said the anti-corruption investigation has had no impact on its business.

"The investigation helps foster a market environment in line with the rules of a market economy and will have a far-reaching positive impact on the development of China's oil industry," the company said.

Staff members from Sichuan Renzhi Oilfield Technology Service Co and Kingdream PLC also said the investigation has not affected them.

"For those companies whose major client is CNPC or PetroChina, they need to reconsider their business strategy in order to remain intact," said Lin of Xiamen University. 

Reform expected

New management is already in place at CNPC and PetroChina, and a change in focus has been announced.

At the press conference for the semi-annual performance report in August, Wang Dongjin, who was appointed president of PetroChina in July, said the company will focus more on quality, profit and sustainable development, and that expansion will proceed at a more moderate pace.

In May, Zhou Jiping, who was appointed chairman of CNPC in April,  told reporters that the group will work to find a balance between expansion, quality and profits. He also said the group will implement an "asset-light strategy," involving the use of assets such as technology rather than tangible assets to generate performance.

The strategy contrasts with the one practiced by CNPC under Jiang's management.

In the last few years of Jiang's tenure, CNPC engaged in a spending spree. CNPC's capital spending was 352.5 billion yuan in 2012, up 23.95 percent from 284.4 billion yuan in 2011, according to its annual report.

CNPC and PetroChina also acquired a series of overseas assets, including a stake in an offshore gas field in Mozambique in March that cost $4.21 billion.

However, the high capital spending did not bring high profit growth. PetroChina earned 115.3 billion yuan in 2012, compared with 132.9 billion yuan the previous year, down 13.3 percent year-on-year.

"The impact of personnel changes at CNPC and PetroChina has not gone away. But one thing seems to be clear: The new management of the group will strengthen efforts toward market-based reforms and will focus on quality instead of expansion," Zhong Jian, chief analyst at CBI Commodity Information Research Center, told the Global Times Monday.

"But an effective supervisory system must be in place," Zhong said, to prevent SOEs from abusing their dominant position in the oil sector.