Chapter 1 – The World’s Fastest-Growing Economy
At the beginning of the 21st century, China was transforming faster than any major economy in modern history.
After joining the WTO in 2001, factories spread across the country. Steel mills, cement plants, highways, airports and apartment towers appeared almost overnight. GDP grew at roughly 10–14% annually. Millions of people bought cars for the first time. Every additional factory required electricity; every truck consumed diesel; every construction site demanded asphalt.
China’s oil consumption reflected this transformation.
Between 2000 and 2007, Chinese oil demand nearly doubled, growing from roughly 4.8 million barrels per day to over 7.5 million barrels per day. China became the second-largest oil consumer in the world after the United States.
At the same time, global supply struggled to keep pace.
Years of underinvestment following the late-1990s oil collapse left little spare production capacity. Geopolitical risks—including the Iraq War, unrest in Nigeria, and concerns about Iran—added further uncertainty. Commodity investors began describing the period as the beginning of a “commodity supercycle.”
Crude oil rose relentlessly:
- 2002: around US$20–30/bbl
- 2004: above US$40
- 2005: above US$60
- 2006: around US$70
- Mid-2007: above US$75
- July 2008: eventually reaching US$147/bbl
To many investors, there seemed to be only one conclusion:
China would continue growing forever.
Oil prices would continue rising forever.
Therefore, oil companies would become permanently more profitable.
Chapter 2 – The Perfect National Champion
Among Chinese companies, none symbolized this story better than PetroChina.
Unlike many newly listed private companies, PetroChina represented ownership of China’s most strategic industry.
It controlled massive upstream oil reserves, pipelines, refineries and distribution assets.
To domestic investors, buying PetroChina meant buying China’s economic miracle itself.
The company had already listed H-shares in Hong Kong in 2000 and ADRs in New York.
However, most mainland investors could not easily purchase overseas shares.
The A-share IPO therefore became something entirely different:
For the first time, ordinary Chinese investors could own what many considered the country’s most valuable enterprise.
Demand became extraordinary.
Chapter 3 – The Bubble Already Existed
By late 2007, Chinese equities were already experiencing one of history’s largest valuation bubbles.
The Shanghai Composite had risen from roughly 1,000 points in mid-2005 to more than 6,000.
Retail investors opened brokerage accounts at record speed.
Newspapers discussed stocks on front pages.
Taxi drivers and university students debated IPO allocations.
People queued outside brokerage offices.
Mutual funds sold out within hours.
There was widespread belief that the Chinese government would never allow the stock market to fall significantly.
Liquidity flooded into every large IPO.
Chapter 4 – Valuation Lost Contact With Reality
Internationally, oil companies remained reasonably valued despite high oil prices.
Approximate valuation before the PetroChina A-share IPO:
| Company |
Forward P/E (approx.) |
| ExxonMobil |
10–12× |
| Chevron |
9–11× |
| BP |
9–10× |
| Shell |
9–11× |
| Total |
9–11× |
Investors largely assumed oil prices would eventually normalize.
Chinese investors reached a completely different conclusion.
The PetroChina A-share IPO was priced at RMB16.70.
On its first trading day:
- Open: RMB48.60
- Intraday high: RMB48.62
- Close: RMB43.96
At the day’s high, PetroChina briefly became the world’s largest listed company by market capitalization, exceeding US$1 trillion.
Yet the underlying business had not changed.
The same oil fields.
The same refineries.
The same earnings.
Only the market where investors traded the shares had changed.
The implied valuation was estimated at roughly 45–60× earnings depending on methodology—roughly four to six times the multiple of global oil majors.
This was not because PetroChina was dramatically more profitable than ExxonMobil.
It was because investors believed China’s growth would remain extraordinary forever.
Chapter 5 – Scarcity Meets National Optimism
Several forces reinforced one another.
China’s GDP was booming.
Oil prices were making new highs almost every month.
The Shanghai market itself was already euphoric.
Mainland investors had limited investment alternatives.
PetroChina represented both national pride and perceived scarcity.
Many investors believed:
“If China’s economy doubles again, PetroChina must also double.”
Few asked the more important question:
“What if today’s profits already assume exceptionally high oil prices?”
The distinction between a great company and a great investment disappeared.
Chapter 6 – The Peak
On November 5, 2007, PetroChina reached its all-time A-share high during its first minutes of trading.
It would never revisit that price.
Only months later, the global financial crisis began unfolding.
Oil prices collapsed from US$147 to below US$40.
Commodity profits normalized.
Shanghai Composite Index fell by more than 70%.
PetroChina’s valuation gradually converged toward international oil majors.
The company remained one of China’s largest and most important enterprises.
The business largely survived.
The valuation did not.
Epilogue – The Last Buyer
The PetroChina A-share IPO remains one of history’s clearest examples of the difference between a wonderful company and a wonderful stock.
Almost every part of the bullish narrative proved true:
- China continued becoming a global economic superpower.
- Oil demand continued growing for years.
- PetroChina remained enormously profitable.
- The company remained strategically indispensable.
Yet investors who purchased at the IPO peak suffered enormous long-term losses because they paid a valuation that assumed an almost perfect future.
The lesson was never that PetroChina was a poor business.
The lesson was that even the greatest businesses can become poor investments when narrative, liquidity, scarcity and optimism combine to overwhelm valuation.
That distinction continues to echo in every market cycle—from technology in 2000, to Chinese equities in 2007, to other periods when investors begin believing that “this time is different.”
