By Chen Aizhu
BEIJING (Reuters) - A Chinese firm hit by U.S. sanctions as Washington turns the screw on Iran's nuclear program was founded in the mid-1990s by a hard-drinking trader from a military background who regales dinner companions with how he spent much of his youth in a mental hospital.
Yang Qinglong, who calls himself "Crazy Yang," set up Zhuhai Zhenrong Corp in around 1995 after "high-level military friends" let it be known they wanted someone to formally import crude oil from Iran. At the time, Iran was supplying oil to China to pay for arms supplied by Beijing during the 1980-88 Iran-Iraq war.
Zhuhai Zhenrong, now headed by Zhang Dongquan, an altogether steadier upstream oil man from China's Yumen oilfield, was the biggest supplier of refined petroleum products back to Iran, according to the U.S. State Department, which has also slapped sanctions on two other energy trading companies.
The Chinese oil trader - which for years imported Iranian crude to sell to state-run refiners such as China Petroleum and Chemical Corp (Sinopec) and PetroChina - brokered the delivery of more than $500 million in gasoline to Iran between July 2010 and January 2011, contravening U.S. sanctions law, the State Department said.
Analysts say the U.S. sanctions are largely symbolic given that Zhenrong is unlikely to have much U.S. business exposure.
AN ACCIDENTAL TRADER
Yang, now in his 60s and an adviser to Zhenrong, got into the oil business by chance.
His home province of Yunnan, landlocked in China's southwest and near the Myanmar border, was so short of fuel in the early 1990s that local authorities offered officials cash if they could lay their hands on gasoline or diesel for the province.
Using his network of contacts, Yang was soon shipping oil from Daqing oilfield, the nation's biggest crude producer, to the little-known Jiujiang refinery, then owned by state-run China Petrochemical Corp, or Sinopec Group, parent Sinopec, in eastern China, and trucking the processed products back to Yunnan.
"That's how he made his first pot of gold," said a former Zhenrong trader, who asked not be named because of the sensitivity of the subject.
Former colleagues attribute Yang's success over the years to his eloquence, consummate networking skills and ambition.
When the military came calling for a conduit to Tehran, Yang, clad in his trademark army-green jacket and with a matching canvas bag slung over his shoulder, beat off rivals to become China's exclusive importer of Iranian oil.
Yang first visited Tehran in July 1995, and was introduced by China's military to Iran's oil ministry, National Iranian Oil Co (NIOC), the defense ministry and leading Iranian banks.
Zhenrong - which in mandarin means "boosting military" - was initially attached to the Commission of Science, Technology and Industry for National Defense (COSTIND), which came under the State Council, China's cabinet, and central military committee. One of its tasks was to supervise arms manufacturing and trade.
In the early days, Yang made his first hires from Sinochem, then China's near monopoly state-run oil trading house, bringing in a crude oil trader and a finance staffer to work at a modest two-storey office in northern Beijing. The rest of the dozen-strong team were mostly fresh out of university and from military families.
Yang's bedroom was separated from his office in the building by just a toilet.
In 1998, Zhenrong became a commercial state-run enterprise.
Zhenrong traders fondly recall the company's "glory year" in 2001, when it imported 11 million tonnes of Iranian crude, or 220,000 barrels per day (bpd) - 16 percent of all China's crude imports that year - coinciding with Sinopec increasing its high-sulfur, or sour crude, processing capacity.
Iran, between 1999 and 2001, shipped more crude oil than Saudi Arabia to China - partly driven by Yang's own efforts - but by 2002 the Saudis claimed the top slot, supplying China with 228,000 bpd versus Tehran's 213,000 bpd, according to Chinese customs data.
"Yang's extraordinary personal style, sometimes not logical, sometimes even unreasonable, made his counterparts both awe and respect him," said another former trader who saw Yang in action.
During one meeting with refinery officials, Yang banged his fist on the table and yelled into the face of a plant official: "Why can't you take the (Iranian) crude? Tell me, is your plant owned by the nationalists or the communists?"
An official at National Iranian Oil Corp said Yang was a trouble-shooter. "He may get drunk and tell lots of jokes, but he's politically powerful. He solves problems," he said, recalling also how Yang would greet his Iranian peers by lifting them up and carrying them in his arms.
In quieter moments, colleagues say Yang is something of a bookworm and movie-buff. They say he has read and re-read biographies on Napoleon and Hitler and the 18th century Chinese classic 'A Dream of Red Mansions'. He took staff to the cinema to watch 'Gladiator' and 'Saving Private Ryan'.
From around 2006, Zhenrong has faced competition from Unipec, the trading arm of Sinopec, though it has kept its Iranian oil liftings at around 240,000 bpd - about 5 percent of China's current total imports. Unipec last year signed up some 265,000 bpd from Iran, including condensate.
The rise of Unipec, which last year bought and traded a total of over 3 million bpd of crude oil, sparked talk that Zhenrong could be folded into a larger state-owned firm, simply as a crude oil desk.
"There was a great deal of uncertainty over Zhenrong's future. At one point, there were rumors that six bigger companies were eager to swallow up Zhenrong," said a company source, who asked not be named due to company policy. "If the company doesn't grow up fast enough, that could become true."
Under Zhang, however, Zhenrong is now looking to broaden its business beyond petroleum trading, and is scouting for upstream opportunities in Canada and Malaysia. It has a string of strategic alliances with Chinese state banks to secure credit.
But, with no assets or expertise either upstream or downstream, it could be a tough challenge for a company that, at its core, has 10 people trading Iranian crude and bringing in around 80 million yuan ($12.66 million) a year.
Zhuhai Zhenrong's refined fuel business, including gasoline sales to Iran, was largely handled by Guangdong Zhenrong Energy Co. Ltd, a wholly-owned unit set up in 2002. By last year, Zhuhai Zhenrong's stake had dropped to around 40 percent, with ownership passing to a group of unknown state-backed companies.
Headquartered in Guangzhou, in southern China, Guangdong Zhenrong is led by Xiong Shaohui, an ex-official of China's Ministry of Commerce whose job was to manage the country's tightly state-controlled oil import quotas.
Xiong, 45, hails from the same southwestern resort city of Dali as Yang, and was his protege, sharing a love for Chinese liquor, poetry and martial arts.
The Guangdong firm was a regular buyer of Iranian fuel oil until 2008, working with Singapore Tianbao Trading, Zhenrong's chartering arm based in the Asian oil hub.
In mid-2011, Xiong's team joined Chinese state energy giants selling gasoline cargoes to Iran, stepping into a void left by Western fuel suppliers that halted shipments because they were wary of U.S. sanctions.
Asked about the potential impact from U.S. sanctions, current and former Zhenrong officials appear nonchalant.
"Sanctioning Zhenrong? How? The company does not have any U.S. assets. On foreign currency payments? They can easily find a solution on that," said the second former Zhenrong trader.
(Editing by Ian Geoghegan)