By Mure Dickie
BEIJING - Private investors from the heartlands of China's communist revolution are preparing to sue the government over the forced seizure of thousands of oil wells.

The case, involving wells worth a claimed Rmb7bn (Dollars 845m, Euros 686m, Pounds 460m), could become the biggest such lawsuit ever brought against the state. It reflects the precarious status of much private enterprise in China but underlines the growing willingness of private Chinese to use the law to protect their interests.

Lawyers working on behalf of owners of hundreds of oil companies from the impoverished northern province of Shaanxi have begun collecting evidence to build a case contesting the provincial government's seizure of the wells last year.

The case takes them to some of China's oldest oilfields, where the Tang Dynasty scholar Duan Chengshi remarked in the ninth century on the local "fatty mineral water" that could be used to oil carts and "burns exceedingly brightly in lamps".

Private oil wells in the area, home to Mao Zedong and fellow revolutionaries in the 1930s, had become a pillar of the local economy by the early 1990s but were confiscated by officials as part of a clean-up of the industry.

The seizures sparked demonstrations and clashes with armed police, as investors protested against the loss of ventures they had set up with local government approval.

Investor activists say that while the authorities later agreed to pay Rmb1.3bn in compensation, this amount is far below the Rmb7bn the wells were worth, and that the agreement of some investors was forced while they were held in police detention.

Disputes over state acquisition of private property are common in China, where private companies are a vital source of economic growth but most big companies and financial institutions are controlled by the state and political power is still monopolised by the Communist party.

Bao Yujun, head of a Beijing-based think-tank that researches the development of China's private economy, says the Shaanxi oil well seizures were an egregious example of the problems still faced by private companies despite increasing political acceptance.

"In their actions the local authorities have not respected property rights or human rights," Mr Bao said. "This is a classic case of
illegal administration and the misuse of administrative power."

However, Zhu Jiuhu, one of the lawyers involved in collecting evidence, said the investors had been heartened by recent legal reforms aimed at preventing administrative misconduct and by the strengthening in March of constitutional protection for private property.

"The changes have made the oil well investors more confident," Mr Zhu said. "They are pretty determined."

Investor activists, who have faced detention by Shaanxi police, are also pushing their campaign for greater compensation with a website - www.sbmysy.com - that offers details of their claims and even a summary of government pronouncements to allow readers to "hear both sides".

Such sophisticated methods and the public support of academics underline a widening of debate within China's emergent civil society on legal and social issues.

It could be some time before the investors can begin legal action, however, with lawyers having to research seizures spread across a number of counties.

Local authorities also appear unlikely to compromise, with officials in Yanan insisting that compensation was handled "entirely in accordance with the law" and dismissing accusations of police brutality against investors by saying the latter had initiated any violence.

One official, who declined to be named, said the oil industry was vital to the economy in Yanan, the area of northern Shaanxi where Mao and his comrades lived in caves while fighting the Nationalists and Japanese.

"About 70 cents of every one yuan in fiscal revenue come from oil," he said.

Financial Times