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China oil bid tests US free market
rhetoric
By Emad Mekay
WASHINGTON - An unsolicited bid by the
Chinese National Offshore Oil Co (CNOOC) to buy
Unocal, a US oil company, has put Washington's
free market rhetoric to the test, with
disappointing results, some analysts say.
The global economic rules set by the
victors of World War II have generally encouraged
investors, typically from rich nations, to bid for
companies in other industrialized countries or in
poor nations in the name of open market and
economic growth. US acquisitions of assets abroad
were a record US$855.5 billion in 2004, up from
$328.4 billion in 2003. US-owned assets abroad
totalled $9 trillion at the end of 2004, according
to the US Bureau of Economic Analysis.
But
the CNOOC uproar demonstrates what happens on the
rare occasion when a company from the developing
world bids for one in the North. Even though the
Chinese company has appeared to play by the rules
set by Wall Street, the US Congress quickly
recoiled into a defensive posture, calling the bid
a threat to national security and urging the Bush
administration to quash CNOOC's bid.
"From
a public policy point of view, the bid raises
serious national security issues as energy is a
national security asset under any reasonable
definition," said Michael R Wessel, a commissioner
with US-China Economic Security and Trade
Commission, an advisory group to the US Congress
on relations with China. "CNOOC is a
state-controlled company. It is not a free-market
enterprise," he argued. Wessel said there is a
strong chance that at a time of spiraling energy
demand and limited supplies, "a state-controlled
entity" could purchase a company and then
"restrict access to other nations and other
consumers of that asset".
The Bush
administration, which will have the final say on
the security issue, has been silent on the issue
thus far. But Congress has been less hesitant. Two
weeks ago, dozens of members of Congress sent a
letter to the Treasury Department requesting a
review by its Committee on Foreign Investment of
CNOOC's $18.5 billion bid to buy Unocal, which
topped the $16.5 billion bid by US oil giant
Chevron. The congressional group, spearheaded by
representatives from Texas and Louisiana, major
oil-producing states, had warned that China's
"aggressive strategy" to increase its energy
sources could hurt the US because CNOOC was 70%
owned by the Chinese government.
China
responded by warning the US Congress to stop
"politicizing economic and trade issues." CNOOC's
chairman, Fu Chengyu, pointed out that Unocal
accounts for just 1% of the total US oil and gas
production, an amount that could not possibly pose
a threat to US national security. The Chinese
company also pledged to sell oil produced by
Unocal inside the United States. On July 14, news
reports indicated that CNOOC planned to raise its
bid by paying an additional $2.5 billion into an
escrow account, to further address the concerns of
the Unocal board that any deal could be delayed or
blocked on national security grounds.
None
of this has appeased the critics of the deal.
"China has entered into special arrangements with
Sudan, with Iran and with other nations where it
wants to own oil and other energy assets at the
wellhead," said Wessel. "It is not looking long
term to compete in the free market for energy
assets like the US and other nations. So that
raises serious concerns even if one did not have a
concern about the 1.75 billion barrels of oil and
gas equivalent energy that Unocal has. This is a
seminal transaction that sets a precedent for
future debates."
But Todd Malan, executive
director of the Organization for International
Investment (OFII), which represents foreign
investments in the United States, said a move by
Congress to block the deal outright would send a
message that US rhetoric about open investment
rules "is a one-way street".
This policy
of openness has came to be known as the Washington
Consensus, which forms the basis of the ideology
governing most of the world economy and its
patrons from international institutions, like the
World Bank and the International Monetary Fund
(IMF). But even the World Bank, viewed by some as
an instrument of US foreign policy, has gently
said it was natural for China to seek to acquire
foreign assets, including in the United States.
"China has reached a stage of development in which
it makes sense for some of its companies to go
global and invest worldwide," said David Dollar,
the World Bank's country director in China. "As a
US citizen, I think it is a good thing that
Chinese companies are investing in the US, just as
US companies have done in China for decades now."
Dollar said that aside from the economic
benefits, such cross-investment means that each
country has a greater interest in seeing the
other's economy do well, encouraging governments
to work together to maintain an open trading
system and to coordinate their macroeconomic
policies. "Integration between China and the US
requires some painful adjustment on each side, but
this integration is in the long-term economic and
political interests of each country," he said.
Some US analysts, while acknowledging the
right to protect national security, say CNOOC has
made it difficult for Washington to argue that the
bid poses any real threat. CNOOC, for example, has
reportedly promised to divest Unocal assets or
technologies, like seismic technology, deemed
central to US national security. This may include
facilities that Unocal owns and which are part of
the US strategic oil reserves.
"To sort of
wave your hand and say the Chinese represent a
threat to the US and therefore we cannot sell
anything that might be scarce in the world that
they could use to strengthen themselves is hard to
even imagine as justifiable by economics or by the
logic of national security strategy," said Albert
Keidel, a China expert with the Washington-based
Carnegie Endowment for International Peace.
"Certainly, purchase according to price has to be
one of those rules that are pretty universal."
But US public opposition to the bid appear
to be mounting in recent days. According to a Wall
Street Journal/NBC News poll, the CNOOC bid is
opposed by 73% of participants and supported by
only 16%, with 11% unsure. Analysts say this will
tend to strengthen the hand of Chevron in the
competition for Unocal, and the company has not
bothered to compete dollar-for-dollar with CNOOC.
Chevron spokesman Donald Campbell said in a July
12 interview: "We have no plan to change our bid.
We have the only [approved] merger agreement with
Unocal.''
(Inter Press
Service) |
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