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Unocal bid highlights
globalist-nationalist
conflict
By Michael A Weinstein
During the week of July 11, the bidding
war between US-based oil giant Chevron and the
Chinese National Offshore Oil Corporation (CNOOC)
to purchase US oil company Unocal heated up, with
both adversaries mounting major public relations
and lobbying campaigns, and US congressional
opposition to a CNOOC takeover ratcheting up to a
fever pitch.
Until CNOOC weighed in with
an unsolicited US$18.5 billion cash offer, it
appeared that Chevron's $16.6 billion bid for
Unocal would face clear sailing. The Chevron
acquisition had already gained approval from
Unocal's board, pending an August 10 stockholder
vote, but CNOOC's intervention sent the deal off
course. At a July 17 meeting, Unocal's board
rejected CNOOC's offer in its present form, but
the decision was not final. Analysts believe that
Unocal's board is trying to play the two sides off
against one another, seeking to get the
adversaries to raise their bids.
Although
Unocal accounts for only 0.23% of world oil
production and 0.3% of US consumption, the company
has 1.75 billion barrels of reserves, 980 million
of which are in Asia and 447 million of which are
in the US. Unocal is particularly attractive to
CNOOC and to China's government, which owns 70% of
CNOOC, because of its Asian reserves, which are
located in Indonesia, Myanmar and Thailand. As the
global oil industry consolidates and competition
for reserves becomes more intense, Chevron sees
Unocal - a California neighbor - as a prime
strategic acquisition.
Neither of the
adversaries seems willing to give way and, having
been placed on the defensive, Chevron has
politicized the conflict, exerting pressure in the
US Congress on a broad front to ban the CNOOC
takeover outright or to delay it sufficiently to
persuade Unocal shareholders to accept Chevron's
offer, which already has regulatory approval.
Chevron's lobbying effort, which has met with
impressive success, has been countered by a
similar CNOOC campaign. Vice Chairman of Chevron,
Peter J Robinson, openly admits trying to turn the
company's conflict with CNOOC into a
"geopolitical" issue. CNOOC strives to interpret
the bidding war as simply an ordinary business
deal.
Despite the Congressional outcry,
the Bush administration has remained neutral in
the Unocal dispute, promising that CNOOC's bid -
if it is accepted - will be reviewed by the
Committee on Foreign Investment in the US (CFIUS),
which vets foreign takeovers of US companies on
security grounds. The administration's silence
reflects the conflicting interests at play in
Washington's global economic policy, which the
Unocal fight has highlighted.
Globalization or economic
nationalism?
In its attempt to portray its
conflict with CNOOC as a geopolitical issue,
Chevron has brought to the fore the increasingly
difficult decisions faced by Washington in
responding to China's rising economic power.
Writing in US News and World Report, Matthew
Benjamin summarized the problem succinctly:
"Essentially, the United States and its
politicians are learning that globalization is not
pain free."
Sino-US relations are among
the most complex bilateral ties in the world and
are marked by subtle patterns of dependency,
interdependence, competition, cooperation and
conflict. Prior to the Unocal dispute, economic
relations between the two great powers had
achieved a highly unstable equilibrium based on
Chinese exploitation of the US market for its
exports in return for China buying US debt. That
tacit bargain had already come under stress
through the loss of US manufacturing jobs to
China, ballooning Chinese textile exports, Chinese
violations of intellectual property rights of US
companies, technological transfers and mounting
opposition to the low currency valuation of
China's yuan relative to the US dollar.
Resistance in the US to the domestic
impact of China's growing strength has
crystallized around the Unocal dispute because
CNOOC's bid is the most serious instance of recent
Chinese moves to acquire US assets rather than
simply to fund its debt. The recent rise in the
price of oil and the high probability that
elevated price levels will persist has made energy
a sensitive political issue in the US. By going to
Congress, Chevron has succeeded in making Unocal a
strategic issue.
Chevron's campaign
against the CNOOC bid found access points in every
congressional committee concerned with foreign
trade, resources and military security, and
culminated at a July 13 hearing of the House Armed
Services Committee, at which congressmen favorable
to Chevron joined with anti-Beijing defense hawks
to commit to introducing a bill blocking a CNOOC
takeover. Linking fears that Beijing might use its
acquisitions to disrupt the US economy and the
arguments that US energy companies are barred from
buying Chinese firms and that Beijing's financing
of CNOOC's bid with low-interest loans violates
fair trade principles, congressional opposition to
the bid spread beyond its original base in
California to include every region.
The
wave of economic nationalism set in motion by
Chevron's lobbying carries with it the long-term
possibility that US resistance to asset
acquisition might place the foreign investments of
US corporations in jeopardy, stalling or even
reversing economic globalization. Analysts agree
that CNOOC's bid, which came in the wake of
Lenovo's acquisition of IBM's personal computer
business and Haier's bid for Maytag, will be
followed by many more efforts by Chinese firms to
acquire US assets. As time goes on, Washington
will be increasingly forced to choose between
globalization and nationalism.
Whether or
not CNOOC succeeds in making an offer generous
enough to persuade Unocal's shareholders to
acquiesce in a takeover, the bidding war has
brought to the surface an underlying strain of
economic nationalism in the US that is unlikely to
abate. As interests in the US are affected
adversely by Chinese economic initiatives, the
alliance between those interests and anti-Beijing
security hawks will strengthen, placing strains on
Washington's support of globalized investment
markets. Look for a series of difficult decisions
on asset acquisition to emerge in the years ahead
that will significantly determine the future of
globalization and the shape of Sino-US relations.
Published with permission of the Power and Interest News
Report, an analysis-based
publication that seeks to provide insight into
various conflicts, regions and points of interest
around the globe. All comments should be directed
to content@pinr.com |
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