Tuesday - July 05, 2005

Big Trouble In Big China

Trouble is brewing on the other side of the Pacific. China is rapidly growing its economy and building up its military forces to unprecedented levels. Currently, there is a huge trade imbalance between the US and China. They’re selling cheap over here and have frozen their currency at an artificial level that only makes it worse. On top of all that, the Chinese are driving up the price of oil with their drive to industrialize. Did I mention the Chinese are continuing their saber-rattling at Taiwan? Yep, things are getting a little squirrely over there.

Now, they’re attempting to buy US oil companies to help feed their hunger for more of the world’s energy. Congress finally slapped down its hand and said “NO”. The Red Chinese aren’t taking it too calmly. This could be big trouble brewing while our military forces have their hands full in the Middle East ....

SHANGHAI, July 4—The Chinese government on Monday sharply criticized the United States for threatening to erect barriers aimed at preventing the attempted takeover of the American oil company Unocal Corp. by one of China’s three largest energy firms, CNOOC Ltd.

Four days after the House of Representatives overwhelmingly approved a resolution urging the Bush administration to block the proposed transaction as a threat to national security, China’s Foreign Ministry excoriated Congress for injecting politics into what it characterized as a standard business matter.

“We demand that the U.S. Congress correct its mistaken ways of politicizing economic and trade issues and stop interfering in the normal commercial exchanges between enterprises of the two countries,” the Foreign Ministry said in a written statement. “CNOOC’s bid to take over the U.S. Unocal company is a normal commercial activity between enterprises and should not fall victim to political interference. The development of economic and trade cooperation between China and the United States conforms to the interests of both sides.”

Those words, the latest rhetorical volley in an escalating trade battle, officially elevated the takeover battle for Unocal into a bilateral issue involving Washington and Beijing, raising the stakes of the outcome.

CNOOC’s bid comes as China’s emerging force in the global economy continues to sow international tensions over competition for natural resources, impacts on the environment, trade balances and security relationships. The deal would be the latest in a string of Chinese purchases of foreign companies as Beijing encourages domestic firms to seek new markets abroad and secure raw materials for China’s aggressive industrialization. The Chinese government has urged energy companies in particular to buy foreign oil fields as China’s consumption soars, deepening worries about the country’s access to supplies.

Already, CNOOC’s bid has taken China across a new threshold: It has unleashed the first takeover battle between a Chinese company and a U.S. firm, the oil giant Chevron Corp., which has its own deal to buy Unocal, for $16.5 billion. If completed, CNOOC’s purchase—its bid is for $18.5 billion—would be the largest foreign takeover ever made by a Chinese firm.

But as the price of oil continues to soar, underscoring the finite supply of global stocks, some members of Congress portray China’s appetite for energy as a threat to U.S. interests. They are painting CNOOC’s effort to buy Unocal as an attempt to siphon off oil that would otherwise land in the United States, a proposition that analysts call dubious because most of Unocal’s outstanding contracts supply customers in Asia.

As the House adopted its resolution Thursday by a 398 to 15 vote, some noted that CNOOC remains under the majority control of the Communist Party-led state, suggesting that this alone made the deal a threat.

“We cannot, in my opinion, afford to have a major U.S. energy supplier controlled by the Communist Chinese,” said Rep. William J. Jefferson, a Louisiana Democrat. Monday’s reply from Beijing reinforced what CNOOC has said from the beginning—that the deal is nothing more than an attempt to expand its business opportunities and invest capital sensibly.

Posted by The Skipper     on 07/05/2005 at 05:47 AM   
Filed Under: • Economics • International •  
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