More overzealous reaction to the Unocal takeover “threat”

And the Democrats are as bad as the Republicans on this one. Yesterday Senator Byron Dorgan (D-ND) introduced a bill that would bar China’s purchase of Unocal on rather specious grounds of national security.

“This really isn’t very complicated,” Dorgan said. “Unocal is located in the United States and has approximately 1.75 billion barrels of oil. It would be foolish, to say the least, to allow a foreign government … to own that much of such a strategic resource so vital to the U.S. economy and the national defense.”

Dorgan went on to say that because no U.S. corporation or government entity is allowed to hold controlling interest in any of China’s state-owned oil companies, giving China a chance to buy U.S. companies in the sensitive energy sector would be unfair to U.S. businesses.

“Given this unlevel playing field,” Dorgan said, “China should be barred from owning a U.S. oil company, at least until it allows American companies to purchase controlling interests in Chinese energy companies.”

Pombo’s amendment would require U.S. investigators to determine the extent to which Beijing subsidizes Chinese investments in a variety of U.S. assets. Consideration of the amendment may help delay any sale of Unocal to CNOOC, which could aid Chevron.

Congressional rhetoric against the bid “is a bunch of bunk,” said Mark Denbow, who helps manage CNOOC shares at USAA International Fund, a San Antonio firm. “The energy market is completely fungible. It’s not like they are going to corner the market.”

I am afraid America simply isn’t ready to accept a deal that has such strong psychological implications (even if there’s no reality behind them). The very idea of Red China buying a US oil company frightens us Americans and makes us worry that we are becoming weak and the Chinese are becoming strong, and soon they will own everything. I’m tempted to put up the picture of the crying baby I used a few days ago. Grow up, America.

The Discussion: 44 Comments

The more economic connections between China and the US, the less likely nuke-happy Generals are to control the dialog, IMO.

July 16, 2005 @ 6:10 pm | Comment

I am Chinese, I think everyone with some insight of CCP’s tactit will understand the Neo-con’s worry, very reasonable, if you guys think it’s a good thing then CCP will be very happy to indulge you,hehe. So naive some americans,hehe, beyond me!

July 16, 2005 @ 7:29 pm | Comment

deepocean, I’d really like to hear why you think the neocons are being reasonable on this. (And it’s the Democrats too, by the way.) What is the threat to America of China owning this tier-2 energy company?

July 16, 2005 @ 7:33 pm | Comment

It is the Chinese taxpayers who should be worried about the bid.

If the US would really want to see a more friendly China, I cannot see the merits of isolating the developing country.

After all, China is not buying Boeing / any defence company. Let the market works!

July 16, 2005 @ 8:17 pm | Comment

For the life of me I do not understand why you persist in thinking the possible sale of Unocal to China is acceptable. Is it a good thing? Or is it just a normal business transaction that should not be second guessed by Congress or even scrutinized?

The arguments I read from my progressive friends, including those here, seem to make arguments against those who opposed the sale on the basis that it is paranoid thinking to oppose the sale or just plain “ridiculous” thinking. These positions seem to me are not responsible arguments. If the sale should be done, what facts justify it. We know oil is/will be in short supply, we know that US and China are/will be the biggest users of oil in the years to come, we know China has its sights set on competing with the US in all facits of world and economic affairs, we know that oil in America is drying up (businesses and Bush want to open up more of Alaska’s North Slope wildlife preserve to drilling regardless of the enviroment damage, and for what, for a drop in the bucket of US’s oil needs.

If there is analysis, debate and public knowledge about the issues in Congress and here I might add, and then the sale is approved I am okay with it. But to heap scorn on the opposition in the debate to try to make their position seem unworthy of serious consideration does nothing for the debate or the national security issue. IMO.

July 16, 2005 @ 8:43 pm | Comment

Pete, I respect your position. But I see this as a traditional case of “red-baiting,” even though China isn’t red anymore. I see this knee-jerk American reaction: just because it’s a takeover attempt from a past “enemy” and a country that threatens us economically, everyone has to line up against it to score political points. If I see evidence of a true threat to our nationhal security, I may change my mind. But I haven’t seen it yet.

Just because it’s China making the offer doesn’t mean it’s necessarily a bad thing. Some who are much more anti-CCP than I am, like Conrad and Simon, agree that the objections to the takeover are unfounded. But as I said, I’m willing to listen to counter-arguments.

July 16, 2005 @ 8:50 pm | Comment

I still have mixed views on this topic, but I think this little statement makes a lot of sense.

“Given this unlevel playing field,” Dorgan said, “China should be barred from owning a U.S. oil company, at least until it allows American companies to purchase controlling interests in Chinese energy companies.”

Foreign countries can’t even open a business in China unless it’s a joint venture. I don’t see this happening in “neo-con” America.

July 16, 2005 @ 9:00 pm | Comment

Interesting point Gordon. But just because China has a backwards approach to business, does that mean we should adopt it? We have our policies of free trade here; do we abandon them because China has a different policy?

July 16, 2005 @ 9:20 pm | Comment

I would hardly advocate that anyone adopt China’s backwards approach to business, but I do think more could and should be done to encourage China to adopt a more fair and open approach to business if they wish to have fair access to business in other countries.

“What’s good for the goose, should certainly be good for the gander.”

China not only has a backwards approach to business….it’s just plain shady. They try to lure foreign investment through joint ventures, but then, as in many cases, once the Chinese have either learned or stolen what they need from their foreign counterparts, they are discarded and the Chinese open their own business doing the same exact thing.

I guess we could call that Bingfeng capitalism. ๐Ÿ™‚

July 16, 2005 @ 10:07 pm | Comment

I actually agree with you Gordon. I’d be delighted if we could say to China,” Sure, you can take over Unocal. But you have to allow us the same lattitude if we want to acquire one of your companies.”

July 16, 2005 @ 10:58 pm | Comment

The foreign guy who started “That’s…” magazine probably has a good take how rotten it can be to do business with some Chinese in a close relationship. It appears some of his Chinese investors stole the business from him.

The way Chinese do things, and clearly CCP does it, is to only give when they get something they want in return or think they will. Look at how they handle dissidents, those who have been thrown in jail on phony charges, etc. The government will release them only as a carrot on the proverbial stick to get some preceived benefit from other countries.

If the CCP wants Unocal so badly at the government level, make them pay a higher price than mere dollars, if, that is, national security is not an issue. What about requiring the CCP to release all the journalists, people of conscience, free speech advocates, promoters of democratic ideas, labor rights organizers, Tibetians and if I have missed any group, others who advocate human rights in China that are wasting their health and lives in Chinese jails or the Chinese gulag.

No America does not have to play Chinese games or by their rules, but America should get quid pro quo for deals with China.

July 17, 2005 @ 12:19 am | Comment

Fine point Pete. But my whole objection to the US reaction to Unocal is the BS chorus of “National security!” It simply rings hollow to me and perpetuates the hysteria over the China threat, which is being used by Bush and the Heritage Foundation as the latest iteration of the Red Scare.

July 17, 2005 @ 12:33 am | Comment

Pete if you want a good example of how the Chinese do business…look no further than Grandma’s Kitchen.

Though she hasn’t said a great deal on the topic, her Chinese partners screwed the pants off of her.

Then of course, there are the lawsuits against Chinese automakers from GM and other western manufacturers.

There’s an endless list.

July 17, 2005 @ 12:50 am | Comment

Absolutely endless, as Gordon says. And it’s starting to backfire. The reputation of China’s business community now precedes it.

July 17, 2005 @ 12:54 am | Comment

The reactions to CNOOC’s bid of Unocal reveals US’s weakness, not strength. It is unnecessary to worry so much about China, a country so much behind the US (a poll by Wall Street Journal says over 75% of American are against the bid, hard to believe).

US is a country for free trade and benefits hugely from it. US has huge investment in China; and some Chinese industries are dominated by US companies (altought China is a developing country, it is more open to foreign investment than some developed countries, for example, Japan and South Korea).

If CNOOC is able to buy Unocal, there will be a new building block for peace and properity between the two countries.

July 17, 2005 @ 2:09 am | Comment

It doesn’t make sense to talk about level-playing field when you leture the Chinese to open their market for your investment and when they come in with money in hand, it is not allowed. Come on, american, groth up, most chinese are your friends, not enemies and monsters.

It seems China is the only country so far that ran into this kind of problem. Russia, Saudi Arabia and Venezuela (all these are not very-friendly nations) had no problem buying US oil assets.

July 17, 2005 @ 2:37 am | Comment

What’s Fungible? Some kinda itchy groin deal?It sure don’t sound good!

July 17, 2005 @ 3:31 am | Comment

This quid-pro-quo thing is a decent enough point but the US can’t abandoning its free trade ideals everytime another country refuses to play ball.

Remeber, history is repeating itself here. All those western politicians going to Toyko in the 80s to lecture the Japanese on free trade and try and force them to open their domestic markets? The Japanese smiled poitely, waited for them to leave and burst out laughing.

What happened to Japan? The paranoid protectionist policies and closed markets eventually contributed to its own stagnation of which its only starting to recover now. Meanwhile, the US economy has weathered all sorts of storms relatively unscathed.

Another point, the amount of money invested as a sum total in Amerca by Japan is a tiny drop in the ocean compared to how much British money is entrenched in America, some of it very old money. I don’t remember the figures but it’s huge. Still, fair enough Britain is a rock-solid ally of America.

I’m still shocked a how much attention this tiny little Unical deal is getting. While points by pete and Gordon above are valid, in the greater scheme of things, this is just a tiny speck in the world economy. If China thinks it can run Unical better than the Americans then do it.

July 17, 2005 @ 3:48 am | Comment

The Chinese can’t run a fever properly.

July 17, 2005 @ 3:52 am | Comment

Martyn, I’m really split. You make a good point, but my instincts are with Gordon on this. The point of free trade is that it must be free on both sides, otherwise someone gets screwed. Numerous examples of how this has happened, although the details escape me – India pops into mind, what with Amartya Sen’s work. As does European farm subsidies and Africa. And American Steel. Granted, America has been quick to be the aggressor here and take advantage of other countries, but China is part of the WTO, and should now loosen their grip on state-owned enterprises. I would have no problem with a public CNOOC buying up Unocal. No problem at all.

I think what Gordon has said comes of not having public enterprise. If it were all public enterprise, you can bet your booty that all the company CEOs would make sure that the rule of law with regard to intellectual property were better. But as it is western companies and people get screwed over. Is change in the air? Yes, because as Chinese succeed more and more they too are being victimised by the system of business in China, so eventually internal pressure will provide change. External pressure has failed so far to do so.

I should say here also that if I were a strategic consultant – which I’m not, but will be soon – I would advise places like Vietnam and Cambodia to advertise “Almost as cheap labour as China, but your Intellectual Property won’t get stolen here” There’s a good niche for that, I think, and it will do something very good for Vietnam and Cambodia – it will build up a solid base of return customers, which will infinitely help their economies.

July 17, 2005 @ 4:02 am | Comment

Wow, I’m still trying to digest all that info. Excellent post Laowai.

I also believe Gordon’s point above is a good one and I’ll admit that I didn’t consider it previously.

We will always have countries like China now and Japan previously who seek to protect their own industries and markets from foreign influence and/or control BUT THEY WILL LOSE eventually.

Look at Japan. It seems silly now but in the 80s many people really believed that Japan would buy up the entire world. Remember the movie Bladerunner?

American companies like GE, Intel, Pfizer, HP, Apple etc are some the best in the world and best run in the world because they operate in a free market and are not molycoddled by a paranoid protectivist government.

Let the Chinese put up barriers, flout and sidestep their WTO commitments. Fantastic! Because at the end of the day, they will suffer for it.

Why are hand-picked Chinese state-owned companies, “national champions” (with privileged access to capital, technology, and markets) like Founder and Changhong not household names? Because they are still licking their wounds after a number of failed government-backed sorties into the global arena. Consequently, they have curbed their international ambitions and privately-owned Chinese companies like Huawei and TCL are making some (albeit tentative) progress in the wider world.

Put it this way, if Chinese companies go global for political, not commercial, reasons, then they will almost certainly fail. Absolutely sure. They will be bulldozed over by the Intels, Apples and Pfizers of this world. They’ll be like like children in a world of men.

In this context, is CNOOC’s purchase of Unical still a big deal?

July 17, 2005 @ 4:35 am | Comment

Put it in another even simpler way. The American economy is the Mona Lisa of world economies. It is the most ruthlessly efficient and breathtakingly superb economic sytsem in human creation. It is a behemoth which makes other world economies look like children playing with building blocks.

Sure, we citicise Bush and the deficit and a bunch of other stuff but compared to places like China, the American economy rocks, it rules!

How formidable would China be if it had a Citibank instead of a Bank of China, a HSBC instead of a Agricultural Bank of China? It’s men and boys!

If China want to buy up piddling little American oil companeis (despite the fact that the oil market is of course fungible–i.e freely exchangable, interchangable) for inflated prices then let it. What the hell are the Chinese going to get out it? Nothing. Again, it’s politics in a commerical market and that always fails. Every. Single. Time.

I’ll go and have a lie down now.

July 17, 2005 @ 4:59 am | Comment

Martyn, I’ve just been chomping on some ostrich burgers – forgive my absence.

I hope you are right. I have a suspicion that there are members of the Chinese government that think they can take subvert the principles of free trade to their advantage, that is, by having their own trade not really free, and take advantage of the more freely traded capital around the world, build it up into one great Chinese owned behemoth and rise from poverty to become the emperor of the world.

I don’t know enough about economics, admittedly. You have a much greater faith in the machinery of the free market than I do though! For one thing, Apple, Pfizer etc. excel because of their dependence on Intellectual property, no? so maybe Chinese piracy might find a way to do what I’ve mentioned above.

Anyway, let’s hope you’re right, that there is a “meritocratic” mechanism and that only those companies that show they’ve got the goods – i.e. Haier, for one – can truly survive long term.

On a related topic, I’m excited that all the american corruption on the board-room level is finally being dealt with harshly. The guy at worldcom just got 20 years!!! Fantastic.

July 17, 2005 @ 7:02 am | Comment

American companies like GE, Intel, Pfizer, HP, Apple etc are some the best in the world and best run in the world because they operate in a free market and are not molycoddled by a paranoid protectivist government.

Martyn, I would like to point out that it’s not just because they operate in a free market system, but also the managment style operate under and the sense of ethics the abide by.

July 17, 2005 @ 7:51 am | Comment

damnit. The second paragraph shouldn’t have be included in the blockquote.

Sorry about that. Just send me a ticket for commenting while drinking.

July 17, 2005 @ 7:52 am | Comment

You are talking about Grandma’s Kitchen in Chengdu? I have eaten there several times and even had a chat with the American owner. Nice woman. What happened?

July 17, 2005 @ 8:33 am | Comment

Gordon, that is also wrapped up in my point mate. Everything that defines Amercian business throws up world-class companies. I thought my comments were already long enough!

Yeah, what was that you were saying about Granma’s Kitchen?

July 17, 2005 @ 8:57 am | Comment

I think the people who she worked with started capitalising off of her name and reputation. She sued. Sucks to be stabbed in the back.

July 17, 2005 @ 8:59 am | Comment

Nevertheless, point taken Gordon.

July 17, 2005 @ 9:26 am | Comment

Sorry folks, I did a few googles to find the article that was published awhile back..I think it was in the Christian Science Monitor, but I’m not sure. I’ll do some digging. Until then, AM can fill you in.

July 17, 2005 @ 10:15 am | Comment

Pete, I’m talking about Grandma’s Kitchen across China.

July 17, 2005 @ 10:17 am | Comment

Yep, She got ripped off plain and simple.They franchised and cut her out ILLEGALLY. She tried to enforce the contract and the lawyers just laughed at the old foreigner. I NEVER eat there anymore. Go to Peter’s Tex-Mex instead. It’s Grandma’s “adopted” son’s restaurant. It’s in his name. BTW, She did/does many nice things for the local community.

July 17, 2005 @ 7:48 pm | Comment

Here’s a comment that was left on my blog entry..

If China is to be treated as a legitimate bidder, then it must dissolve its Governmental stake in UCOOC. It must also forthwith eliminate its numerous and onerous investment restrictions, such as the required joint partnership requirements, the concomitant forced technology transfers, the disregard and non-enforcement of U.S. intellectual property.

And it should be pointed out that there is clear evidence of Chi-com protected industries as well. The steel industry is a case in point with a plethora of restrictions, preventing U.S. and Western investments and control of their steel companies. Their oil industry is also protected. But do they even ONCE mention their hypocrisy as they harp about U.S. qualms about their rather dangerous bid for Unocal?

July 17, 2005 @ 9:06 pm | Comment


You wriht:

We know oil is/will be in short supply.

Err, no. In fact, we don’t know any such thing.

There is no oil shortage now — 100% ofcurrent oil needs are being me through the market. No one is having to shut down operations because they are unable to find the oil that they need.

Prices are higher, but that is because, among other things, demand has increased. Say, for example, you sold hammers and had an inventory of 10,000 hammers in stock. Unfortunately, you are selling, on average, only one hammer per month. Hammers are, therefore, very cheap. Suddenly, the demand for hammers rises to 150 per day. You quicky raise the price of hammers, even though there is no hammer shortage and you still have plenty in your inventory.

No is there likely to be any oil shortage in the foreseeable future. The free markets will ensure there is no such shortage (absent government interfere).

In a free market, changes in price work to ensure that supply and demand remain equal. Either higher prices will lead to greater supplies (new reserves, improved production, higher cost reserves becoming economincal) or higher prices will reduce demand (alternate energy sources such a nuclear and wind, less consumption, etc.) or some combination of the two.

Of equal importance is that:

(i) there is a lot of oil that has already been discovered but which has not yet exploited.

“finding costs are essentially zero for the 3.5 trillion barrels of oil that soak the clay in the Orinoco basin in Venezuela, and the Athabasca tar sands in Alberta, Canada. Yes, that’s trillion — over a century’s worth of global supply, at the current 30-billion-barrel-a-year rate of consumption.”

Currently extracting that oil is expensive, but rising oil prices will make extraction profitable and that oil will come to market.

As Alan Greenspan observed, when denying that there was an oil shortage:

“During the past decade… gross additions to [world] reserves have significantly exceeded the extraction of oil the reserves replaced.”

So, over the course of the last decade we discovered more oil than we have used, leading to higher, not lower reserves. Hardly sounds like a shortage to me.

Furthermore, new reserves will almost certainly be discovered as higher prices make it cost effective to search in remote places like deep under the sea.

Every age predicts shortage, and are nearly always proven wrong:

A famous British economist published a paper in 1865 titled “The Coal Question: An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of our Coal Mines.”

He predicted that British prosperity would end within 50 years, when the nation ran out of coal, and he recommended an industrial slowdown in order to conserve what coal was left. Today Britain is still mining coal, with no end in sight.

America used to be utterly dependent on whale oil for lighting. During the early nineteenth century, energy pundits began warning that since a female whale produces only one calf every two years or so and they were being harvested at an ever-increasing rate, America would soon go dark. By 1850 it was clear that they were right about running out of whale oil, but they were wrong about America going dark. In 1859 a railroad conductor named Edwin Drake drilled a well in Titusville, Pennsylvania, and struck oil. The age of petroleum had begun!

July 17, 2005 @ 10:21 pm | Comment

Grandma’s Kitchen is great, I had a wonderful burger and a slice of peanut butter pie ala mode for lunch yesterday. This is in Beijing so I can’t comment about GK’s in other parts of China.

Re The Unocal deal; The Unocal board should make the decison based on what is the best long term deal for the current Unocal shareholders. Presently the deals are not that far apart. Since CNOOC is offering an all cash price this will attract immediate capital gains taxes for the Uncoal shareholders not to mention the current shareholders now have to find a comparable investment to to invest into which will also attract a commison expense.

If the Chevron deal is accepted the current shareholders will now own shares in a solid comapny and can dispose of the shares on their own schedule thus minimizing the capital gains taxes. Or the shareholders can continue to hold the Chevron stock which has an historical yoy capital appreciation of about 7% taken together with a dividend yield of about 2.55% the current shareholders would then own an asset that returns ~9.5% p/a without having to pay a broker to reinvest their shares.

Of course, since it is likely that the larger shareholders of Unolcal own their shares via an offshore vehicle in a tax efficient juridiction the above tax argument is moot.

July 17, 2005 @ 10:26 pm | Comment


You are determine to annoy me today, aren’t you? You write:

If the CCP wants Unocal so badly at the government level, make them pay a higher price than mere dollars. . . . What about requiring the CCP to release all the journalists, people of conscience, free speech advocates, promoters of democratic ideas, labor rights organizers, Tibetians and if I have missed any group, others who advocate human rights in China that are wasting their health and lives in Chinese jails or the Chinese gulag.

Unocal belongs to its shareholders (like me). We paid cash for our shares. We own them. And we are the ones selling them. We bought our shares for their investment potential and not as a vehicle to change Chinese internal politics. I want money for my investment, not Chinese jail inmates . . . unless, of course, you are proposing that those inmates be transferred to Unocal shareholders to work for us for free until the end of their sentences, which is not what I suspect you have in mind.

July 17, 2005 @ 10:32 pm | Comment

Pete, DON”T annoy Conrad.

July 17, 2005 @ 10:58 pm | Comment


I think I know who you are mate. I.e. you’re my best mate in Beijing?

If so, keep commenting.

That comment could only have come from you. Still, I’m not 100% so apols if it’s mistaken identity.

July 18, 2005 @ 2:30 am | Comment

Hmmm. . . . Pete:

The more I think about it the more I am inclined to consider that offer.

$67 per share plus one 16 year old Tibetan servant girl . . . going, going, SOLD to the man with the bad teeth, cheap suit and black hair dye.

July 18, 2005 @ 4:03 am | Comment

Conrad, Thank you!

July 18, 2005 @ 4:37 am | Comment

I would post more if there were more economic/finance threads to follow.

An aside. Perhaps if the PRC government hadn’t told the US government not to interfere in Unocal deal the Unocal deal might go down a little easier.

July 18, 2005 @ 7:16 pm | Comment

Hopefully there will be more economic/finance threads mate. Also, if you see a good economic/finance article, send it over to Richard, the gentlman who runs this site. That’s what I do. His mail address is on the front page on the left.

As you know from hundreds of bar conversations, I’m a real economic heavyweight, a titan of the Chinese economy. My brain hums with economic statistics and all that…you’ve heard it.

July 18, 2005 @ 9:00 pm | Comment

I think there is little, if any, national security concern in this bid.

The real concern of many American politicians is that they fear China, with a huge amount of US dollar reserve, is determined to buy more and more US assets. It doesn’t really matter if it’s oil or IT.

On the one hand, they press China to appreciate RMB, which means the depreciation of China’s US dollar reserve (Right, a pile of shitty green paper is the sole recompense and the sole profit attaching to so arduous a toil of Chinese coolies). On the other hand, they prevent China from purchasing US assets because they simply don’t want to honour the bucks they overprinted.

July 19, 2005 @ 6:35 am | Comment

I have a couple of questions? What r the reason so many were opposed to the poential merger of unocal corporations and china CNOOC?

What the argument of those who didn’t have a problem with potential merger.

October 19, 2005 @ 4:59 pm | Comment

RSS feed for comments on this post. TrackBack URL

Sorry, the comment form is closed at this time.