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China tells Congress to back off businesses
(Agencies/Washingtonpost.com)
Updated: 2005-07-05 11:07
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.
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| China National Offshore Oil Corporation's (CNOOC) oil rigs is seen
in China's Liaodong Bay of the Bohai sea February 3, 2005.
[newsphoto] | 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.
Unocal offices in
Sugar Land, Texas. Oil exploration firm Unocal said its shareholders would
meet August 10 to decide on takeover offers from US rival Chevron and
China National Offshore Oil Company. [AFP] | 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.
A takeover by a
Chinese state-run firm "would threaten to impair the national security of the
United States," the resolution said.
CNOOC Saturday asked the US Treasury Department to review the acquisition
plan in an effort to clear up doubts over the bid and get the regulatory process
rolling before Unocal's board of directors votes on the acquisition in late
August.
"It's a voluntary notice from CNOOC Ltd. We hope the review will enter formal
proceedings as soon as possible as we are sure that the transaction is purely
commercial," CNOOC spokesperson Yang Hua said in a press release.
"This filing gives CNOOC the opportunity to comply with all US rules and
regulations in an open and transparent manner ... we are cooperating fully and
look forward to a formal review conducted in an expeditious manner."
The US Treasury's Committee on Foreign Investments (CFIUS), has only barred
one transaction out of the 1,500-odd it has examined since 1988.
"Basically for me this is a routine commercial activity, but anytime
something like this happens in a sensitive industry like oil, you are going to
get a lot of political interference," Dong Tao, an analyst with Credit Suisse
Boston in Hong Kong said.
"If the US Congress is saying that this bid will undermine national security,
then they better watch out because the Chinese parliament could also come out
and say the same thing about US banks buying up Chinese banks."
Long before CNOOC emerged with its unsolicited offer for Unocal, the United
States-China relationship was already highly complex. There has been friction in
recent months over China's roughly $160 billion trade surplus with the United
States and surges this year in Chinese-made textiles reaching U.S. shores. Some
U.S. trade groups accuse China of manipulating its currency, the yuan, to keep
it artificially low, making Chinese goods unfairly cheap on world markets. The
Bush administration has pressured China to allow its currency to float freely.
China argues that it is being made a scapegoat for the decline of U.S.
manufacturing.
Tensions also have grown over North Korea's pursuit of nuclear weapons. In
Washington, some suggest that China is not doing enough to pressure North Korea,
its longtime ally, to return to stalled talks, while propping up the government
in Pyongyang with food and fuel. Chinese officials have criticized the United
States for demonizing North Korea and undermining the possibility of progress.
Taiwan is always a hot button. China claims the self-governing island as part
of its territory and threatens to reclaim it by force if Taiwan moves toward
declaring its independence. The United States is nominally pledged to come to
Taiwan's aid in event of war.
The battle over Unocal has injected yet another factor into this already
volatile relationship ahead of a planned visit to Washington by Chinese
President Hu Jintao this fall.
But analysts say the issue has thus far produced little that could alter the
relationship between the two governments, because Beijing has grown
sophisticated at distinguishing between rhetoric from Capitol Hill -- where
Thursday's resolution was nonbinding -- and policy from the White House, which
has said little on the subject.
But whatever comes of the Unocal battle, tensions over Chinese investment are
probably only beginning. Just as a rising Japan in the 1980s snapped up
high-profile assets in the United States and provoked widespread American
unease, China's expanding horizons are having a similar effect.
Moreover, key differences between Japan of that era and current-day China
could make this go-round more combustible: Japan was a U.S. military ally and
part of the same ideological bloc, whereas China is viewed by many in Washington
as an adversary.
But the simplest reason for tension may be the amount of cash at China's
disposal: As investment pours in and China's central bank buys dollars to
maintain the value of its currency, the country has amassed $650 billion in
foreign exchange reserves. China has plowed much of that money into U.S.
Treasury bonds.
But the quest for Unocal and other foreign companies is being construed by
some as a sign of diversification.
"We invest too much in U.S. federal bonds, and they don't make us much
money," said Pan Rui, a professor at the Center for American Studies at Fudan
University in Shanghai. "Now we're learning to invest more wisely, to try to
invest in American companies and industries."
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