June 24, 2005
China Makes Move To Take Over Unocal
By: Rowan Wolf
The China National Offshore Oil Corporation (CNOOC) has made its bid to take over Unocal. The move is seen as symbolic of China's exploding economy and influence, but it is also a more direct statement of a larger competition between the U.S. and China. Chevron (top bidder before CNOOC's offer), is letting it's lower bid of $16.5 billion stand. Perhaps this is because Chevron expects the Congress to block CNOOC's take over attempt.
This is big news, and not particularly good news, if you have been watching the evolving situation between China and the United States. It is clear that the two nations are on a collision course in a number of ways. China is a primary labor source for US transnational corporations and a major exporter to the United States. China is also a major importer of U.S. agricultural products. Then add in that China is one of the major holders of U.S. debt, and that the U.S. continues to push that debt higher needing China to fund the excess. Then add in that China's industrial and economic growth is making it a head on competitor for natural resources - notably oil - with the world's largest consumer ... the United States.
Over the last year, there has been an acceleration of negativity between the two. There have been calls for China to manipulate its currency to the benefit of the U.S., and arguments over textiles and other issues. There have been many reasons to not push China too hard, but the U.S. also needs China's influence in the ongoing non-negotiation with North Korea.
In short, China has the U.S. over a number of barrels, and is now in a position to fight at a level the U.S. hasn't had to deal with in a very long time (at least since World War II). Therefore it is not surprising that both the Federal Reserve Chairman and the US Treasury Secretary (Greenspan and Snow respectively) are warning the "Senate Finance Committee against punitive legislation that could trigger a trade war and ultimately harm the U.S. economy" (Washington Post).
On the other hand, there are potentially massive implications of China's state owned oil company owning one of the largest U.S. oil companies. Is China throwing down the economic gauntlet, or is it creating a major bargaining chip? It seems clear to me that China has the upper hand on the U.S. - particularly now that China is also a member of the World Trade Organization. Should the U.S. try to place punitive tariffs on China, it is certain to file an appeal and win. Given transnational corporations (such as Wal-Mart) are heavily invested in China, and the big U.S. motor companies (among others) want unfettered access to China's consumers (and cheap labor), pressure on those corporations is also likely to not gain much corporate support. They see a massive profit and likely have no desire to jeopardize it.
However, CNOOC's acquisition of Unocal would also make China a major player in other global affairs and the control of oil and gas. For example, Unocal has been a big (and long term) player in Southern Asia and the Middle East. In fact, Afghanistan's President is an ex-Unocal consultant, and now there are gas pipelines in play - in Afghanistan and elsewhere. Unocal (and others) have been a major reason for U.S. "intervention" in the area (funding and training those who became Al Qaeda in the Russian - Afghanistan War for example). To have China as a major corporate player in these intrigues is a mind boggling thought.
So is the Chinese bid a move toward major control and input in the resource affairs of the U.S. (and other "western" nations), or is it something they can offer to give up for other "concessions?" It depends on how "unfriendly" they want the conflict to be - and the conflict will continue. Chinese control of Unocal would truly make China a global player in the oil wars. I'm not sure that's a "chip" they would want to bargain with.
Other News On This Topic
6/24/05 CNNMoney, Unocal to talk with Chinese bidder soon
6/24/05 China View, Oil expert urges US government not to interfere with CNOOC's deal
6/24/05 People's Daily Online (China), What's the chance of CNOOC's successful bidding for Unocal?
6/24/05 Tokyo Market Watch, CNOOC aims to ease Unocal concerns
6/23/05 MarketWatch, Goldman goes 'unsolicited' - Investment bank and J.P. Morgan would provide financing
TrackBack URL for this entry:
I am always so impressed with the connections and trends you spot, the way you see how interwoven the basic institutions (food supply, environmental policies, national debt) are, and how we perpetuate seeminly unrelated conditions by supporting policies that seem innocuous on the surface. It always seems to me that after you spot these things, I then begin to read about them in the standard journals.
This is a situation to be watched, in fact a subtle superpower clash-waiting-to-happen as the US (perhpas a metaphorical Rome) seems to be on a considerable economic downswing.
Posted by: Pamela at June 24, 2005 7:48 PM
Such is the curse of being a sociologist - systems thinking. I have been worried about China and the U.S. for at least the last four years. It has been clear for that long that they were on a resource collision with the U.S. That was before there was so much US debt to buy up. I would say that except militarily, China definitely has the upper hand at this point, and it is the "militarily" that worries me. Especially with a trigger happy administration. Greenspan and Snow certainly recognize this - hence the warning to the Senate on "retaliation." Economically, we are in NO position to tangle with China - not with them holding so much of the US debt.
Posted by: rowan at June 24, 2005 8:14 PM
I've mentioned it before: when China completes its 3 gorge dam project, it will have 9 times the electrical output of Hoover Dam. Much of it will go to expanded industrialization, which in turn will produce an expanded military capability and significantly increased oil consumption. In 40 years, China will be the only super-power on the planet and will be the 'boss' so to speak. I note an absence of EPA and OSHA and Equal Opportunity/Human Rights types agencies in their system. This certainly portends bad news for the global environment and our way of life. There is a growing nationalism movement in China and younger folks, so I have read, tend to fill the ranks of this movement. The recent Chinese protests against Japan's treatment of the Chinese during WW2 were orchestrated by this nationist movement. I don't look for China to be all that the-world-is-one-village orientated. I read an analogy about China in a conservative blog the other day. It said China was like a fast moving glacier - one either goes with its flow and the way it wants to move, or get out its way or be crushed by it. The first option is all the US has.
Posted by: goesh at June 29, 2005 7:30 AM