China, Unocal and the question of motivation

Back in July, Chinese oil company Cnooc made an 18.5 billion dollar bid for US oil giant Unocal. NPR reported this morning that’s approximately 2 billion more than rival Chevron/Texaco is offering.

Yesterday, volleys in that “possible showdown” were lobbed in the House of Representatives.

Last night C-Span showed elements of the discussion, a portion of which I caught. If I may use the above article to parse the discussions…

A frothy mouthed Pennsylvania Republican Rep echoing Woolsey’s basic sentiments accused most every Chinese action as being militarily motivated as evidenced by development of staged rockets and MIRV research. Jerry Taylor countered than the Chinese oil company probably wasn’t too heavily involved in MIRV research itself and that it’s interests are purely economic. About the only one taking a common sensical, objective viewpoint I could see was the democrat from Arkansas who cautioned that China wasn’t our enemy now but that if we called it one often enough that it probably could become one.

I’m curious if anyone has been following these discussions, either within the context of the House deliberations or regarding the proposed sale on the whole and what their feelings might be - if China is pulling Cnooc’s strings with military/strategic objectives that will haunt us later or if Cnooc’s simply expanding their reserves and Congressional intervention is unwarranted.

A Republican? I’d think a Republican would be in favour of the sale to China because it would increase profits for the shareholders. :wink: :stuck_out_tongue:

The Chinese want to live the energy-guzzling “American Dream” too. With such a gargantuan amount of people demanding energy, the government has no choice but to going to extreme measures to attain it (like paying major $$). This is another example of the sort of conflicts that will be everyday news in the near future.

Countries like US and China should consider alternative energy sources and reducing their appetite for oil, huh? This is not the case right now. The US is going about its business as usual. China feels justified for its current and future consuming because the US got to live an extravagant energy lifestyle. Why should they conserve?

I have no idea what the right move should be for this Unocal bid. The future move for the US should be to set an example of reducing energy consumption so that the rest of the world would not feel gypped and eventually do the same.

I think the opposition to the bid to some extent reflects unease about the position in which the U.S. now finds itself *vis-a-vis * China. That is to say, the Chinese are sitting on a massive pile of dollars, and I get the feeling that while some Americans are happy to see those dollars invested in U.S. Treasuries (thus helping to hold down interest rates), they’re less happy at the thought of that money being spent to buy U.S. companies. However, I don’t see where the U.S. government has any leeway to dictate how foreign holders of dollars spend their money, unless this becomes an official “national security” matter.

Having said that, I haven’t noticed the same level of opposition to Chinese appliance maker Haier’s participation in a bid for Maytag. (Click on this link and see the 6/30/05 announcement.) Perhaps there simply hasn’t been as much publicity because Maytag is a much smaller company (market cap of $1.23 billion) than Unocal; in addition, Haier is allied with two U.S. buyout firms, and I can see how there might be a more negative reaction if the Chinese company were bidding on its own.

It wasn’t that long ago that we were presented with their theft of our nuclear weapons technology from the National Lab, around the time when their jet fighter and our spyplane tango’d in midair. The large contributions to our political parties by Chinese fatcats was mentioned yesterday that resulted in advanced technology exports that undoubtably did harm to national security, as were suppossed denunciations from Chinese intellectuals themdselves that their government’s aim was agressive and contentious. They quoted Chinese goverment officials as saying war with the US was eventually to be inevitable. Numerous times the hawkish side (Woolsey and others) made mention of additional information they as members of the Intelligence community had been privy too that gave them justifiable cause for concern and that this purchase was just an extention of that tactical policy.

Taylor did opine that such “intelligence” had not served us well in the past, either with the fall of the Soviet Union or with Iraq, even though we had ample reason to judge it carefully.

CNOOC is not a private company. It is owned by the Chinese government, and its directors, not surprisingly, have strong ties to the Communist Party.

I doubt very strongly that China would permit the U.S. government to take ownership of a major Chinese corporation. They are playing us for chumps by putting up an “it’s only business” front.

Libertarians claim one thing history has taught is commodities always find their market. The CATO Institute’s Jerry Taylor implies there are no such thing as ‘foreign goods’ and that even during war time, important commodies are traded amongst parties in conflict. Perhaps it’s a bit alrmist to claim ‘when goods cannot cross borders, armies will’ - but even amateur historians can point to many examples where that was the case.

Taylor’s testimony yesterday kept stressing Unocal’s small and insignificant size. Replace the word Unocal with Exxon/Mobil & a good part of his argument would fall apart. At least he didn’t make an Arthur Jenkins-like argument:

Factually incorrect. CNOOC has a primary listing on the Hong Kong Stock Exchange (secondary in New York). http://finance.yahoo.com/q?s=0883.hk Not sure what the actual float percentage is but IIRC around 30% of the total share capital.

So, it is a private company listed on stock exchanges bound by Sarbannes Oxley albeit the Chinese government owns a controlling stake.

Please do keep in mind that while the Chinese government owns a lot of stuff and that being in the communist party is a definate resume builder if you’re working in the public sector, China is not a monolithic entity where the government actively pulls all strings. So this is not a case of the Chinese government buying a publicly listed company in the US. This is a case of a publicly listed company making a takeover bid for another publicly listed company. The outrage is that the takeover is launched by Chevron err dang typo I mean CNOOC, ticker code 8883.HK

CNOOC has a huge pile of cash, and it’s charter is for off shore oil exploration and development, which means it does not have good access to the big China domestic oil deals and pipelines. The only way to grow fast is to buy a company, and Unocal provides expertise and synergies. Looking at it from a purely economic transaction, it’s probably a better deal for CNOOC than it is for

I read in U.S. News that Budweiser has bought the largest brewery in China.

I can remember when Japan was buying everything in sight and everyone was all upset about it. Truth is that if China wanted to buy all of Utah we ought to sell it to them (they couldn’t move it and would have to pay taxes on it). The Unocal deal is a little different since there are oil rights in Asia involved. However, the amount of oil is not significant and this whole deal is much to do about nothing.

No, that’s the other kind of Republican you’re thinking of.

I owned CNOOC stock upto a week or so ago. The share price was already up over 50% and it spurted up another 10-15% or so when the market got the idea the Chinese govt would ensure the company got cheap financing to buy Unocal. At that point, I bailed out, assuming that there was limited extra value. Either they were overpaying for Unocal, or the deal would fall through for political reasons. (I already own a lot in another Chinese company - Petrochina - though less than Warren Buffett.)

If I were a Unocal stockholder I would want to sell to the highest bidder, end of story. I wouldn’t care whether they were clean-cut, blue-eyed all-Americans or evil Chinese commie ratbags. Give me the money.

If I were a Chevron stockholder, I’d be resentful that part-ownership by a foreign govt could be giving the rival bidder an unfair advantage. But it’s not the first time a part-nationalized company had bought a private-sector one in another, freer country. There’s no law against it. Maybe there should be - but ask the Unocal owners what they think

The losers here are probably Chinese taxpayers. China’s govt is encouraging investment in overseas sources of raw materials - copper (Chile), coal/iron ore (Australia), oil (C Asia/Sudan), and probably food sources as well. They are probably overpaying or paying a serious opportunity cost.

They probably should invest their money in domestic/foreign industries with big growth potential (which they are doing to some extent) and then pay market prices for all these commodities in due course.

But they have a paranoid and insecure govt, who think that if you have 20% of the world’s population and maybe 5% (pure guess) of its natural resources, you must physically own some natural resources.

These details are irrelevant to the discussion at hand. As you say, the Chinese government owns a controlling stake in CNOOC. That is, CNOOC does what the Chinese government, and by extension the Communist Party, tells it to do. It can direct CNOOC to buy Unocal to satisfy the strategic goals of the Chinese government, even if it means CNOOC will lose money on the deal.

Budweiser acts in the interest of its stockholders, not in the interest of the U.S. government. That makes all the difference.

Okey-dokey. So, let’s see: China lends us metric craploads of money to buy their…products. Then they turn around and use a portion of that money to overpay for a mediocre oil company, said company being majority owned by American citizens.
So, said American citizens, first, get to live better than they otherwise would because of the credit extended here by China. Then, on top of that, they get a bonus when China tries to pay them top dollar at the top of a bull market in oil for an oil company.
I don’t know, I may be wrong, but it seems to me that the people getting shafted here don’t live on the American side of the Pacific.
Or, what Hemlock said.

Update: Unocal has accepted an increased bid from Chevron of $63 a share, versus the $67 CNOOC has offered.

After some additional reading, now I’m not sure how much concern over this being a strategically motivated military move is valid, more just that the Chinese hybrid economy, an unusual combination of free market strength additionally benefiting from communist proppings provides an unfair advantage over US companies not receiving similar lucrative monetary assurances from our government. One opinion I came across numerous times though is that this is not the last time we’ll see similar competitions of this nature in the future and that we’d best soon formulate some official policy on how we’re going to react when it happens again.