An inquest into the demise of the bid by CNOOC for US oil company Unocal would reject the verdict that it died of natural causes. This was a blatant case of foul play. The bid was killed off by political opposition, culminating in last week’s reprehensible decision by Congress to pass legislation dragging out the regulatory approval process.
This sorry tale should trouble anyone who believes in the importance of free and open markets. It also exposed the disturbing mood of anti-China hysteria now gripping Washington.
CNOOC sailed into a perfect storm. Congress is furious about the US-China trade deficit and the strength of the renminbi, the supposed loss of American jobs overseas, gas prices, China’s military build-up, its continued denial of political and religious freedoms and its acquisition of natural resources round the world. These disparate issues converged over CNOOC.
Surprisingly, given the importance of China to so many US companies, there was no sign of a balancing pro-China lobby. The White House shamefully kept its head down and let Congress set the terms of the debate.
There was no legitimate reason to sabotage the deal. China and the US are both big net importers of oil: they share the same interests in high output and low prices. For every barrel of Unocal oil China might have diverted for its own use it would import one fewer barrel of oil from elsewhere, leaving global supply and prices unchanged.
Not that this was the deal of the century. CNOOC prevaricated for too long, missing the opportunity to seal an agreed takeover in April when sentiment in Congress was far less hostile to China. Its $18.5bn (€15.1bn) bid was not decisively above Chevron’s $17.3bn, yet was high enough to raise misgivings at home. By raising low-cost finance from state-owned banks, CNOOC allowed US opponents to claim that it was not playing fair.
China does not need to own oil reserves to ensure access to oil. By this week, the national cost of pushing ahead clearly outweighed the benefits, and this was no doubt made clear to CNOOC executives.
But the market was not allowed to decide who won. Analysts estimate that the regulatory process extended by Congress, in effect, cut the extra payment offered by CNOOC from $3 a share to $1.38: not enough to compensate for the risk that it would end in refusal. It ill behoves a country to treat foreign investors in this way when it is dependent on inflows of foreign capital to finance its record trade deficit, and to enable it to fund the war on terror without raising taxes or crowding out private investment.
The problem is, of course, China-
specific. But one of the most important issues for the world is that the US should permit and encourage China’s peaceful rise. Killing Chinese takeovers raises doubts as to whether the US understands this.
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