Mosbacher's Editorial on the CNOOC Deal

   Robert A. Mosbacher, chairman of Mosbacher Energy Company and Secretary of Commerce from 1989 to 1992, has written an editorial in today's Wall Street Journal supporting the acquisiton of Califorina based Unocal by Chinese controlled CNOOC,  "Trade is a Two Way Street."  His argument is an old one, the latest in a steady drumbeat of editorials and public statements touting the deal -- American companies have invested significant sums in Chinese operations and we should let Chinese companies invest in American companies.  The investment of American companies far exceeds the $18.5 billion acquisition price for Unocal.  The argument has two flaws:  First, China permits American companies to invest as minority partners only in Chinese companies.  CNOOC seeks to buy control of Unocal.  It is a crock to call it a "two way street."  Second, American companies are not state controlled, CNOOC is.  It makes a difference.  American companies compete with each other and are limited by antitrust rules, state controlled companies in China do not and are not. 

In a sense the argument is self-interested -- many of the American companies invested in China have generated very poor returns on  their Chinese investments.  The government controls their returns -- the investments are, rather, a toe-hold in the Chinese market that may generate future returns if and when Chinese policy changes.  There is serious question over whether this is a sucker play for many American companies and a waste of shareholder money.  In any event, these companies have an interest in acting as a public relations arm of the Chinese Foreign Ministry.  If a American company invested in China can make China officials happy by supporting the CNOOC deal (something China clearly wants), perhaps returns will get better.

Those wondering how China will treat its new Unocal assets, if purchased, need to look no further than how it treats its own oil companies.    French, "Whose Oil is It," NYT July 18, 2005.