August 4, 2005
The American Financial Press and the Failed CNOOC Bid for Unocal
Hong Kong based CNOOC withdrew its takeover bid for California based Unocal Corporation, leaving Chevron as the sole and apparent winning bidder. CNOOC officials said that their decision was based, among other things, on Congress's efforts to stall the takeover through legislation. The editorial staffs of many of the more prominent members of the financial press (including the Wall Street Journal), many of whom had been supporting the CNOOC bid, bemoaned the CNOOC decision and lambasted Congress's activities. The tenor of the editorials was disappointing and, well, irresponsible.
A debate over whether Chinese state controlled companies should be able to purchase control of United States oil companies is complex and nuanced, involving an analysis of international economic and strategic issues in a fluid situation. There are considered arguments on both sides to be balanced. At issue for the United States is how to deal with the market participation of state-owned companies from an emerging international economic power that does not fundamentally repect markets (or private property for that matter). A state-owned company is subsidized (in this case CNOOC had cheap capital) and competes with companies that are not subsidized (or as subsidized) and the assets of state owned companies are not themselves "on the market" (CNOCC nor its assets can be purchased by United States companies) unless the state decides that it is in the state's interest that they should be. Reciprocity and fair rules of competition must be negotiated and enforced. Ignoring the problem is not an option.
But this is not the approach of the financial press. When CNOOC dropped its bid several of the editorials announced the gross unfairness of Congress's decision and the "rampent protectionism" that had carried the day. China had a right to be mad, they crowed, and, by necessary implication, had a right to retaliation -- a right to negotiation for deals with our enemies and a right to develop a confrontional responsive strategy. Congress was not "following the rules of fair play." Chinese officials will read this drivel and may believe it -- I hope not. The fanatical support of markets by the financial press and their petulance whenever someone disagrees is counterproductive and potentially incendiary.
How should Chinese officials react? They should recognize that United States authorities will not treat China as equivalent to the United Kingdom when American assets and interests are on the table. This is not new. American trade rules have long distinguished state-owned from private enterprises (it is easier to subsized state-owned enterprise exports) and have long distinguished states that do not have robust private ownership systems from those that do (it is easier to block imports and foreign investment). The CNOOC bid represents another evolution of these important distinctions in the modern context of investments from China. American officials and Chinese officials will have to negotiate arrangements that deal with these differences.
The finanical press can either throw gasoline on the negotiations or inform them with sensible argument. In the CNOOC case it has chosen the former route.
August 4, 2005 | Permalink
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