Ezra Klein: Unocal in Red

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June 26, 2005

Unocal in Red

I'm not particularly concerned by the Chinese government's bid (through CNOOC Ltd., which they control 70% of) to buy Unocal. If they offer a better deal than Chevron, why not? Worries that Chinese ownership somehow compromises our national security strike me as way overblown. If we and China ever get to a point where we threaten each other, who owns Unocal and its relatively minor energy assets will be the least of our problems. Moreover, in wartime, business ownership is something less than an inviolable fact of nature. Stateside Unocal assets would be nationalized by America, not allowed to continue production for the hostile Chinese under some bizarre fetishization of property rights.

Further -- and this is really an important point -- we're not going to war with China. They do not threaten our national security. They are not our enemy. Purchases they want to make should not be subjected to a extra level of scrutiny as they are not a hostile, or even threatening, power. America certainly has the right to be annoyed at Chinese monetary policy, but a country attempting to keep their export industry at a comparative advantage is hardly unheard of and shouldn't be seen as a more aggressive move than it is.

China's growing. We all know that. They will be powerful. Many of us fear that. But we, and them, will be in infinitely better shape if we cultivate a constructive and friendly relationship rather than create a self-fulfilling prophecy by treating China as a threatening power. If they want to buy Unocal and are willing to outbid Chevron, more power to them. We want as many nodes of interconnection as we can have in order to ensure the disincentives to future hostility -- on either side -- are as significant as possible.

June 26, 2005 in Big Business, China, Energy | Permalink

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Comments

As China's economy grows and industrializes, it's beginning to compete directly with the US for limited oil supplies. If you've been following the peak oil debate, you'll understand that the concern isn't just price, it's shortages and rationing. China doesn't have a free market economy and can and does use economic power to advance national political goals. Why would this country want to allow a potential future adversary to gain leverage over the single most important commodity in our economy and society? We're talking something far short of war, here- this is about the ability to assert pressure where it can be used to influence policy.

Posted by: JR | Jun 26, 2005 5:20:21 PM

Stateside Unocal assets would be nationalized by America, not allowed to continue production for the hostile Chinese under some bizarre fetishization of property rights.

Are people ever going to learn to stop giving the Bush administration the benefit of the doubt?

we're not going to war with China. They do not threaten our national security. They are not our enemy.

See previous note. The fact that someone doesn't threaten us doesn't even slow our current leaders down.

Posted by: Geoduck | Jun 26, 2005 6:48:35 PM

Robert Farley has started an interesting series on the US relationship with China over at Lawyers, Guns, and Money. He's pretty pursuasive in arguing that talk of current conflicts and the potential for more in the future are overblown.

At the same time, great powers don't rise without causing at least some friction to those they challenge or displace, or seem to. There's been a pretty high-profile anti-China lobby in the US for several years. If you'll recall the days before 9-11 China was thought by many to be the number one national security problem faced by the US (they even got a cover of Time Magazine with some caption like "The Next Cold War?"). As the recent Kagan article in the Atlantic demonstrated there are some pretty hawkish folks in charge of US Navy operations in the Pacific.

And every two-months or so Bill Gertz gets a Drudge-hyped, administration quote heavy piece warning about the Chinese military threat in a Sunday or Monday copy of the Washington Times (oh, the Moonie irony). Like, er, today, where one can read quotes like this; "We may be seeing in China the first true fascist society on the model of Nazi Germany, where you have this incredible resource base in a commercial economy with strong nationalism, which the military was able to reach into and ramp up incredible production," a senior defense official said. I thought Nazi comparisons were permanently out of bounds in this country, but I suppose the Pentagon can break Godwin's Law and prepare for a war exactly no sane person thinks is a good idea at the same time.

Posted by: SamAm | Jun 26, 2005 8:57:27 PM

China is not our enemy? Here is a different perspective from Robert Kaplan:

http://www.theatlantic.com/doc/prem/200506/kaplan

Posted by: Who Me | Jun 27, 2005 1:10:53 AM

I understand Unocal's reserve assets are primarily in the southeast asia area, which may cast some more light on China's bid for the company.

I don't think there can be any doubt that China (and perhaps Russia) would like the US reduced in influence in the western Pacific. And there is lots of evidence that the US Navy views China as an enemy.

Recall that Japan's 1930's fear of the US in the western Pacific, and specifically their need to secure control over oil supplies and other natural resources lead to their attack on the US, UK and Netherlands (following their war and occupation of China) - setting off WWII for the US.

Yes, you would have to be nuts to start a war between the US and China. I don't think the Chinese government is likely to do that, short of a major provocation. I'm not so sure about the US restraint. The US Navy has missed the Iraq gravy train, and I'm sure there is internal sentiment to 'get their share'. The NeoCons have not ever really given up their hatred of China under the Communists, so I wouldn't rule some distraction from Iraq in the form of limited hostilities of some kind. North Korea and China (including the Taiwan issue) are attractive enemies for people in DC who seemingly never met a war they didn't like.

China has sufficient cash assets in US dollars that they can buy pretty much of what they want of US companies. It is hard for a company to say no to an all-cash offer that offers maybe 15-20% more to shareholders than the market valuation. Denying China the purchase of Unocal on national security grounds would be a provocation, in their view.

China is also heavily into Boeing and GM with production agreements, so how would we react if Boeing and GM were bid for with cash?

We are losing control over our economic destiny, with surely more to come. We have already lost much of our political clout already.

And finally, can anyone be surprised if China, Russia, or the Islamic world notices that we've kinda broken our Army and Marines in Iraq. In my opinion, we are weaker now that at any time since say 1937-39. That weakness was a comfort to Germany and Japan then, and they both undertook some actions that lead to war with the US - in Japan's case a pre-emptive strike against the Pacific Fleet to remove our influence, and in Germany's case a US Declaration of War without an immediate provocation (although it surely was justified to prevent the UK from falling).

Posted by: JimPortlandOR | Jun 27, 2005 1:45:18 AM

Disagree about the historical echo of current US military weakness. The Navy, as you mention, has not had the oppertunity to do much in our current Iraq conflict, and neither has the Air Force, at least since the end of the invasion. Both remain tremendously potent forces. Today the US spends as much on defense as the rest of the entire world combined, something that wasn't the case in the 1930s. I can see the US Army, through over-stretch, poor recruiting, and retention of soldiers who should be kicked out becoming broken in a way it was post-Vietnam, but the differences in circumstances are so great as to make that analogy less than apt.

Posted by: SamAm | Jun 27, 2005 11:31:19 AM

Gotta disagree with the "threat" from China. No they're not going to invade or anything like that. They'll just buy us out. If China invaded Taiwan right now - or anywhere else for that matter - what could we realistically do about it? They hold enough US dollars to turn our currency into confetti if they're willing to take the cash-loss by dumping it all on the market at once. To say nothing of what that would do to our allies as well.
China may not be our enemy, but they've never been our friend. Our leaders may have forgotten that, but I doubt their leaders have. They're going to continually undermine our position (with the cheerful aid of the current administration) until we're insignificant on the world stage. I doubt very much that they'll need troops to do it.

Posted by: Geeno | Jun 27, 2005 12:38:15 PM

Allowing the Chinese government (through a company they control 75%) to acquire US energy fields (regardless of where they are) seems like a terribly short-sighted idea. Unocal stockholders make a bunch of money more than if Chevron buys, while US citizens lose access to domestically held natural gas supplies. Seems like a bad idea to me regardless of the threat.

If we really are in the early stages of a never ending war I would think we'd want to hold all our energy reserves (and Unocal is to some degree all of ours considering the massive tax breaks they've received).

Posted by: Matt | Jun 27, 2005 3:59:51 PM

Matt,

Most of the hard left have no loyalty at all. We are all in one big sand box as far as they are concerned and nationlsim is a dirty word.

It is insane to give away the energy sources to foreign powers. Anyone here see Saudi Arabia or Venezuela doing this?

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