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(07/06/05) Clyde Prestowitz quoted in Investor's Business Daily

(07/06/05) Clyde Prestowitz quoted in Investor's Business Daily
Chinese Firms' Bids In U.S. Spur Fears Like Japan In 1980s
Investor's Business Daily
Copyright 2005  Investor's Business Daily, Inc.
July 6, 2005


Chinese Firms' Bids In U.S. Spur Fears Like Japan In 1980s; U.S. Is Buying In China, Too; Cross-border takeovers may bind strategic rivals, despite alarm in Congress.(A)  
Byline: DOUG TSURUOKA  

Chinese companies are roiling corporate American waters with bold takeover bids.  

One of China's biggest oil firms made an $18.5 billion unsolicited bid on June 23 for California-based oil and gas firm Unocal. This followed a $1.3 billion bid to acquire U.S. washer maker Maytag led by Chinese appliance maker Haier on June 21 that topped one by U.S. investors.  

If successful, the Unocal and Maytag takeovers will form the cutting edge of a new wave of Chinese investment in the U.S.  

The moves stir memories of Japanese takeovers of U.S. companies and other assets in the 1980s.  

Some Japanese buys in the U.S. entertainment and tire industries have become a part of life here, generating jobs and products. Other Japanese holdings, like New York's Rockefeller Center, have been sold off.  

Will the new wave of Chinese investment in the U.S. be different?  

Experts say it will. Though China is in no danger of taking over the U.S. economy any more than Japan was 20 years ago, new rules in a globalized economy will make this wave of Chinese investment different.  

A new generation of Chinese CEOs, emboldened by their nation's economic success and versed in hardball Wall Street tactics will be more assertive than earlier waves of Japanese businessmen, they say.  

"I think the Chinese are going to very aggressive in the U.S.," said former Reagan administration trade official Clyde Prestowitz. "They are tough . . . better entrepreneurs, businessmen than the Japanese."  

In some ways, the heads of Chinese companies these days are no different than the American ones, said investment banker and China expert Robert Lawrence Kuhn. "Individual Chinese CEOs are following their own personalities, ambitions and aggressiveness."  

In China's case, the U.S. also is dealing with a strategic rival. There are potential flash points involving Taiwan and other issues, that didn't exist in the case of Japan, a staunch U.S. ally. A major stumble in U.S./China relations could affect the U.S. activities of Chinese firms.  

Mutually Assured Dependence  

But there are ties that bind. Analysts say efforts by Chinese and U.S. firms to invest in each other's economies show that links are quickening and that rising mutual dependence may soften future face-offs.  

The notable twist in China's U.S. investments is the willingness to make unsolicited bids for U.S. firms. The bid by state-controlled China National Offshore Oil Corporation came two months after Unocal agreed to be acquired by U.S. oil firm Chevron for a lower $16.4 billion bid. Haier also upped the ante in its Maytag bid.  

This is unlike Japan in the 1980s, where hardly any Japanese firms made hostile or unsolicited bids for U.S. companies.  

Most, as late Sony founder Akio Morita said at the time, "were made on a willing buyer-seller basis." Eager to avoid fanning U.S.-Japan tensions, Japanese firms avoided U.S. acquisitions that might be seen as too aggressive.  

"Japanese companies are very adverse to hostile takeovers," said Kuhn, who's written two books on Japanese business practices. "They didn't mind overpaying for what they bought in the U.S. But they didn't want to do it in a hostile way."  

But the new rules of the marketplace in the 21st century are encouraging Chinese and other foreigners to adopt the same hard-knuckle tactics as U.S. firms. If they see an opportunity to expand market share or resources these players will go for it.  

Japan was a nation the U.S. largely remade in its image after defeating it in World War II. Close political and military ties served to cushion bilateral trade tensions in the 1980s.  

Not so with China. Its communist government has a testy relationship with the U.S. and steers its own course in foreign and military affairs.  

Some members of Congress have said the Bush administration might need to block a CNOOC takeover of Unocal on national security grounds.  

One worry is that oil-thirsty China will compete increasingly with the U.S. for crude oil to feed its industries. The nation is expected to have more cars on the road than the U.S. by 2030 and also may nose out the U.S. as the biggest importer of crude.  

China on Monday sharply rebuked congressional critics.  

"We demand that the U.S. Congress correct its mistaken ways of politicizing economic and trade issues and stop interfering in the normal commercial exchanges between enterprises of the two countries," the Foreign Ministry said in a written statement.  

The administration reiterated Tuesday that the review of CNOOC's Unocal bid will be routine.  

There's hope rising U.S.-China business cooperation will ease tensions over Chinese investments here.  

Lenovo, China's biggest PC maker closed a $1.75 billion buy of IBM's PC unit in May. IBM also has a big stake in Lenovo and hopes to use the partnership to expand its share of China's IT market.  

Prestowitz says China's U.S. investment won't stir the bad reactions that Japan did.  

"The Japanese in the '80s were buying trophy U.S. properties. But it was impossible for foreigners to invest in Japan," he said. "In China's case, foreigners are crawling all over China . . . producing here, investing there."  

Bausch & Lomb on Tuesday agreed to buy 70% in China Shandong Chia Tai Pharmaceutical, an ophthalmic drug firm, from three firms for $254.5 million.  

Last month, Bank of America agreed to pay $3 billion for 9% of China Construction Bank, China's No. 2 commercial bank, with an option to boost its stake later. It's the biggest foreign buy of a Chinese financial firm ever.  

China, like Japan before it, also is a big buyer of U.S. Treasuries, owning $194.5 billion. It's a place to park the billions China earns by selling to the U.S. But it also keeps long-term U.S. bond yields -- and mortgage rates -- at low, low levels.  

Some oppose Chinese takeovers of U.S. firms.  

"Chinese buying U.S companies is a threat to U.S. business independence. I won't buy a Maytag washer if Chinese buy the company," said William Triplett, former chief GOP counsel for the Senate Foreign Relations Committee. "If . . . China isn't going to buy our products, they are going to buy our assets."  

Chinese firms in the U.S. can also generate jobs for Americans. Kuhn says it's a mistake to assume the Chinese will relocate the activities of U.S. firms they acquire to China. They may opt to base production and other business here.  

As links tighten between the U.S. and other foreign markets, experts say, you can expect to see more takeovers or big investments in U.S. firms by companies from China, India and other nations.  

"I know for a fact that a number of Chinese companies are considering U.S. acquisitions right now," Kuhn said. "they include not just multibillion-dollar hostiles, but also smaller (amicable) acquisitions in the $50 (million) to $200 million range."

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