(07/25/05) Clyde Prestowitz quoted in The Globe and Mail
Copyright (c) 2005 by The Globe and Mail
Monday, July 25, 2005
By Steve Lohr
New York Times Service
The Unocal bid: A tempest in a Chinese teapot
CNOOC's bid for the American oil firm has shown how deep U.S. anxieties run
William Reinsch, an avowed free trader, welcomes China's rising stature
in the international economy. After all, he is the president of the
National Foreign Trade Council, an organization founded in 1914 to
promote an 'open world trading system.'
Indeed, when he was a senior trade official in the Clinton
administration, Mr. Reinsch was chided by some security analysts who
said he was being soft on China by placing matters of commerce ahead of
But even Mr. Reinsch is uneasy about China's attempt to buy Unocal
Corp. , a mid-size American oil company. The outcome of the takeover
contest for Unocal is uncertain, and last week its board embraced an
improved offer from Chevron Corp. Yet China National Offshore Oil
Corp. (CNOOC), a government-backed Chinese oil company, still has
the higher offer -- and it could up the ante.
If the Chinese bid proceeds, Mr. Reinsch wants to see a thorough
national security review of the deal, one that goes beyond the usual
focus on weapons technology to include energy security. 'Our Army, Navy
and Air Force run on oil,' he explained.
Oil is the ultimate geopolitical commodity. It is The Prize , as Daniel
Yergin titled his epic history of petroleum and international politics.
And even if CNOOC fails to grab Unocal, the pursuit has pushed the two
sides of the Chinese challenge together and into the spotlight of
public debate. For China is both an engine of economic globalization
and an emerging military power. In symbolic shorthand, it is Wal-Mart
with an army.
The two sides aren't neatly divided. But those who focus on economics
tend to see partnership, co-operation and reasons for optimism, while
security experts are more pessimistic and anticipate strategic
In China, there are also two camps: the security hawks and the economic
modernists, China analysts say. The modernists see China joining the
United States as the second great economic power of the 21st century,
and the two nations sharing the gains from increased trade ties and
global growth. The hawks regard that view as naive, and fret that
American policy is to remain the world's only superpower and to curb
Both faces of China have been evident recently. Two weeks ago, a senior
Chinese military official said China should use nuclear weapons against
the United States if the American military intervened in any conflict
over Taiwan. Then, bowing to pressure from the United States and other
trading partners, China announced on Thursday that it would no longer
peg its currency tightly to the dollar. It is a measured step, and it
will not do much to moderate China's huge trade surplus with the United
States any time soon. But the move is a sign of flexibility and
'Do we see each other inevitably as antagonists, or do we see a world
of globalization from which both sides benefit? That is the big issue,'
said Kenneth Lieberthal, a senior official in the U.S. National
Security Council in the Clinton administration. 'And that framework,
one way or another,' added Mr. Lieberthal, a China analyst and a
professor at the University of Michigan business school, 'will drive an
enormous number of policy decisions.'
So that is the China question: Is it an opportunity or a threat? If
nothing else, the CNOOC bid for Unocal has shown how unsettled American
thinking is on China and how deep the anxieties run, both in matters of
national security and trade.
The scope of the outcry in the U.S. Congress is significant.
Resolutions and legislative proposals, all critical of CNOOC's takeover
bid, have piled up in the House and Senate, from Republicans and
Democrats. A resolution presented last month by Richard Pombo, a
Republican representative from California, declared that permitting the
Chinese company to buy Unocal would 'threaten to impair the national
security of the United States.' It passed, 398 to 15.
Democratic Senator Byron Dorgan of North Dakota has drafted three
pieces of anti-CNOOC legislation that range from calling for a
six-month congressional inquiry into the bid to a bill that would
prohibit the deal. Mr. Dorgan objects to the Chinese move on fair trade
grounds. The Chinese government, he says, would not allow an American
company to buy a Chinese oil company. 'So why on earth should they be
able to buy an American oil company?' Mr. Dorgan said.
Yet the Chinese takeover bid taps into a deeper concern about trade and
globalization for Mr. Dorgan. He talks of manufacturing jobs lost to
China, intellectual property pirates in China copying American movies
and software, and a trade deficit with China that is rising
astronomically with no end in sight.
The tempest in Congress has increased the political risks surrounding
the CNOOC bid. At $18.5-billion (U.S.), the bid remains higher than
Chevron's sweetened offer of $17-billion. But Wall Street analysts say
CNOOC will have to go higher, offering a sizable premium over the
Chevron bid to compensate for delays of a government review of the
Chinese offer or even the possibility that Washington may block a
It would be an extreme step, but Congress has the power to 'regulate
commerce with foreign nations,' under article 1, section 8 of the U.S.
Constitution. 'My sense is that Congress is not going to stand still
for a CNOOC takeover,' said C. Richard D'Amato, chairman of the United
States-China Economic and Security Review Commission. 'That is the
Many economists and trade specialists contend that the American anxiety
over the CNOOC bid says more about the United States than it does about
China or CNOOC's tactics. 'All this really points to the anxieties
about globalization in our own society,' said Clyde Prestowitz, a trade
official in the Reagan administration and president of the Economic
Strategy Institute in Washington. 'We are so economically
interdependent with China now and we chose that path.'
Washington pushed for China's integration into the international
economy and its entry into the World Trade Organization in 2001.
American companies have farmed out much of their manufacturing to
Chinese factories. American consumers have been on a Chinese shopping
spree for years. That is why the United States had a record
$162-billion trade deficit with China last year. China sits on
$700-billion in foreign exchange reserves, mostly in dollars. It
recycles those funds in good part by investing in U.S. Treasury bonds.
'We handed China the money they are using to try to buy Unocal,' said
Mr. Prestowitz, author of a book on the shift of wealth and power to
Asia, Three Billion New Capitalists . 'And now we're telling the
Chinese, please keep investing in our bonds but you can't invest what
amounts to a sliver of their surplus in an oil company. That's really
confused and hypocritical on our part.'
The CNOOC move, said Frank Gaffney, a senior Defence Department
official in the Reagan administration, is a step to ensure that China
has the resources for its overarching national design. 'China's
strategy is to supplant the United States as the premier economic power
in the world and, should it become necessary, defeat us militarily,'
said Mr. Gaffney, president of the Center for Security Policy.
The strategic concern was much narrower at William Blair & Co.
Until recently, William Blair, the investment firm in Chicago, was the
largest outside shareholder in CNOOC, which is majority owned by the
Chinese government. But William Blair sold off its stake, worth about
$160-million, in recent weeks because of worries that CNOOC was
behaving too much like a state-owned company and not enough like a
capitalist enterprise trying to maximize returns to shareholders,
explained David Merjan, a fund manager at the firm.
'If China is going to sell shares in a company like CNOOC to outside
shareholders, it should not be run for the benefit of Chinese economic
policy,' Mr. Merjan said.