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A SENSE OF ASIA

Geopoliticonomical moment of truth: China's bid for Unocal


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By Sol Sanders
SPECIAL TO WORLD TRIBUNE.COM

Sol W. Sanders

June 30, 2005

Contrary to what some ideologues would like to believe, unfettered markets – even were they achieved – do not solve all our problems. Followers of Adam Smith know it when they speak of “imperfect markets”. That’s why Washington is wrestling with conundrums to decide whether geopolitics or economic principle trumps.

There is, of course, the growing overall debate over whether liberal access to the American market in exchange for similar openings to foreign countries should continue to be the lodestar. As even such an advocate as Fed Chairman Greenspan has said, the mushrooming trade deficit cannot go on forever. And with foreign wage earners getting a fraction of American pay, even our incredible productivity increases through the digital revolution cannot always compensate. True, these foreign bargains helped give our people a phenomenal lifestyle and permit our government to maintain elaborate services [including our military] without runaway inflation.

But the argument gets even more complex when foreign governments start using our debt paper to buy U.S. assets. A Chinese oil company’s current bid for Unocal is a dramatic example. With their growing call on energy imports, Beijing is scouring the world to pick up fossil fuel reserves. It is less than apparent how they think this will enhance their “security” – economic or strategic. They are not likely to hoard enough reserves to meet their demand. Nor, unlike the U.S., do they have a blue water navy – at least not yet – to protect their supply lines. Those are the arguments supporting Beijing’s assurances – with the help of some of Wall Street’s finest – buying Unocal is simply conducting a business transaction.

Throwing another $2 billion on the fire to heat up the auction which seemed to have been concluded with ChevronMobil’s $16.5 billion proffer, may be just that. But authoritarian/totalitarian governments rarely conduct “business is business” operations. It is said Stalin’s highest priority, after capturing Hitler, to the Red Army entering Berlin at the end of World War II were the records of Hjalmer Schact who built Hitler’s war machine and whose acolytes so efficiently exploited Occupied Europe after Munich. That Paramount Leader Deng Xiaoping made military modernization a primary goal of his “black cat/white cat” strategy is, as the Soviets used to say, no accident.

Although Clinton supporters are loathe to admit it, their dealing with China as a “strategic partner” permitted the sale – and in some instances, “after service” free courtesies – of valuable military secrets which leapfrogged Chinese missile and space technology. Technological transfers – as in the automobile industry – still go ahead pell-mell not only to build Chinese civilian industry but its military potential. Granted, much of this is unavoidable in a globalized world.

But getting back to Unocal: stockholders, presumably most of them American, won’t be unhappy if the sale price is higher than it would otherwise have been because of China’s bid. It still isn’t clear ChevronMobil won’t be back with a sweetener. Nor with China’s CNOOC 76 percent government owned, it might even counter again. After all, without going to government reserves, what would it mean for China’s four major banks to add more debt to their staggering portfolio of nonperforming loans!

The question posed for American policymakers [for there is a government procedure to investigate national security concerns of such purchases] is what Unocal would mean to Chinese policy, not necessarily to CNOOC. Unocal has been the prime mover behind trying to open Turkmenistan’s huge gas deposits through Afghanistan to Pakistan and world markets. Recently, Islamabad has said the route would end up at Gwadar, a new port China is building for the Paks at the entrance to the Persian Gulf. Unocal owns huge gas reserves in Indonesia. There Beijing has been trying to allay Jakarta’s longtime antipathy to Chinese influence in the ASEAN region, using its new markets and presumed growing economic and political power. And in Burma, Unocal plays a role in a nasty little alliance between the thugs running Rangoon’s government and Thai police and army interests for gas exported to Thailand.

CNOOC would fund at least part of its purchase in the Hong Kong market. In part, China might finance this takeover with American and European capital in the fungible [you can move it from one pocket to another] worldwide capital market in which Western business thrives – or goes down under the weight of its mistakes and excesses. That’s a phenomenon unknown in China where SOEs, state owned enterprises, live off defaulting loans.

The Unocal problem is endemic to American policymaking in a world where the playing field, for all that, is never level. One wonders, for example, if the American delegate has the nerve to ask his Canadian counterpart in current negotiations to “reform” the North American Free Trade pact whether Ottawa’s failure to pick up its part of North American defense cost is on the table. In a time of increasing concern about the nature of the burgeoning Chinese state and its intentions, it’s time to take stock.

Sol W. Sanders, (solsanders@comcast.net), is an Asian specialist with more than 25 years in the region, and a former correspondent for Business Week, U.S. News & World Report and United Press International. He writes weekly for World Tribune.com.

June 30, 2005

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