Fwd: +Red China is Unhappy+

John blueoval at 1SMARTISP.NET
Wed Jul 6 19:55:03 MDT 2005

China Tells Congress To Back Off
Tensions Heightened by Bid to Purchase Unocal

By Peter S. Goodman
Washington Post Foreign Service
Tuesday, July 5, 2005; A01

SHANGHAI, July 4 -- The Chinese government on Monday sharply 
criticized the United States for threatening to erect barriers 
aimed at preventing the attempted takeover of the American oil 
company Unocal Corp. by one of China's three largest energy firms, 

Four days after the House of Representatives overwhelmingly 
approved a resolution urging the Bush administration to block the 
proposed transaction as a threat to national security, China's 
Foreign Ministry excoriated Congress for injecting politics into 
what it characterized as a standard business matter.

"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. 
"CNOOC's bid to take over the U.S. Unocal company is a normal 
commercial activity between enterprises and should not fall victim 
to political interference. The development of economic and trade 
cooperation between China and the United States conforms to the 
interests of both sides."

Those words, the latest rhetorical volley in an escalating trade 
battle, officially elevated the takeover battle for Unocal into a 
bilateral issue involving Washington and Beijing, raising the 
stakes of the outcome.

CNOOC's bid comes as China's emerging force in the global economy 
continues to sow international tensions over competition for 
natural resources, impacts on the environment, trade balances and 
security relationships. The deal would be the latest in a string 
of Chinese purchases of foreign companies as Beijing encourages 
domestic firms to seek new markets abroad and secure raw materials 
for China's aggressive industrialization. The Chinese government 
has urged energy companies in particular to buy foreign oil fields 
as China's consumption soars, deepening worries about the 
country's access to supplies.

Already, CNOOC's bid has taken China across a new threshold: It 
has unleashed the first takeover battle between a Chinese company 
and a U.S. firm, the oil giant Chevron Corp., which has its own 
deal to buy Unocal, for $16.5 billion. If completed, CNOOC's 
purchase -- its bid is for $18.5 billion -- would be the largest 
foreign takeover ever made by a Chinese firm.

But as the price of oil continues to soar, underscoring the finite 
supply of global stocks, some members of Congress portray China's 
appetite for energy as a threat to U.S. interests. They are 
painting CNOOC's effort to buy Unocal as an attempt to siphon off 
oil that would otherwise land in the United States, a proposition 
that analysts call dubious because most of Unocal's outstanding 
contracts supply customers in Asia.

As the House adopted its resolution Thursday by a 398 to 15 vote, 
some noted that CNOOC remains under the majority control of the 
Communist Party-led state, suggesting that this alone made the 
deal a threat.

"We cannot, in my opinion, afford to have a major U.S. energy 
supplier controlled by the Communist Chinese," said Rep. William 
J. Jefferson, a Louisiana Democrat. Monday's reply from Beijing 
reinforced what CNOOC has said from the beginning -- that the deal 
is nothing more than an attempt to expand its business 
opportunities and invest capital sensibly.

Long before CNOOC emerged with its unsolicited offer for Unocal, 
the United States-China relationship was already highly complex. 
There has been friction in recent months over China's roughly $160 
billion trade surplus with the United States and surges this year 
in Chinese-made textiles reaching U.S. shores. Some U.S. trade 
groups accuse China of manipulating its currency, the yuan, to 
keep it artificially low, making Chinese goods unfairly cheap on 
world markets. The Bush administration has pressured China to 
allow its currency to float freely. China argues that it is being 
made a scapegoat for the decline of U.S. manufacturing.

Tensions also have grown over North Korea's pursuit of nuclear 
weapons. In Washington, some suggest that China is not doing 
enough to pressure North Korea, its longtime ally, to return to 
stalled talks, while propping up the regime in Pyongyang with food 
and fuel. Chinese officials have criticized the United States for 
demonizing North Korea and undermining the possibility of 

Taiwan is always a hot button. China claims the self-governing 
island as part of its territory and threatens to reclaim it by 
force if Taiwan's government moves toward declaring its 
independence. The United States is nominally pledged to come to 
Taiwan's aid in event of war.

The battle over Unocal has injected yet another factor into this 
already volatile relationship ahead of a planned visit to 
Washington by Chinese President Hu Jintao this fall.

But analysts say the issue has thus far produced little that could 
alter the relationship between the two governments, because 
Beijing has grown sophisticated at distinguishing between rhetoric 
from Capitol Hill -- where Thursday's resolution was nonbinding -- 
and policy from the White House, which has said little on the 

But whatever comes of the Unocal battle, tensions over Chinese 
investment are probably only beginning. Just as a rising Japan in 
the 1980s snapped up high-profile assets in the United States and 
provoked widespread American unease, China's expanding horizons 
are having a similar effect.

Moreover, key differences between Japan of that era and 
current-day China could make this go-round more combustible: Japan 
was a U.S. military ally and part of the same ideological bloc, 
whereas China is viewed by many in Washington as an adversary.

But the simplest reason for tension may be the amount of cash at 
China's disposal: As investment pours in and China's central bank 
buys dollars to maintain the value of its currency, the country 
has amassed $650 billion in foreign exchange reserves. China has 
plowed much of that money into U.S. Treasury bonds.

But the quest for Unocal and other foreign companies is being 
construed by some as a sign of diversification.

"We invest too much in U.S. federal bonds, and they don't make us 
much money," said Pan Rui, a professor at the Center for American 
Studies at Fudan University in Shanghai. "Now we're learning to 
invest more wisely, to try to invest in American companies and 
© 2005 The Washington Post Company

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