At the end of June, Kenneth Lewis, CEO of Bank of America, said that Chinese investment in the US should not be hampered. “I don’t think it can be a one-way street,” he argued.
He has a point. If US oil company Unocal accepts Chinese company CNOOC’s bid but US regulators reject it because of a perceived threat to US national security should strategically sensitive US oil assets fall into the hands of a state-run Chinese company, it will stink of hypocrisy.
No-one batted an eyelid when, the same month, Bank of America bought a 9% stake in state-run China Construction Bank for $2.5 billion [see Sino sirens lure global banks on China odyssey, this issue, for commentary]. There was no discussion about the threat of BoA pillaging China’s financial secrets. And plenty of US companies have holdings in Chinese oil companies, as Exxon Mobil does in China’s Sinopec, for example. Indeed US companies are constantly seizing the opportunity to buy into China. According to data from Dealogic, the top 10 acquisitions that have been announced by US companies of Chinese companies this year alone total just under $4 billion.
CNOOC’s proposed $18.5 billion offer for Unocal is far larger, but then that’s a matter for CNOOC’s management, its bankers and the rating agencies to worry about. From Unocal and and its shareholders’ point of view, CNOOC’s bid for Unocal is significantly higher than the Chevron bid already on the table. Also it is cash, compared with Chevron’s bid of stock and cash. Furthermore, CNOOC has already pledged to sell US assets to avoid any concerns about US national security being breached, should this be a problem with the Committee on Foreign Investments in the US, the federal body that is likely to review the case.
If it cannot claim that the deal poses a security threat, and the US authorities do block the deal, it will be because the government is already upset that China won’t revalue the yuan, that more and more Chinese exports are flooding into the US and because, when oil costs nearly $60 a barrel, it becomes an even more prized national asset.
These might be valid political arguments, but they have nothing to do with free-market economics. The US government should know that. For years it has been extolling the benefits of a free market in China, not to mention in the US universities where several of CNOOC’s senior management studied.
