Foreign Correspondence

[Amaunet]

Oil deal with China troubling for Bush
By Richard W. Stevenson The New York Times

MONDAY, JUNE 27, 2005


WASHINGTON President George W. Bush's initial response to the proposed takeover of a major American oil company by a Chinese rival has been to duck. It is not hard to see why.

The $18.5 billion offer by CNOOC for Unocal, which had already made a deal to be acquired by the U.S. oil giant, Chevron, is forcing the Bush administration to confront its own internal rifts over whether China should be viewed as friend, foe or something in between.

It is putting a spotlight on a host of related economic and foreign policy issues - from North Korea's nuclear program to America's growing dependence on foreign capital and the upward pressure on gasoline prices caused by China's thirst for oil - that defy easy solutions.

Hardly a week goes by without Bush vowing to make America less dependent on foreign sources of energy, so any deal that increases that dependence - or is even perceived as doing so - would create a problem for him.

The situation has left the administration once again confronting the likelihood that its numerous ties to the oil industry will become a political issue.

For now, the administration is in a holding pattern. With no deal yet agreed to, Treasury Secretary John Snow told the Senate Finance Committee on Thursday that the issue remained hypothetical.

So far, the White House has avoided substantive comment on the matter.

People inside and outside the administration who are involved in the matter said that the White House would do its best to avoid taking a position for a while by referring a deal, if one is completed, to a body known as the Committee on Foreign Investments in the United States, which reviews sensitive acquisitions by companies from abroad on the basis of national security.

"We have so much on the plate with China," said an adviser to Bush, who would speak only on the condition of anonymity because the president discourages unauthorized discussions about internal deliberations. "How do you come down hard on them for this deal?"

Dealing with energy policy has always been politically fraught for Bush, who got his start in business in the mid-1970s as an independent oilman in West Texas and who has often been cast by his opponents as a tool of the oil industry. Vice President Dick Cheney is even more of a lightning rod for that type of criticism, having led Halliburton, the giant oil field services company, before joining the Republican ticket in 2000.

Secretary of State Condoleezza Rice was a director of Chevron for a decade before Bush's election, and even had a Chevron tanker named for her. (The tanker has subsequently been renamed.)

In recent months, the Pentagon and the State Department have been taking a harder line toward China, reflecting a broader push by conservatives in and out of government.

In a speech in Singapore this month, Defense Secretary Donald Rumsfeld criticized China for increasing military spending in the absence of an obvious threat, and said growth in political freedom in China had not matched economic growth. State Department officials have been blunt in stating that China has not done enough to use its economic clout to press North Korea into serious negotiations about ending its nuclear program.

Even before the oil deal was in the headlines, the White House was working furiously to file the rough edges off a soon-to-be-released Pentagon report on China that describes the country as a potential military threat.

In two weeks, Rice is expected to land in Beijing, pressing anew for help on North Korea and making the point that, if the North refuses to give up its nuclear program, the administration wants China to join in on sanctions. The Chinese have made clear that they want to avoid that at all costs.

On the other hand, Bush's economic team has by and large viewed China as a vast market to be opened, a vital source of capital for the United States and a country whose political liberalization can be encouraged through economic engagement. Taking punitive action against China now, Snow told the Senate Finance Committee on Thursday, would be counterproductive.

It is still not clear where some of the major players in the internal debate, especially Cheney, the primary architect of the administration's energy policy, may come out.

Diplomatic maneuvering between China and the United States has been subject to periodic flare-ups of tension over a variety of issues, including Taiwan, as well as China's support for Iran, a major supplier of China's oil.

"Remember, to the Chinese, everything is related: the economics, the diplomacy, the military posture. It's all one," said a senior administration official, who declined to speak on the record because of the sensitivity of the diplomacy.

The White House's reasons for avoiding any escalation of tensions with Beijing start with the fact that its most urgent diplomatic priority - defusing the nuclear threat from North Korea - depends on cooperation from China.

But there are other strategic reasons to keep the relationship on an even keel. The financial stability of the United States, with its chronic budget deficits, and propensity to spend far more than it saves, depends increasingly on the willingness of China to buy U.S. government bonds. Any breach in relations could lead to higher interest rates.

At the same time, the administration is trying to contain a protectionist backlash aimed not just at China but at Bush's free-trade philosophy. Congress has already grown impatient with what members of both parties see as China's unwillingness to play by the rules of the global economy; any steps that inflame anti-China feelings could give new impetus to efforts to impose trade sanctions over the White House's objections.

The proposed deal presents Bush himself with a tough trade-off when it comes to economic openness. Bush has long lauded the benefits of reduced barriers to the flow of goods, services and money, and for the most part his administration has welcomed investment by China in U.S. companies. This year, the administration approved IBM's sale of its personal computer business to a Chinese company, Lenovo. This openness also works in the other direction: Bank of America said earlier this month that it would pay $2.5 billion for a stake in China Construction Bank.

Bush has made "energy independence" one of his defining themes.

While the Chinese in this case say they would not be taking oil away from the United States, the deal's opponents suggest that it would place a vital resource in the hands of a country that has a voracious and growing appetite for energy to fuel its rip-roaring economic expansion.

The proposed oil deal is also a window into a much broader and even more complex topic: how the United States should manage its role in the global economy.

"This is a piece of the larger and single most important challenge facing Americans," said Rahm Emanuel, an adviser to President Bill Clinton before being elected to Congress as a Democrat from Illinois in 2002. "How do we compete in a global economy we know is good for us but that individually leads to less security rather than more opportunity? Unless we deal with that as a country, we will lose our predominant position."




David E. Sanger and Jeff Gerth contributed reporting for this article.



http://www.iht.com/articles/2005/06/26/news/china.php