Foreign Correspondence

[Amaunet]

Despite Dropping Bid For Unocal, China Remains U.S. Competitor

“What is particularly worrisome,” Gaffney said, “is that Chinese deals being struck from Siberia to Venezuela, from Indonesia to Sudan, from Iran to Canada, from Azerbaijan to Cuba appear not only designed to secure oil to meet Chinese needs. In a world in which such resources are certainly finite, and possibly contracting, they also have the effect of taking them off a global market upon which the United States is increasingly dependent.”

This is the second reference I posted recently expressing U.S. fear in taking resources off a global or open market.

Most important, experts say, it means promoting a free and open world energy market. "When we isolate other countries, it becomes harder to secure their constructive participation in addressing America's needs," says Mr. Phillips of the Council on Foreign Relations.

Among the dangers: nations negotiating bilaterally for pledges of oil, rather than selling and buying it on the open market. State-run firms now control about three-fourths of the world's oil resources.
#msg-7225008

What these excerpts seem to be saying is that the United States is increasingly dependent on or in bad trouble without Petro Dollars.

The U.S. economy has acquired significant structural imbalances, including our record-high trade account deficit and the recent return to annual budget deficits in the hundreds of billions. These factors would devalue the currency of any nation under the `old rules.' Why is the dollar still predominant despite these structural imbalances? While many Americans assume the strength of the U.S. dollar merely rests on our economic output (i.e. GDP), the ruling elites understand that the dollarÅfs strength is based on two fundamentally unique advantages relative to all other hard currencies

The reality is that the strength of the U.S. dollar since 1945 rests on it being the international reserve currency. Thus it assumes the role of fiat currency for global oil transactions (ie. `petro-dollar'). The U.S. prints hundreds of billions of these fiat petro-dollars, which are then used by nation states to purchase oil/energy from OPEC producers (except Iraq, to some degree Venezuela, and perhaps Iran in the near future). These petro-dollars are then re-cycled from OPEC back into the U.S. via Treasury Bills or other dollar-denominated assets such as U.S. stocks, real estate, etc. In essence, global oil consumption provides a subsidy to the U.S. economy. Hence, the Europeans created the euro to compete with the dollar as an alternative international reserve currency. Obviously the E.U. would like oil priced in euros as well.
#msg-994080

-Am

Despite Dropping Bid For Unocal, China Remains U.S. Competitor
Joe Bell

August 04, 2005

The China National Offshore Oil Corporation (CNOOC) has withdrawn its $18.4 billion offer to purchase Unocal Corporation, the eighth largest U.S. oil and gas production company. The purchase would have significantly damaged U.S. interests and Congress apparently realized that when, in July, it passed a law requiring a study of China’s Unocal offer.

America’s economic security is a component of national security and China understands that as well. That is why the billions of dollars accumulating in Chinese banks from exports to America assures that new bids on other companies will be made.

On July 13 the House Armed Services Committee (HASC) held hearings regarding the security implications if CNOOC’s proposal were accepted. The better case was presented by those who opposed the transaction.

C. Richard D’Amato, chairman of the U.S.-China Economic and Security Review Commission, said CNOOC is 70 percent owned by the Chinese government and the loan package for the purchase was heavily subsidized by the government. He informed the Committee that $7 billion was being provided by CNOOC’s parent company, China National Offshore Oil, and of that amount $2.5 billion was interest free.

D’Amato said. “Without this generous state guided credit a company worth $22 billion could not possibly offer $18.5 billion for an acquisition of this type. …One has to ask: Why is the Chinese government willing to spend so much money to buy this company?”

The question is easily answered.

Frank Gaffney, Jr., president of the Center for Security Policy, said China has learned the lessons of the 20th century with respect to energy needs and is working worldwide to acquire oil.

“What is particularly worrisome,” Gaffney said, “is that Chinese deals being struck from Siberia to Venezuela, from Indonesia to Sudan, from Iran to Canada, from Azerbaijan to Cuba appear not only designed to secure oil to meet Chinese needs. In a world in which such resources are certainly finite, and possibly contracting, they also have the effect of taking them off a global market upon which the United States is increasingly dependent.”

Gaffney said China’s purchase of Unocal would involve holdings other than oil. Molycorp, which is owned by Unocal, has a mine in Mountain Pass, California that is America’s only indigenous source of rare earth minerals, which have military applications. That mine stopped production in 1998 because of environmental concerns.

China operates a rare earth mine in Baotou. The Baotou and the Molycorp facilities, prior to 1998, supplied more than 80 percent of the world’s rare earths. This is significant because certain rare earth minerals, such as neodymium, are used to construct missiles and smart bombs.

The Unocal episode is about more than one business proposition. Chinese leaders understand the nuances of modern war and the problems involved in facing America on the battlefield. In February 1999 two Chinese air force colonels, Qiao Liang and Wang Xiangsui, wrote “Unrestricted Warfare,” a book about 21st century conflict. The authors visualized different types of warfare emerging, including trade warfare, terrorism and financial warfare.

In an interview with the publication China Youth Daily, Qiao said, “The first rule of unrestricted warfare is that there are no rules.”

In their book the authors predict that in the future “war will be fought and won far from the battlefield.”

This strategy is in harmony with the Chinese effort to purchase Unocal. As D’Amato told the HASC, China’s acquisition “would double CNOOC’s worldwide reserves of oil and gas. …It should be noted that Chinese takeover of these assets will introduce or increase Chinese political influence in all the regions where Unocal assets are located, some of which are of political and strategic importance to the U.S., displacing the influence of an American company with American standards.”

Unocal assets include offshore platforms in Cook Inlet, Alaska and the Gulf of Mexico, which are close to key U.S. infrastructure and facilities. In addition, Unocal has technologies for deep sea exploration and drilling that should not be transferred to China.

Writing an assessment of “Unrestricted Warfare” in Jane’s Intelligence Review, Dr. Ehsan Ahari, professor of national security and strategy at the Joint Combined Warfighting School, Armed Forces Staff College in Virginia, wrote, “Claiming that future wars will be without limits is another way of saying that a militarily weak and economically underdeveloped nation (China) should go to any extreme, violate any rules and break any traditional precepts of war to be victorious over a technologically superior and militarily powerful country (the USA). Rules of war, Qiao and Wang say, need only be followed by the strong powers who make the rules; a weak nation is not obliged to follow suit.”

Ahari warned that, in such a world, warfighters will include not only soldiers but also computer hackers, financial institutions, terrorists and other non-traditional combatants.

Clearly, China saw its effort to purchase Unocal as not merely a business acquisition but part of a long-term strategy to expand its influence in key regions of the world.

In his book, “China, Inc.,” Ted C. Fishman wrote, “An economically big China that is still the sum of its impoverished parts may also find reasons … to follow the paths of other superpowers and assert its armies. If the rush to spend some of its massive dollar reserves on foreign companies and resources does not deliver China into the economic company it means to keep, or even if it does, China may see the need to spend more of its money on the world’s weapons market.”

China has been steadily upgrading its military. In June, Beijing successfully launched a missile from a submarine, which represents a landmark in its program. The Air Force’s National Air Intelligence Center said the launch “will, for the first time, allow Chinese (missile submarines) to target portions of the United States from operating areas located near the Chinese coast.”

As Condoleeza Rice wrote in February 2000, China is seeking to “alter Asia’s balance of power in its own favor. That alone makes it a strategic competitor, not the ‘strategic partner’ the Clinton administration once called it. Add to this China’s record of cooperation with Iran and Pakistan in the proliferation of ballistic missile technology and the security problem is obvious.”

The United States and China need to keep open the lines of communication and work together on issues of mutual concern, but U.S. security cannot be for sale to the highest bidder. Washington must never permit another nation to buy economic assets that will jeopardize the national interest.


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Joseph Bell has hosted a radio talk show and is a former editorial writer/columnist for several Connecticut newspapers. A former liberal Democrat, Bell has not been on the conservative side of the aisle for very long. He voted for Clinton/Gore in 1992. Abandoning the convictions that he had held and defended through adolescence and into adulthood was not easy. Sincere soul-searching and a commitment to distinguish fact from fiction compelled him to accept that liberal ideology was bankrupt.

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