No matter how big and powerful China becomes, China is no match for the United States at its best.
In addressing America’s weaknesses this article makes the point that we now are no longer at our best.
-Am
The New York Times
MONDAY, JUNE 27, 2005
If China's attempt to buy an American oil company does nothing else, it should, at long last, force the United States to decide how it plans to protect its economy, husband its resources and grow in a world where it is no longer the only economic powerhouse.
With China on a buying binge for raw materials to feed its ever-expanding economy, it was inevitable that it would eventually go beyond the more modest corporate purchases it has already begun and make a grab for something the United States really cares about. Last week, history's biggest Communist country made the ultimate capitalist play: an $18.5 billion all-cash takeover bid by the state-controlled China National Offshore Oil Corp., or CNOOC, for the American oil company Unocal.
The bid landed with the impact of an unexploded missile in Washington, where anti-China sentiment has been running high. From both sides of the aisle, members of Congress sounded the alarm that China was threatening to gobble up world energy resources. There is politics in that: Congress has an election next year and gasoline prices are already high. But whatever happens to the deal, Americans should be glad China reminded them that it is time to examine America's economic strategy.
China's new power
The chairman and chief executive of the Chinese company, Fu Chengyu, insisted that American national security was not an issue and called the unsolicited bid friendly. "This transaction is purely a commercial transaction," he said. That's a bit disingenuous considering that the money he is using is mostly from the Chinese government and his company owes its first allegiance to Beijing authorities, not world markets. And it raises the interesting question of whether CNOOC can have it both ways: playing by Chinese rules at home while taking advantage of American rules abroad to buy an American business. After all, this is a government-owned company operating in an authoritarian state that limits the ability of foreign companies to take their profits out of China.
"Does anybody honestly believe that the Chinese would ever let an American company take over a Chinese company?" asked Senator Charles Schumer, Democrat of New York. Actually, they have, although on a scale that hardly raised national security issues. Last year, Anheuser-Busch won a takeover battle for the Harbin Brewery Group.
The CNOOC bid is of a much higher order and deserves examination above and beyond the regulatory scrutiny normally given to corporate mergers and acquisitions. But in some ways, the opposition to the CNOOC bid is the latest installment in the anti-China fervor already gripping Washington. There are a half-dozen proposals in Congress for across-the-board tariffs against Chinese imports, spurred in part by American manufacturers who complain that China's currency, the yuan, is undervalued, which results in cheaper Chinese goods coming into America and hurting American jobs. This comes on top of moves by the administration - urged on by Congress and a huge trade deficit - to forcibly stem the importing of Chinese textiles this year.
Beating up on the Chinese is fine for sound bites to convince voters that politicians care. But the real problem has less to do with China's current strength than America's current weakness. A far more rational approach to China's economic ascendancy would be to consider what steps the United States should be taking to protect itself and to grow.
America's energy policies
The national security of the United States is already at risk because America depends on imported oil for nearly 60 percent of its daily needs. That will only grow as demand increases and domestic supplies dwindle. Much of that oil comes from volatile countries in the Gulf region, and the American money flowing there does nothing to encourage either more-balanced economic development or democracy. The rest comes from other parts of the world - often the most unstable parts. In any case, it all contributes to America's monstrous trade deficit and worries about what would happen to the economy if some international crisis disrupted the supply.
The antidotes are simple. Americans need to use far less oil than they do now, which means requiring more fuel-efficient vehicles and finding an alternative to refined oil to power cars and trucks.
Beijing's desire for Unocal is fueled in part by the company's natural gas reserves, most of which are in Asia. The United States cannot claim much of a national security threat from that. North American gas supplies are still fairly robust if you count Canada, and the United States can always fall back on coal to keep the lights on. Coal now provides more than half of America's electricity anyway.
But none of that should lead to complacency. The United States needs open, accessible markets. And no fuel source is free from the effects of rising demand around the world. America needs more-efficient power plants and more-efficient appliances to reduce demand, just as it needs to develop more-efficient transportation to reduce dependency on oil.
Trade, currencies and debt
Congress's fixation with devaluing China's yuan to help cut American job losses is another example of blaming China for what the United States is not doing. There is no reason to think that revaluing the yuan would lead to American job growth. Alan Greenspan, chairman of the Federal Reserve, said Thursday that he saw no credible evidence that a stronger yuan would increase American manufacturing activity and jobs.
Instead of bashing China, Congress and the Bush administration should be putting money into bolstering retraining programs to help American workers whose jobs migrate overseas. And America is going to have to focus on the fact that young people with mediocre educations are not going to be able to compete with energetic, educated young people in places like China.
The United States also cannot blame the Chinese government for the weak position that its own policies have created. The Bush administration's damaging practice of combining profligate deficit spending with huge tax cuts for the rich feeds the need for Washington to borrow hundreds of billions of dollars a year just to keep things going. China has become a major buyer of the Treasury bonds that finance that debt. A sudden decision by China to invest elsewhere would very likely have a far more devastating effect on the United States than a withdrawal of Unocal's resources.
But the solution is not to blame China. It is to institute more sensible economic policies, including revoking the unnecessary gifts that President George W. Bush has given to very wealthy Americans at tax time.
Despite Fu's claim about China's friendly bid, it is a contested one, coming two months after Unocal agreed to be sold to Chevron for $16.4 billion. There are many shots that remain to be fired in the trench warfare of this corporate takeover battle. China may or may not come out on top. But even if China loses this skirmish, it is part of a longer struggle, and those charged with leading America would do well to spend this time strengthening America from within. No matter how big and powerful China becomes, China is no match for the United States at its best.
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.
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