China, Unocal and the Fate of the World
by Charles H. Featherstone
by Charles H. Featherstone
Put the words "China" and "oil" together in certain parts of this country and you can quickly work some folks into a full boil of fear, panic and paranoia. All by itself, the word "China" has that effect with some people.
Add a pinch — or a whole mess if you cannot afford to wait around for a long simmer — of "Congress" to that stew and that fear, panic and paranoia begins to coagulate into "action." Which, in the case of Congress, is legislation.
In the case of our sprawling and oozing executive, that means "rules," findings" or "executive orders." Depending on how "urgent" the perceived need is.
Ever since China National Offshore Oil Corp.'s (CNOOC) partly owned and Hong Kong-listed "subsidiary," CNOOC Ltd., made its $18 billion all-cash bid for Unocal, one of the United States' smallest integrated major oil companies (integrated means that it engages in all aspects of the oil and gas business, from exploration and production to transportation, refining, distribution and — finally — retail sales), bettering San Ramon-based Chevron's stock-and-cash bid by about $1.6 billion, the ground has been raked and watered and readied for battle.
The need is urgent! China wants to buy an American oil company! The horror!
If you are an honest believer in private property rights, then there is only one thing at stake — can a Unocal share holder exercise a real property right and sell his or her shares to whomever he or she wants to without government interference? There are pros and cons to each offer. CNOOC is offering $67 per-share to buy Unocal, but as an all-cash offer, takers would have to pay taxes on every cent they get, while Chevron's $62 per-share offer (which is now really a $60.50 offer, given the recent rise in Unocal's stock price) is only partly cash, with each Unocal share holder receiving Chevron stock to make up the difference. As I understand it, Unocal shareholders would not be liable for taxes on the stock portion of the deal.
Which would explain why Unocal's biggest shareholders have been inclined to accept the Chevron offer. However, if CNOOC raises its per-share bid, offers to maintain pensions and sell US assets (to comply with any possible regulatory problems), Unocal's major shareholders could find the Chinese deal too good to pass up.
Given all this, one analyst reportedly said that a Chevron offer of $65 per-share would be a "magic number" and likely unbeatable no matter what CNOOC offered.
Regardless, the only people with any right to make this decision are the people who own Unocal. And nobody else. Not Congress, not some alphabet soup regulatory agency, not the Pentagon, not the president of the United States. Nobody. (Not even the government of Thailand, which may nix the deal all on its own; however, since I do not pay taxes to the Thai government nor have I sworn fealty to the King of Thailand, I'm not so concerned about what Bangkok does.) Sure, we can have an opinion (it's free), we just aren't entitled to do anything with that opinion.
Except make a better offer for Unocal. If we can find the money somewhere.
But no, this whole deal has brought out all the yahoos who cannot think straight about China, the "yellow" menace that threatens to swallow and enslave us as we sleep. The yahoos who think something must be done, and aim to do it, too.
On the right, that means the paranoids who still say "Communist China" and spit as they emphasize the word "communist." Or the few stragglers who still call the place "Red China" and think nothing has changed there since mainland artillery shelled Quemoy and Matsu. Or worse, the folks who use that ugly and disgusting term with the cheap, technocratic conservative strategy-mongering feel to it, "Chikom."
On the left, it's an assorted group of Tibet-fetishists (the kind of people who wouldn't give a non-Buddhist medieval theocracy the time of day), human-rights activists, labor unions and protectionists. The makers of tee-shirts and car parts who want their jobs back.
They are all polishing their armor, counting their rounds, cleaning their guns, and "hoo-haaing" in small huddles to psych themselves up for battle.
Right now, that battle has been joined largely in the US Congress. (The executive is oddly silent on the whole issue, perhaps hoping it will go away without the need for it to act.) Tuesday, House Armed Services Committee Chairman and paranoid California Republican (or do I repeat myself?) Duncan Hunter held hearings (Congress' eternal answer to the demand for action) on the subject, saying: "I personally think it is a mistake for the US to allow the deal to go forward. My intention is to oppose it."
Hunter plans to strengthen the federal government's review process, getting Congress more involved in reviews of "foreign investment" in the US. Possibly even giving Congress some kind of veto.
But any talk from "security experts" that the actual purchase of Unocal represents some kind direct threat to the US (like that ridiculous claim made a few weeks ago, and quickly abandoned, that deep-water drilling technology would aid with secret nuclear weapons tests) was absent. Instead, what was presented was a much darker picture, that CNOOC's offer to buy Unocal is part of a long-term plan by China to slowly supplant the United States as the world's dominate military and economic power.
In other words, a sinister and fiendish plot to take over the world.
"I believe [China's] aim is inexorably to supplant the United States as the world's premier economic power and, if necessary, to defeat us militarily," Reuters quoted prominent neoconservative and Reagan-era Pentagon strategist Frank Gaffney as telling the assembled congresscritturs, noting that China was seeking control over the world's "strategic choke points and regions" — control that has "ominous implications."
Gaffney's right, in a way, but not the way he thinks. (This should come as a shock to no one. Have these people ever been right about anything?) Unhappily, the China that has grown rich off of selling manufactured goods in a relatively free world market has unfortunately decided that it does not trust that same relatively free market to meet future Chinese energy demand. Instead, that China has decided to become mercantilist, in the belief that the country's future oil supplies can only be guaranteed by physical possession and control rather than through freely negotiated contract.
Unocal may be an American company but it hardly exists to sell crude oil, natural gas and refined products solely to Americans. (The CATO nincompoop who told Hunter's committee that Unocal's daily oil and gas production doesn't matter to US domestic demand was right but also irrelevant — did he mention the private property interest at all?) The natural gas Unocal is developing in the waters of Bangladesh, or in the Gulf of Thailand, does not heat homes in Minnesota or California. The oil it pumps in Malaysia and Azerbaijan doesn't fuel automobiles in Utah or Ohio. The customers for that gas and that oil are in Asia, an Asia that in the last 20 years has gotten wealthier through commerce. And much freer because of that wealth.
China is part of that miracle, and the world is full of oil companies — private and state-owned, from Saudi Arabia to Venezuela — ready and willing to help supply China with crude oil, refining technology, service stations, tankers, pipelines and terminals to meet that need. For every paying customer a good or a service. Where there is a demand, there will be a supply.
(Peak oilers, please keep your comments about that last sentence to yourselves.)
Instead, the Chinese are eying Unocal's assets in Asia as a potential dedicated supply for themselves, rather than for any comer with cash or good credit. Chinese firms are considering plowing billions into Canada's Athabasca oil sands, as well as pipelines to deliver that heavy oil to ports in British Columbia, to meet future Chinese demand. (By comparison, ExxonMobil has invested billions in Qatar's gas fields to meet demand for liquefied natural gas, as opposed to American demand for LNG.) And China's largest oil company, PetroChina, may be ready to initiate a bidding war for Calgary-based independent PetroKazakhstan (where it may face stiff competition from Russia's Lukoil and India's Oil & Natural Gas Corp.) to secure supplies in its near abroad, the former Soviet republics of Central Asia. All within easy pipeline distance and currently being connected by gas and crude pipe to the People's Republic of China.
It's the kind of wrongheaded and depressing thing that gave capitalism such a bad name more than 100 years ago.
However, if the Chinese want their world empire, their day in the sun running the planet, I say — let em have it. Gaffney may not know or care, but empires are expensive, and I'm really tired of paying for my share of America's. Empires rust and crumble, as all things made by the hands of men eventually do. Power and money are very finite. China's world empire will not last any longer than anyone else's.
Besides, if China supplants the United States of America as the owner and operator of Planet Earth, how exactly would things change? Will my apartment suddenly fill with Chinese-made goods? Will my government suddenly be indebted to Chinese banks and the government in Beijing holding stacks and stacks of Treasury bills and notes? Will Chinese container ships suddenly replace American ones in the world's sea lanes? Will Beijing create and support international institutions unaccountable to any local or national government to oversee rules for trade and finance? Will Chinese restaurants suddenly spring up on every corner of every major and middling American city?
And just how less free will I become if: Officials from the Chinese government control the United Nations, the World Bank and the International Monetary Fund? Chinese warships patrol the Straits of Malacca for pirates? Or Chinese troops enforce the "peace" in Central Asia? Or the Middle East? Or, for that matter, secure the Panama Canal? (I stood guard on that damn muddy ditch almost two decades ago; unused by American merchant vessels, it did not impress me then, and it fails to impress me now. I've never understood why a sensible person can get all worked up about who owns or controls it.)
Will I be forced to grow a queue? To learn Mandarin and kowtow to the President of China? Carry Mao's "little red book" around and attend mandatory re-education? Sell my car and ride a bicycle everywhere? Unlikely.
The truth is, very little would change. In a world run by China, the China of today, neither you nor I would be substantially less free to work, to live, to make money, to think, to love. We might be less able to question the government publicly, and that is important, but such control wouldn't — couldn't — last for very long. As Lao Tzu more or less said, it is hard to hold back the water for very long.
Besides, too many good, patriotic Bush-supporting, China-hating Americans think questioning the government — a Republican-run government — ought to be a crime anyway.
As it stands, Hunter and all the other paranoid China-haters, Democrats and Republicans, are leading us all to war, a war as avoidable as the costly and pointless carnage that swept Europe between 1914—1918. Civilization died at the Somme, and what little we have been able to revive and rebuild would probably perish for many decades if Beijing and Washington locked themselves in a confrontation that could very well result in the destruction of whole cities and deaths of many millions of souls. It is not inevitable — nothing ever is — but too many people here in Washington (and, sigh, increasingly in China) seem to want that war, believing it is necessary, thinking they could emerge victorious, and are working feverishly to get it. Regardless of the consequences for anyone or price the whole world would likely pay.
Make no mistake, no one would win that war. India, maybe. But not you and me.
July 14, 2005
Charles H. Featherstone [send him mail] is a Washington, D.C.-based journalist specializing in energy, the Middle East, and Islam. He lives with his wife Jennifer in Alexandria, Virginia.
Copyright © 2005 LewRockwell.com