Another oil-related topic. A lot of politicians seem concerned about this. Let the oil wars begin! http://business.timesonline.co.uk/article/0,,9072-1667164,00.html Chinese oil firm in hostile Unocal bid By Oliver August in Beijing and Carl Mortished in London CHINA’S quest for new oil supplies came head-to-head yesterday with America’s thirst for crude when CNOOC, the Chinese state oil company, made an $18.5 billion (£10.2 billion) bid for Unocal, the California-based energy group. The audacious $67-a-share offer for the century-old American firm trumps a $62-a-share agreed bid from ChevronTexaco. However, the Chinese intervention will face political resistance. Sam Bodman, the US Energy Secretary, said that the offer would face a “complex” regulatory review. Rumours of CNOOC’s interest last week sparked protests from two members of Congress who urged President Bush to block any bid on the grounds that it threatened energy security. CNOOC will have to raise some $16 billion to finance the offer, but the Chinese company, which is 70 per cent owned by the state, is acting out a government strategy to secure new oil supplies. China’s booming economy is burning 6.7 million barrels of oil a day and CNOOC’s hostile bid is a signal of the heightened urgency in China and a willingness by the Communist Government to take aggressive action. Initial efforts by China’s state oil companies have been frustrated, notably in Kazhakstan, where CNOOC’s attempt to buy BG Group’s stake in the giant Kashagan field was thwarted by Western oil companies. Recently, CNOOC and its sister companies, Sinopec and Petrochina, took their quest to Canada, buying a position in Albertan oil sands, a resource identified by President Bush as key to supplying America’s future oil needs. If successful, CNOOC’s offer for Unocal will be the biggest, but not the first, Chinese acquisition of a major US enterprise. In recent months, Lenovo has acquired the computer division of IBM in a friendly $1.75 billion transaction, and Haier, the white goods manufacturer, has made a $1.3 billion bid for its American rival Maytag. The bids for corporate America will increase protectionist sentiment at a time of trade tension between Beijing and Washington over China’s textile exports.
The first of many acquisitions by the Chinese as we keep flooding the Chinese with dollars. Sooner or later they will start using them to buy up our companies. It is safer than holding dollars, when due to unwise tax cuts, deficits, trade imbalances we will have to probably inflate our way out of our deficits. I sure hope the new economy types who think America can be strong without manufacuring, just on intellectual property, entertainment, consulting etc are correct.
http://news.ft.com/cms/s/3c234102-e416-11d9-a754-00000e2511c8.html Battle to be fought on Capitol Hill By Francesco Guerrera in Hong Kong and James Politi in New York Published: June 23 2005 20:43 | Last updated: June 23 2005 20:43 The battle between CNOOC and Chevron for Unocal will be fought as much in Capitol Hill's corridors of power as in Wall Street's dealing rooms. And while the state-controlled Chinese group is familiar with US capital markets, having listed in New York in 2001, Washington's wheeling and dealing is unfamiliar territory. But to win the heart and minds of Unocal's shareholders, and convince an increasingly raucous group of politicians that oppose the takeover, CNOOC will have to play the political game. With advisers including the Washington lobbyists Public Strategies, the law firm Akin Gump and public relations consultants Brunswick Group, CNOOC will not be short of suggestions. Communication experts say the key element of CNOOC's strategy will be to play down any perceived threat posed by its bid to US energy supply. "For CNOOC, it is all about being non-threatening, to confront and demystify any preconceptions about the company," said a PR executive not involved in the bid. In this respect, CNOOC's pledge to keep selling all of the oil and gas produced in the US on the domestic market is aimed at allaying fears of a "Chinese takeover" of a vital resource. At the same time, CNOOC will have to avoid suffering the same fate as Hutchison Whampoa, the Hong Kong conglomerate that in 2003 was forced to withdraw from a joint bid for the telecoms group Global Crossing after protests from politicians. Just like the Global Crossing deal, CNOOC's bid will be scrutinised by the influential Committee on Foreign Investments in the US. "They will have to deflect the political heat. The CFIUS process is about the law. If there is an issue, CNOOC will have to be seen to be dealing with the issue, not the rhetoric," said an industry expert. On the Wall Street front, CNOOC will have to study Unocal's shareholder base carefully, and gauge the receptiveness of its bid not only among institutional investors but also among hedge funds, which are playing an increasing role in determining the outcome of takeover battles. Many of these short-term, opportunistic investors bought Unocal stock while the company was being auctioned earlier in the year. While some sold the shares after Chevron's deal in April, others have been pouring back in recently, making them a crucial constituency. Unlike institutional investors, which often operate below the radar screen in the US, hedge funds are more vocal about what they expect from bidders, and are sometimes prepared to say what they think publicly. On Wednesday afternoon, initial reactions were that the $67 a share offered by CNOOC was too low to make up for the risk and the deal would not be completed. "This is lame," said one merger arbitrageur, who declined to be named. But by Thursday morning, the mood was changing. Investors became hopeful that CNOOC's bid was only a starting point and could lead to a heated bidding war with Chevron. "CNOOC has more in the pocket; I get that body language from people there," said another hedge fund investor. "They definitely have room to raise more." This belief was partly based on the impression that the financing package CNOOC disclosed on Wednesday would raise more money than necessary to fund a $67 per share bid for Unocal. To many on Wall Street, the prospect of a takeover battle is bringing back echoes of the war for MCI, the US long-distance carrier that earlier this year was courted by Verizon and Qwest, the telecoms groups. "It's MCI-like: you've got the big guy with Chevron and the little guy with the Chinese," said another arb. In the end, MCI's board controversially decided to choose a nominally lower but safer bid from Verizon, the industry giant, instead of a nominally higher offer from Qwest, which had a heavy debt load and was arguably more likely to lose key customers over the long term. A handful of vocal hedge fund managers are credited with pushing Verizon and Qwest to raise their bids on several occasions over the three-month battle. Verizon's initial offer, made in February, was worth $6.75bn, while the winning bid, in May, was nearly $2bn higher at $8.5bn. That is the backdrop against which Fu Chengyu, CNOOC's chief executive, will be meeting US investors in the coming weeks. And however smooth the initial presentation of the history-making bid might have been, CNOOC might have already scored a minor own-goal. The Unocal takeover attempt was codenamed "Operation Treasure Ship", after the fleet sailed by legendary Chinese admiral Zheng He. Although some historians believe Zheng He discovered America before Columbus, once his voyages were over, China turned away from the outside world and underwent decades of cultural and technological stagnation.
probably inflate???? Too late- huge govt. debt is inflation, the currency devaluation just lags behind the actual borrowing, the paper dollar is inflating, we just have to prick some more asset bubbles to feel the actual impact.
Anything wrong with that? US companies have bought millions of Chinese companies. I havent heard any complain from China.
The difference between a US company owning Chinese assets and a Chinese entity that is 70% state-owned should be clear. When the government of another country can begin to dictate petroleum supplies for a US-based company, things can get a little ugly. Hey glynch, how are you going to make US manufacturing a force again? We can be much more competitive if those workers are willing to slash their wages to virtually nothing.
The company in question owns a mere 1% in the US while 73% of its assets are in Asia. Hmm, an Asian country wants to buy a company that has a lot of assets in Asia? Must be a Communist takeover!!!
it'll be SWEET when the Chinese govt seizes Unocal from the Chinese investors!! ROCK ON!!! oh yeah...and the Chinese govt won't allow US entities to buy Chinese companies. you know...because they're so pro-free market and all.
Not true. There have been many acquisitions of Chinese companies by US and other international companies.
1%? Are you sure? That seems a little unbelievable. In fact, from the Company's latest 10-k... " Approximately 33 percent of our worldwide production in 2004 and 26 percent of our worldwide proved oil and gas reserves at year-end 2004 were in the U.S. Exploration and production net properties accounted for approximately 91 percent of our total net properties at December 31, 2004" And for the record, it doesn't matter where the assets exist. The more relevant information is where does the current revenue stream come from, and how much they supply to the US. If it impacts the US supply of energy, it's a threat. Again, if a company that is 70% owned by the government of China wants to take control of a company that supplies a vital resource to the US, it's a threat to national security. Why is this difficult to understand?
help me out with who. do you seriously think the chinese govt would allow a US company to buy a Chinese oil company?? methinks not. but i'm open to being proved wrong, if it's happened.
China, the behemoth? Not so fast. By David R. Francis In a way, the United States is getting a taste of its own medicine. When a Chinese state oil firm, CNOOC, made a bid this month for an American oil producer, Unocal, it made front-page news. And rightly so. It spotlighted the growing economic might of populous China and its drive to ensure an adequate supply of energy for its exploding economy. China has recently replaced Japan as the biggest importer of oil in the world after the US. The bid also raised concerns that China, like Japan in the 1970s and 1980s, will use its growing stock of US dollars to buy up more American firms. But China's foreign direct investments are so far chicken feed compared to those of the US. In the past four years, China has sunk at least $11 billion into foreign plants, offices, and firms. Perhaps some Hong Kong money should be added to that total. Hong Kong, now part of China, made $39.7 billion of foreign direct investment last year, and $24.3 billion over the previous three years combined. Some of that investment may be money from China's mainland escaping government attention. The US, though, has invested almost $700 billion abroad in those four years. "That's a completely different magnitude," says Hans Christiansen, an expert at the Organization for Economic Cooperation and Development (OECD), the club of mostly industrial nations based in Paris. Last year alone, outflows of foreign direct investment from the US reached an all-time record of $252 billion, up from $141 billion the year before. The $19 billion bid by China National Offshore Oil Corp. for Unocal is not only China's biggest overseas move yet. It also has what Mr. Christiansen calls "an element of strategic investment." China has been making smaller investments around the world in minerals, coal and other hydrocarbons, agriculture, and fisheries. Nonetheless, to Albert Keidel, China's Unocal bid is "a minor blip that gets more PR noise than it deserves." As the senior associate at the Carnegie Endowment for International Peace sees it, as long as China plays by global investment rules, it should be eligible to compete with Chevron for Unocal. "The highest bidder should get the deal," he says. "We need to get used to this sort of thing." He suspects some opposition to the Unocal bid has a "racial dimension." The bidders are not Caucasian. There's some speculation that Washington could block the deal. It may be reluctant to let China, with its authoritarian regime and new interest in purchasing more arms, pick up Unocal with oil and gas reserves not only in the Far East but in the US itself. China itself is not keen on selling its own business properties. Even before the Unocal bid, Congress was worried about the flood of Chinese imports and the failure of China to revalue its currency. Last year, the US deficit with China was $162 billion, or 24 percent of its total trade deficit. To many economists, China's trade surplus with the US does not necessarily mean that the yuan is overvalued. "The more meaningful statistic is a country's global trade balance" with all nations, notes Mr. Keidel. That is "not excessively or unfairly large." Indeed, in relation to China's gross domestic product, that is, its total output of goods and services, China's global surplus is smaller than that of Germany, the Netherlands, Thailand, Argentina, Malaysia, and Singapore. Moreover, much of the pileup of dollars in China's central bank has not been due to a trade surplus, but rather to both genuine long-term foreign investment and speculative inflows. By the end of 2004, China's foreign-exchange reserves had risen from $200 billion to $600 billion in just three years. In a new report, the OECD counts $151 billion of foreign direct investment in China in the past three years. Keidel calculates that $150 billion to $250 billion of the buildup in dollar reserves in China's central bank is due to speculative inflows, despite China's capital controls. Foreign investors have been putting huge amounts of money into Chinese real estate, possibly creating a property price bubble. The investors hope to get a special profit kick from a revaluation of the yuan at some point. That hasn't happened yet. In the future, some hot money could leave China in a rush. This could prompt China to use its dollar reserves to defend the value of the yuan. Another economist, Nouriel Roubini, of New York University, suspects one factor in the Unocal bid could be a desire of China to diversify its dollar reserves out of low-paying US Treasury bills into investments with a better prospect for a higher return. CNOOC is 70 percent owned by the Chinese government. So it is unlikely it would make the Unocal move without the assent of Beijing officials. Mr. Roubini is concerned that the massive current account deficits of the US - "on the way to $800 billion" - will soon blow up the international monetary system that has evolved since the end of World War II. Already, foreign central banks, including that in China, hold more than $1.2 trillion in US Treasury debt. "At some time, the rest of the world is going to become tired of financing the US deficit," he says. That would clobber the dollar and hurt the world economy.
Must have worded it incorrectly. China shop Government should not hamper China/Unocal deal unless, improbably, it would harm national security. Copyright 2005 Houston Chronicle China's state-controlled CNOOC Ltd. has made a stunning bid to acquire independent California oil company Unocal. With rising demand for crude, high gasoline prices and debates about the sufficiency of world oil reserves, the CNOOC bid will test the resolve of champions of free trade and global markets. CNOOC has offered $18.5 billion in cash to buy El Segundo, Calif.-based Unocal Corp., this country's ninth-largest oil and gas production company. Unocal already agreed to accept an April cash and stock offer from San Ramon, Calif.-based Chevron Corp. that's worth more than $16 billion. In a straightforward analysis, CNOOC's $18.5 million overture would appear to be the better deal. Unocal shareholders' vote Aug. 10 on the Chevron proposal will make clear whether they believe Unocal should give CNOOC the time of day. Although this decision should be left to Unocal shareholders, some members of Congress worry that a sale to China could harm U.S. national security. Late last month, 41 Washington lawmakers wrote to President Bush expressing misgivings about China acquiring so much oil that would be "largely dedicated for their own use." They asked the Committee on Foreign Investment, an interagency panel chaired by the secretary of the Treasury, to review the CNOOC bid for potential security risks. Lawmakers and others nervous about the deal cite fears that China could somehow restrict U.S. access to oil. But energy experts say that's a far-fetched scenario that ignores how oil markets function. Besides, Unocal represents only about 1 percent of American oil production. The uneasiness China evokes likely has more to do with economic power. China's economy has grown by an average 8.7 percent annually over the past decade, and its demand for oil has more than doubled. Some perceive that China's growth has come at the expense of U.S. jobs. They see China in direct competition with the United States for dwindling oil reserves. China's refusal to raise the value of its currency against the dollar is another affront. The artificially low yuan makes Chinese exports cheap and competition on price impossible for Western nations. That helps account for last year's record $617 billion U.S. trade deficit. Some worry, too, about China buying up key U.S. assets. Recently a Chinese consortium outbid a group of American investors for appliance-maker Maytag Corp. Chinese computer manufacturer Lenovo bought IBM's personal computer business. Also, antithetical to free-trade principles, CNOOC plans to finance part of its bid with what essentially is a below-market-rate loan from the Chinese government. U.S. Treasury Secretary John Snow said any review by the Bush administration would be limited to national security issues. Good. The CNOOC deal should be allowed to progress if it turns out to be in the best interest of Unocal and its shareholders. The United States profits from free trade, and the government should not be allowed to thwart it whenever it does not suit its aims.
MM -- as for the first article, i don't think anyone was arguing that China invested more in foreign markets than the United States.
There hasn't been any US purchases of Chinese oil companies since there are only 3 Chinese oil companies and they are all doing quite well financially. Your original claim, however, wasn't about oil companies. You claimed that "the Chinese govt won't allow US entities to buy Chinese companies" at all, which is absolutely false since there have been plenty of takeovers of Chinese companies by US and other international corporations.
A quick google search turns up the following link about US companies making acquisitions in China http://www.chinabusinessreview.com/public/0411/woodward.html
China's been buying some dead weights like IBM's PC division and Maytag. The Japanese did similarly in the 80s (with government coddled corporations, btw) and most of them got suckered into bad deals. American perception was hostile then as well. Both instances could be similar if we stop our reliance on the petrol economy. Cheap energy is getting too pricey for its true worth.
