Editor's Note: My wife and I were the fortunate recipients of a splendid vacation in Cabo San Lucas at the One and Only Palmilla in the form of a developer retreat sponsored by the financial arm of a major auto manufacturer earlier this week. I am in the business of developing and preserving affordable multi-family housing in the United States. This trip was a good reminder of the benefits of a global, competitive economy. The tax credits generated by the creation of affordable housing has high demand and a limited supply in the US market. I am fortunate to be a part of the supply side of that equation. With a new-found tan and a look at how "the other half" live (the rooms were rumored to be $700 USD a night), I have had a bit of time to reflect on the Chinese bid for Unocal in a global economy.
How to Treat an Emerging China - A Blog Dialogue
My gut reaction to the Chinese offer to buy Unocal for $18.5 billion, topping the Chevron offer of $16.5 billion, was at first worry. I had heard that the Chinese state owns a 71% interest (source Economist) in CNOOC, the China National Offshore Oil Corporation. Capitalism works best when there is a fair playing field and the thought of the Chinese government buying an American oil company while it makes aggressive moves towards Taiwan seemed like a bad move for freedom. The orange ball with the Spirit of 76 logo in blue is a familiar site in Los Angeles and has always seemed a truly American company with a global outlook.
However, I have had the opportunity to read other opinions such as Tom Collins' of QuillNews who believes this is a great opportunity to encourage China to work economically for its objectives rather than militarily. The Economist link above supports the acquisition as well. The WSJ notes the 10 largest publicly traded oil companies from ExxonMobil, with a market cap of $334 billion (18 times larger than Unocal), to EnCana, a Canadian firm with a $26.4 market cap (1.4 times larger). Unocal doesn't even get close to the top 10 of the publicly traded companies, and these figures do not include countries with private oil companies.
Oil is basically a commodity (a very important commodity that nations have many times gone to war over). A barrel that China keeps for herself means that she is not buying it on the open market, thereby allowing more barrels to flow to other countries.
On the other hand, bloggers such as Laer of Cheat-Seeking Missiles write about the strategic implications:
- "Thailand, where Unocal operates 100 oil platforms
- Indonesia, including 90% ownership of fields around the Makassar Straits, which most oil to China would have to pass through
- Vietnam, critical also to sea lanes
- Myanmar and the Yadana pipeline to Thailand
- Azerbaijan, which is a bit too far west but still could figure into China's strategic interests in Central Asia.
- Congo, which would go nicely with China's rabble-rousing in Zimbabwe"
There are compelling arguments on both sides, and Congress is already taking action. Here are some important questions to consider:
- What national security interests are at stake?
- Is the cause of freedom expanded or diminished if the sale goes forward?
- Is it fair for a state-owned company of a communist country to purchase a US company that trades in oil?
- If the US denies the sale, what will China's response be towards free markets and capitalism?
- What are the possible consequences for US-Sino relations if the bid is rejected/accepted?
- What are the implications for Unocal shareholders, who would like the best price for their shares?
I invite readers to comment by clicking on this link at the Fourth Rail. I will address the questions asked above and others based on reader responses and debate. Hopefully this will be an enlightening and civil, free-spirited debate.