Chinese Firm Out of Running for Unocal

The Chinese government-owned company CNOOC has withdrawn its bid for the Unocal oil company. The move clears the way for Chevron to complete its acquisition of Unocal next week.

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The Chinese Offshore Oil Corporation, known as CNOOC, has abandoned its bid for Unocal. This would have been the largest-ever purchase of an American company by a Chinese firm. CNOOC had put forth a bid that was higher than a competing bid from a US oil company, Chevron. But many, including quite a few in Congress, attacked CNOOC's bid as a threat to the US. And today, CNOOC cited the political uproar in the US as the main reason for its decision. NPR's Adam Davidson reports on how today's events may effect US-China relations.

ADAM DAVIDSON reporting:

From a business point of view, the fight over Unocal was simple. Unocal's board was looking for a buyer. CNOOC and Chevron each wanted the company. And CNOOC's offer of roughly 18.4 billion was more than a billion dollars greater than Chevron's. The Chinese company had two Wall Street firms backing its bid, and there was a lot of talk about the sophistication of its proposal. But in the end, it didn't matter who was backing CNOOC. The idea of a Chinese government-controlled company buying even a midsized US oil company was just too controversial. The Cato Institute's Jerry Taylor.

Mr. JERRY TAYLOR (Cato Institute): It began to represent US fears and concerns about China. The tenor of the comments on the Hill were completely unrelated to this particular transaction.

DAVIDSON: Taylor, who is a free-trade advocate, sees the drama around the CNOOC bid as a lesson about the dangers of anti-trade protectionism. Indeed, like Taylor, many in Congress analyzed the CNOOC deal through the lens of whatever issue they see as most important. CNOOC's majority shareholder is the Chinese government, and some in Congress said they would not allow the CNOOC bid to go through because of China's human rights record. Others said they would spike the deal, because China manipulates its currency and hurts US manufacturers. Others said China would never let a US company buy an oil firm in China, so China can't buy one here. Kevin Kearns is president of the US Business and Industry Council.

Mr. KEVIN KEARNS (President, US Business and Industry Council): The problem right now in Washington is that there is no China policy. It's very fragmented. I guess you could call it a schizophrenic China policy.

DAVIDSON: Kearns says some in the US see China solely as an economic opportunity. Others see it as solely a potential military threat, the next great anti-American superpower. For him, China is a threat, an economic threat to the small domestic manufacturers he represents. He was glad that CNOOC dropped its bid. Many Chinese companies like CNOOC, he says, get cheap loans from the Chinese government. That lets them unfairly compete against US manufacturers, costs US jobs and will ultimately weaken the US. Kearns may not care particularly about the oil industry, but he supports any efforts to stop China from encroaching on the US economy.

The CNOOC bid may have been doomed from the start because it came at a time of tremendous anxiety about oil supplies and about China's intentions. It came just as many powerful people in the US are asking fundamental questions about the US-China relationship. So however good a deal it was for Unocal's shareholders, the deal was doomed politically.

Mr. TODD MALAN (Organization for International Investment): Yeah, I'm sure that there are people within the Bush administration that are heaving a big sigh of relief.

DAVIDSON: Todd Malan of the Organization for International Investment says a CNOOC-Unocal merger would have forced the Bush administration to take sides in the debate over the future of the US and China. Unocal shareholders are expected to approve Chevron's bid on August 10th. One day later, Unocal and Chevron will be one company. Adam Davidson, NPR News.

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