China's Oil Demand Complicates Relations with U.S.

This year the Chinese National Offshore Oil Company made a bid to buy the American oil company Unocal. The bid, later withdrawn, sparked a new controversy between Washington and Beijing and reinforced China's status as a competitor for fuel. Mike Shuster has the third part of his series on China-U.S. relations.

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RENEE MONTAGNE, host:

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The recent bid by the Chinese National Offshore Oil Company to buy the American oil company Unocal has highlighted a new and growing controversy between the US and China: the competition for oil and energy worldwide. The Chinese bid was eventually withdrawn after it sparked a gusher of criticism, especially in Congress. In the third of our four-part series on US-China relations, NPR's Mike Shuster reports on the US, China and oil.

MIKE SHUSTER reporting:

The bid of the Chinese National Offshore Oil Company blindsided the United States. The notion that a Chinese company could pay $18 1/2 billion for one of America's oil companies didn't quite sit well with many Americans. It especially didn't sit well with Congress, where the House of Representatives eventually adopted a resolution by a vote of 398-to-15 that the sale threatened to impair the national security of the United States. CNOOC, as the company is known, withdrew its bid after that. Kurt Campbell, former deputy assistant secretary of Defense for Asia policy, says Americans should not have been so surprised.

Mr. KURT CAMPBELL (Former Deputy Assistant Secretary of Defense for Asia Policy): The reality is that China now has enormous holdings of American dollars, and it's only a matter of time where they use those dollars to buy assets. The problem is that because we have such a mixed view about China, that it's hard to imagine China making major purchases of things that are identified with certain aspects of American power and privilege.

SHUSTER: The competition between the US and China for energy will not end with the Unocal episode. Twenty years ago, China was Asia's largest oil exporter. Now after years of economic reform, China's embrace of capitalism has made it the world's second largest oil importer behind only the US. Unocal has significant holdings in East Asia, and for opponents of the deal, such as John Tkacik, a former State Department official now with the Heritage Foundation, this was just another attempt by China to lock down oil supplies and, in the process, cement its dominance of Asian neighbors.

Mr. JOHN TKACIK (Former State Department Official, Heritage Foundation): And it just seemed--from a geopolitical perspective, it just seemed dumb to turn these assets over to the Chinese. The immediate result of which would be to increase China's strategic influence in those areas.

SHUSTER: The Bush administration never took a clear position on the CNOOC bid for Unocal. First, an office in the Treasury Department would have had to examine the deal for its national security implications, and it never got that far. Recently, in a speech widely seen as the most comprehensive statement of the administration's policies on China, Deputy Secretary of State Robert Zoellick took a somewhat skeptical view of China's actions in the international oil market.

Deputy Secretary ROBERT ZOELLICK (Department of State): China seems to be acting as if it can somehow lock up energy supplies around the world. This isn't going to be a sensible path to achieving energy security. Moreover, a mercantilist strategy leads to partnership with regimes that hurt China's reputation and leads others to question its intentions.

SHUSTER: China has sought out close relations with Sudan, Iran and Venezuela in recent years, pursuing exclusive energy deals with these nations. Not coincidentally, they all have troubled relations with the US. Still, China has also invested in natural gas in Australia and in the oil sands of Canada. Many analysts that follow China closely believe that there is more to this story than just challenges to the United States. David Lampton runs the China program at the Nixon Center in Washington.

Mr. DAVID LAMPTON (China Program, Nixon Center): There's an inherent contradiction, and that is the US wants access to buy strategic assets in China, like banks and insurance companies and so forth, so, you know, it's hard to tell the Chinese they can't buy assets here and demand that we have access to buy their assets that they consider strategic there.

SHUSTER: There is disagreement in the United States over the motivation for the Chinese bid. Some on the right believe that it was fundamentally political, advanced by the government in Beijing against the better commercial judgment of CNOOC's management. Kenneth Lieberthal, a former China expert in the National Security Council, believes it was just the opposite, a commercial venture without strong support from Beijing.

Mr. KENNETH LIEBERTHAL (Former China Expert, National Security Council): This was played in the United States as if the Chinese national political leviathan, as part of a global strategy to crowd the US out of energy resources and to preempt oil even in the United States, was directing CNOOC to go after American oil. That was ludicrous, frankly.

SHUSTER: Some saw the bid as mercantilist, an effort to exclude others from key sources of oil. But David Lampton believes the Chinese were playing by global market rules.

Mr. LAMPTON: ...and buy commercially, through a legitimate means, you know, reputable companies. And what the US, I think, inadvertently probably, sent the message to the Chinese is, `Well, maybe we're not going to let you do that.' And so, in a sense, we're driving them back into the arms of what you might call the more unsavory operators in the international oil market.

SHUSTER: With its rise as a global commercial power, with the growth of its military and now with increasing competition for oil, China has become an enormous challenge for the US. `Americans,' says Kenneth Lieberthal, `must understand China better.'

Mr. LIEBERTHAL: I think that this highlights the absolutely incredible degree to which people in the United States can misunderstand what is going on in China.

SHUSTER: China's bid for Unocal was one of the first Chinese efforts to buy American. It certainly won't be the last. Mike Shuster, NPR News.

MONTAGNE: Tomorrow, US and China on the world diplomatic stage.

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