Chinese Unocal bid a security threat, says Senior Fellow
FOR IMMEDIATE RELEASE
WASHINGTON, 11 July 2005 -- This year, Chinese companies have participated in a number of the highest-profile bids for control of U.S. companies. In a bid that the Financial Times has called “an acid test of Wall Street’s ability to deal with China,” the China National Offshore Oil Corporation (CNOOC) offered $18.5 billion in cash to purchase Union Oil of California (Unocal) last month. Analysis of this offer, the largest ever for a U.S. company by a Chinese company has revealed political and military concerns at the heart of a financial matter.
Speaking on the June 28 edition of Lou Dobbs Tonight on the Cable News Network (CNN), Center for Advanced Defense Studies Senior Fellow Dr. Peter Leitner discussed the strategic implications facing U.S. national security with the proposed sale. Dr. Leitner has long opposed trading important technologies to foreign governments, particularly to potential rivals such as China.
Dr. Leitner highlighted three main strategic arguments underlying opposition to the sale. Despite the tempting financial benefits, Dr. Leitner argued that China has been attempting to dominate the market for rare-earth materials, which are widely used throughout the U.S. defense industrial base. While Unocal is not a national asset, it nevertheless owns the only rare-earth mine remaining in America. Allowing a Chinese company to purchase Unocal would make the U.S. dependent on China to supply these materials. Indeed, the House of Representatives passed a resolution two weeks ago favoring an amendment to prevent the U.S. administration from approving the deal, arguing that the bid could “impair the national security of the U.S.”
Dr. Leitner also informed the audience that the CNOOC remains embroiled with territorial disputes in both the South and East China Seas with Japan and a number of other Asian nations. With a possibility of conflict erupting in the region, many risks would arise from a company with many American stockholders becoming involved in a conflict with America’s allies. Chief executive of ExxonMobil Lee Raymond is the only high-profile executive to have announced support for CNOOC, saying last month that congressional interference with the bid would be a “big mistake” because it would hurt U.S. companies seeking to do business with China. In addition to the political tension involved, it was asserted that investment banks that have invested heavily to promote international trade between China and the U.S. would suffer tremendously from a failed deal.
Finally, and despite the increasing mutual reliance between the U.S. and China for growth, Dr. Leitner emphasized the issue of technology transfer and the inherent dangers in allowing China to purchase a company that possesses advanced deep ocean technology that the Chinese could use for undersea mapping with potential application to submarine warfare. Critics have also argued that the Chinese company’s $18.5 billion cash bid almost matches its own market value. CNOOC would therefore require financial support from the Chinese government, its controlling shareholder, to complete the purchase.
