Capital freedom will survive the Unocal door-slam

Aug. 5, 2005
Congress growled. CNOOC Ltd. flinched. So Chevron Corp. will own Unocal Corp.

Bob Tippee

Congress growled. CNOOC Ltd. flinched. So Chevron Corp. will own Unocal Corp.

This does not, as some analysts are saying, destroy freedom of movement for international capital.

CNOOC came late to the contest for Unocal. US lawmakers, fretting about security implications, extended the regulatory study period. CNOOC then grumbled about "unprecedented political opposition" and withdrew its offer (OGJ Online, Aug. 2, 2005).

Congressional heavy-handedness? Maybe. But expecting lawmakers to have shown no concern at all is unrealistic.

China's state-owned companies have been buying oil and gas assets around the world. Most observers think they pay too much for the acquisitions. That alone is cause for worry. Market freedom doesn't flourish when private companies have to compete for assets with treasuries of acquisitive governments.

It's generally assumed that Beijing feels compelled by growing energy needs to overpay for oil and gas fields abroad. Whatever the reason, the activity is based on sovereign decisions with international consequences. Governments worry about such things.

CNOOC's Unocal overture was not merely a matter of one company that happens to be Chinese trying to buy another company that happens to be American. CNOOC's majority owner is the Chinese government, which is authoritarian and communist.

Neither Chevron nor any other international oil company could have bid for CNOOC. The Chinese government has made available through public stock offerings only minority interests of the oil and gas companies it owns. So while it has welcomed international capital to those enterprises, much of it from major oil companies, it has yielded no control. While it seeks wide-open access to assets elsewhere in the world, it offers only limited access to assets of its own.

Real market freedom applies in all directions. CNOOC and its corporate brethren represent extensions of a government that has not distinguished itself with commitment to freedom of any kind.

Chinese companies should of course have access to international markets and investments. They should, however, expect to submit to normal demands for commercial transparency, their tolerance for which has yet to be tested. And they shouldn't expect to escape the legitimate curiosity governments have for one another's international forays.

(Online Aug. 5, 2005; author's e-mail: [email protected])