End of CNOOC bid may hurt U.S.-China relations

Elaine Kurtenbach

Wednesday, Aug. 3, 2005 | 9:29 a.m.

SHANGHAI, China -- Building anti-Chinese sentiment in Washington -- the key reason cited by Chinese oil company CNOOC for withdrawing its $18.4 billion offer for Unocal -- augers poorly for future economic ties between the two powers, analysts say.

Government-controlled CNOOC on Tuesday dropped its bid for Unocal Corp. citing a political uproar in Washington as the main obstacle for the deal. That cleared the way for Chevron Corp., the second-largest U.S. oil company, to complete its acquisition of Unocal next week, although its offer was worth $700 million less.

CNOOC's defeat followed a decision by appliance maker Haier Group Ltd., just two weeks earlier, to abandon an offer of $1.28 billion for rival Maytag Corp.

"Anyone can see that CNOOC bid failed because of political obstacles, not business factors," said the Hong Kong Economic Journal, a respected financial newspaper. "CNOOC's lack of success marked the first serious failure of the Chinese government's policy of encouraging its enterprises to go out into the world. It's also a bitter experience for China's attempt to expand its supply of energy resources."

CNOOC's defeat came amid an unprecedented upswell of opposition in Washington toward China that might deter future takeover attempts and could even complicate broader relations.

"I hope they're not discouraged from thinking about investing in the U.S. in the future," said Robert A. Kapp, former president of the Washington-based U.S.-China Business Council. "Whether this has a polluting effect on long-term relations remains to be seen but I don't discount that possibility."

China did not immediately issue any public comment. Its Foreign Ministry issued a statement on its Web site Wednesday saying that Foreign Minister Li Zhaoxing had exchanged opinions on bilateral relations in a phone call to U.S. Secretary of State Condoleezza Rice. It gave no details.

The news came at an awkward time for senior officials holding the two governments' first-ever "strategic dialogue" in Beijing this week that touched on a wide range of issues, from energy to terrorism.

The official Xinhua News Agency noted that the timing for a deal was bad, given the recent surge in crude oil prices and mounting U.S. worries over future energy security.

But it commented, "What confuses energy experts both at home and abroad is that what should have been a simple win-win scenario was without reason politicized by the U.S. government."

Ultimately, CNOOC's offer succumbed to an upsurge in antagonism in Washington, despite ever-closer economic ties with China, said Kapp.

"Clearly for the last seven months Congress has been very, very inflamed, almost allergic (to China)," Kapp said. "For the most part it's been all China threat, all the time."

Tensions have already risen amid U.S. complaints about the rampant product piracy and the cheap Chinese textiles that have flooded the U.S. after global textile quotes expired at the beginning of the year.

And before China moved to revalue its currency on July 21, some U.S. politicians lambasted Beijing for keeping the yuan artificially low, saying its exporters were reaping an unfair trade advantage. Even then, the currency move was seen in Washington as far too small.

Chevron's bid was helped by the backing of U.S. lawmakers who questioned if American economic and national security interests would be threatened if a company 70-percent owned by China's communist government were to buy El Segundo, Calif.-based Unocal, the world's ninth-largest oil company.

Chevron had regulatory clearance for the deal and the support of the Unocal board.