Recently the China National Offshore Oil Co. made a bid to purchase the U.S. oil and gas producer Unocal. From the alarmist and jingoistic reaction of many in Congress, one would think that the Chinese government had launched a hostile takeover bid of the American economy. Rep. Carolyn Cheeks Kilpatrick, D-Mich., went so far as to offer an amendment to an appropriations bill to prevent the traditional government review process - known as CFIUS - of the proposed deal from ever taking place.
Much of the debate surrounding Kilpatrick's amendment focused on the belief that China and Chinese companies do not "play by the rules" and, as a result, operate at an advantage over U.S. companies. In fact, shares of CNOOC are traded on both the New York and Hong Kong stock exchanges - two of the most prestigious exchanges in the world - which are well known to impose tough disclosure rules on listed companies. CNOOC has stated on numerous occasions that it wants to participate in the CFIUS process and will respect its outcome - making Kilpatrick's amendment all the more unfortunate.
There has also been considerable talk in Congress and across the United States about how a combined CNOOC and Unocal will be a threat to our national security. While national security issues cannot be brushed aside, the fact of the matter is that this is fundamentally a commercial transaction that says a lot about how the global economy works. Indeed, the United States should use the opportunity of China's wanting to invest here to press Beijing harder to expand human rights, adopt free-market, pro-growth policies and privatization and to press it less on making the Chinese currency unstable.
When CNOOC decided to list itself on the Hong Kong and New York stock exchanges, it agreed to play by the rules of global capital markets - something most companies in China are unwilling to do. As a result, CNOOC cannot risk its reputation by making bad business deals or selling its products at an unprofitable price. Therefore, it makes absolutely no commercial sense for a Chinese company to extract oil and gas from the Gulf of Mexico and ship it halfway across the world when pipelines that reach every American consumer are a couple of hundred miles away.
Most of Unocal's gas reserves in Asia already are committed to Asian markets, such as Indonesia and Thailand, through long-term contracts that CNOOC will be required to honor. It is safe to assume that the global capital markets and the thousands of CNOOC investors will never allow CNOOC to break all those profitable contracts to sell gas to China at below market rates.