China condemns US political intransigence after failed CNOOC bid

China’s state media has condemned US political intransigence over oil group CNOOC’s bid for Unocal, saying its opposition called into question the free trade dogma Washington often trumpets to the world.

‘The high-profile takeover battle demonstrated to the world that the United States is not a free economy as it claimed to be,’ the official China Daily said in an editorial.

‘An asset for sale has not gone to the buyer that most prized it because of regulatory concerns fuelled by bogus fears and hidden interests,’ it said of the deal that was aborted Tuesday.

The China Daily editorial went on to say that not only had Unocal shareholder interests been damaged but that the failure would ‘poison the current prevailing mood as bilateral economic ties between China and the United States are enhanced.

‘The explicit message the takeover battle sends to the world is that American business is defined by political needs,’ it said.

‘That practice will incur many unknown costs for foreign investors. In the long run, the casualty will be US competitiveness if the market is to play second fiddle to protectionism with political patronage.’

Following is another article on the same subject:
According to the New York Times, A Furor Was Built on Many Grudges

Byron Dorgan, a Democratic senator from North Dakota who was one of the sharpest critics of the Chinese attempt to buy Unocal, argued that the withdrawal “does not change the fact that there are policy questions that have to be answered. When a Chinese government-controlled company tries to buy an American oil company, is it a free-market transaction? The answer is no.”

Pray tell why not?
Is it free market economics when Walmart wants to expand into China?
Is it free market economics when Citycorp want sto expand into Chinese banks?
Here is the real question: is it free trade when it benefits the US but something else when it doesn’t?

“I think a very serious economic clash is probably in the offing this fall,” said C. Fred Bergsten, head of the Institute for International Economics, a policy research organization here.

For what it’s worth, I expect battles like this one to intensify. I have to admit I was surprised how quickly this one fired up right after the RMB repeg.

Patrick Mulloy, a member of the U.S-China Economic and Security Review Commission, a bipartisan advisory panel created by Congress, said Cnooc’s withdrawal would force American policy makers to look at issues posed by government-owned companies.

“This is good news,” Mr. Mulloy said of Cnooc’s decision. “Don’t call this a commercial transaction when it’s not a commercial transaction. This is a government-controlled company. There was no ability for an American company to buy Cnooc; there was no reciprocity.”

Trade wars and threats and bluffs and silly laws to prevent free trade are good news?
Did any US make a bid for CNOOC?
Did anyone else?
Speaking of reciprocity, is China allowing Walmart and Citycorp to expand there or not?

While we are at it, Mr. Mulloy please look up the definition of the word fungible. After you do please tell me why it matters from an oil pricing standpoint who owns Unocal.

Here is a comment that at least makes sense:
“The United States has argued persistently over the course of two decades that governments should not interfere with the ability of companies to invest,” said Charlene Barshefsky, who served as United States trade representative under President Bill Clinton. “The concern I have is not only about the severe damage this does to the strength of our position abroad, but about the taking of mirror actions by other countries – and not only China.”

Here is another person that “gets it”:
Philip Swagel, a resident scholar at the American Enterprise Institute and a former chief of staff on President Bush’s Council of Economic Advisers, said Americans were in danger of losing perspective, thinking that the economic competition between nations should somehow be seen in military terms.

Mr. Swagel pointed out that two American banks were interested in buying stakes in state-owned banks in China. While those bids have been encouraged by Beijing, it is doubtful that Washington would be so inviting of similar deals, particularly if they involved changes in control.

“Imagine if a Chinese company tried to take over Citigroup,” Mr. Swagel said. “It would go to Defcon 5 here.”

Following are two final comments of my own:

  • Trade wars and trade threats are quite typical of an overall economic environment with deflationary underpinnings.
  • The fact that these are happening almost immediately after they were thought to be diffused is perhaps telling.

Mike Shedlock / Mish/