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November 2, 2005

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Politicizing CNOOC's Unocal Bid Imperiled US-China Relations
Congress should promote economic engagement, not protectionism

WASHINGTON -- It is a grave mistake to deny Chinese firms the right to purchase natural resources in the open market if there is no credible security risk, argues a new study by the Cato Institute. In "U.S.-China Relations in the Wake of CNOOC," James A. Dorn, a China specialist and Cato's vice president for academic affairs, explains why Washington's interference with the CNOOC-Unocal deal was unwarranted and hurts America in the long run.

The paper argues that Unocal shareholders should have been free to weigh the competing offers from CNOOC and Chevron. "Unocal was only a small player in the U.S. energy market and had no technology that posed a real threat to U.S. security," Dorn writes. "Nonetheless, congressional pressures prompted CNOOC to withdraw its $18.5 billion bid, paving the way for Chevron to acquire Unocal for $17.7 billion."

While China's competitiveness does pose a threat to certain U.S. economic interests, it also benefits American consumers and exporters. Dorn notes that while it is proper to criticize China for its human rights violations and its lack of a transparent legal system, America should not ignore the substantial progress China has made since it embarked on economic liberalization in 1978.

Additionally, China is one of the most liberalized economies in the developing world. The United States has more to gain from a "cooperative and constructive" policy of engagement with the PRC than one based on the premise that China wants to and can dominate the world.

"What may concern Congress more than the so-called security threat, which was never clearly defined in the case of CNOOC, is the idea that China may gain control of energy sources, crowd out American buyers, and use the 'oil weapon' to undermine U.S. influence in East Asia and elsewhere," the author writes.

He concludes: "The United States needs to treat China as a normal great power, not as an adversary; ensure that only those commercial transactions that genuinely threaten national security are blocked; and recognize that by increasing economic freedom we increase personal freedom. Our economic security, as well as China's, will depend on sound free-market policies, not on destructive protectionism."

James A. Dorn is co-editor of China's Future: Constructive Partner or Emerging Threat? (2000) and editor of China in the New Millennium: Market Reforms and Social Development (1998).