No. 553
November 2, 2005
Routing
U.S.-China Relations in the Wake of CNOOC
by James A. Dorn
Executive Summary
A policy of engagement--or what Hu Jintao,
Congress set a dangerous precedent when it
president of the People's Republic of China, calls
interfered with Hong Kongbased CNOOC, Ltd.'s
"peaceful development"--is a necessary condition
bid for Unocal. Supporters of the intervention
for constructive U.S.-China relations. Although
argued that CNOOC, a subsidiary of state-owned
China's competitiveness does pose a threat to cer-
China National Offshore Oil Company, could
tain U.S. economic interests, it also benefits
pose a threat to U.S. economic and national secu-
American consumers and exporters. Protectionism
rity. Yet Unocal was only a small player in the U.S.
would harm both the United States and China and
energy market and had no technology that might
would increase the likelihood of conflict. Hardlin-
pose a real threat to U.S. security. Nonetheless,
ers would gain at the expense of more reasonable
congressional pressures prompted CNOOC to
voices.
withdraw its $18.5 billion bid, paving the way for
To avert the risk of conflict, the United States
Chevron to acquire Unocal for $17.7 billion.
needs to treat China as a normal great power, not
The increasingly confrontational approach
as an adversary; ensure that only those commer-
Congress is taking toward China is leading to "creep-
cial transactions that genuinely threaten nation-
ing protectionism," often in the guise of protecting
al security are blocked; and recognize that by
U.S. national security. Although it is proper to criti-
increasing economic freedom we increase per-
cize China for its human rights violations and its lack
sonal freedom. Our economic security, as well as
of a transparent legal system, we should not ignore
China's, will depend on sound free-market poli-
the substantial progress China has made since it
cies, not on destructive protectionism.
embarked on economic liberalization in 1978.
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James A. Dorn is a China specialist and vice president for academic affairs at the Cato Institute. He is also professor
of economics at Towson University in Maryland and coeditor of China's Future: Constructive Partner or
Emerging Threat?