Is the United States facing the threat of an economic 9/11 as Chinese corporations supposedly get ready to take control of US businesses and the entire economy?
That is certainly the impression one would get after listening to the anti-China rhetoric out of Capitol Hill, after one of China’s state-controlled oil companies made an unsolicited US$18.5 billion bid for Unocal, the California-based gas company, and thus demonstrated its willingness to engage in a takeover battle with Chevron Corporation, which offered US$16.5 billion for the company.
The bid by China National Offshore Oil Corporation (CNOOC), China’s third-largest oil company, for America’s ninth-largest energy company could prove to be a defining moment in the relationship between the two nations.
The political outcry in Washington over CNOOC’s bid for UNOCAL reflects a recognition among US elites that China has become a major contender in the global economy and that its companies are ready now to pick fights with their American counterparts – and perhaps are even able to win from time to time.
Since Chinese accession to the World Trade Organization (WTO), the debate here has focused on whether China was ready to play by the rules of Western-style capitalism.
Now that China seems to be playing by those rules as one of its companies asks that Unocal’s shareholders approve the proposed deal, the question is: Will the political elites in Washington respond to China’s economic rise by trying to use the power of the state to prevent Chinese capital from flowing into the American market, and hence pose a clear challenge to the same rules of free-market economy that the US is supposedly promoting worldwide?
“Resorting to isolationist trade policies would be ineffective, disruptive to markets and damaging to America’s special role as the world’s leading advocate for open markets,” US Treasury Secretary John Snow reminded US lawmakers, responding to their pressure to “do something” to prevent CNOOC from acquiring UNOCAL and to force China to lift its capital controls. Federal Reserve chairman Alan Greenspan also sounded a cautionary note during an exchange with lawmakers, arguing against moves to punish China over its exchange rate system.
The debate on China reflects the angry nationalist mood in the US capital where growing frustration over the failure to end the anti-American insurgency in Iraq seems to be spilling over into other foreign policy issues.
At the same time, discontent over the problems facing the US economy – including the decline of manufacturing industries, the outsourcing of service jobs and the expanding US trade deficit (including with China) – has led lawmakers to search for foreign scapegoats.
The result is that China is regarded now as an easy target for politicians trying to demonstrate to the American people that they are fighting for their interests, not to mention the fact that bashing China helps lawmakers win brownie points (and campaign contributions) from powerful lobbyists representing industries requesting government protection from Chinese and other foreign competition.
The perception that China is emerging as an economic threat to the US also intertwines with the concerns in Washington over China’s military challenge that was stressed by Defense Secretary Donald Rumsfeld in his recent address in Singapore.
Thus it was not surprising that the rising anti-China hysteria reached a dramatic level during last Thursday’s hearing under the auspices of the Senate Finance Committee convened to discuss a proposed bill to impose a 27.5 per cent tariff on Chinese imports unless China allows its currency to rise against the US dollar.
Republican Senator Lindsey Graham from South Carolina (which happens to be a state where textile industries threatened by foreign competition are located), a co-author of the legislation, suggested during the hearing that the bid by CNOOC “threw gas on the fire.”
Indeed, it has provided demagogic China-bashing lawmakers like Mr. Graham and Democratic Senator Charles Schumer from New York with an opportunity to accuse China of threatening to devastate American economic growth and prosperity.
It’s doubtful that the owners of US businesses making money in China or the American consumers benefiting from low-cost Chinese imports share the view that the Chinese are threatening their economic interests. At the same time, lawmakers on the political right are depicting the Chinese bid for UNOCAL as a threat to US national security and argue that it should be seen as part of a coordinated strategy by Beijing aimed at eroding American energy security.
Republican Representatives Duncan Hunter and Richard Pombo, both from California, a state whose economy benefits from American trade with China, have asked that the Chinese bid be referred to the US Committee on Foreign Investment (CFIUS) to study whether the sale of UNOCAL to a Chinese company threatens US national security.
The CFIUS is a secretive interagency established in 1988 with the mandate to review foreign investment and ensure that it would not threaten US “national security.” Almost all the previous investigations had to do with concern over sensitive US technology falling into the hands of America’s global rivals. But the hawks are hoping that a possible rejection by the CFIUS of CNOOC’s bid would help establish that, first, America’s energy companies are “strategic assets” and that, secondly, Chinese investment in such “strategic assets” should be blocked.
While one finds many of the “usual suspects” on Capitol Hill trying to raise the political heat when it comes to China, it’s quite distressing to learn that even pro-free market lawmakers from both political parties are pushing for a trade fight with China. According to some news reports, there is rising support on Capitol Hill for a bill proposed by senators Susan Collins, a Republican from Maine, and Evan Bayh, a Democrat from Indiana, that would require the Commerce Department to respond to alleged illegal Chinese export subsidies.
And senators Collins and Bayh are two leading centrist and free-traders, as is Senator Ron Wyden, a Democrat from Oregon, who is demanding that the Bush administration take a tough stand on CNOOC’s bid. “I don’t think that being a free trader is synonymous with being a sucker and a patsy,” he stated last week.
“Fighting back is not protectionism” is the way Mr. Graham described the, well, protectionist mood on Capitol Hill. “No more sabre-rattling. We want results,” he told Mr. Snow.
It’s interesting to note that some of the lawmakers who have been igniting political fears of China’s economy and rallying against its unsolicited bid for UNOCAL had also voted in favor of China’s entry into the WTO – a move that was based on expectations that China would be committed to play by international economic rules, and it should thus be encouraged to join and integrate itself into the global economy.
In that context, CNOOC’s bid should be regarded as a cost-effective move by a Chinese company to boost reserves in order to meet China’s energy demands. In fact, CNOOC’s bid should be welcomed by America’s lawmakers since the Chinese company is acting like a responsible capitalist player by trying to win over UNOCAL’s shareholders.
Congress has not prevented other foreign state-owned companies from buying US assets and by specifically targeting a Chinese state-owned company, it is Washington’s lawmakers who would be – and rightly so – accused of violating the rules and the spirit of global capitalism.
Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.
