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Chinese Bid for UNOCAL Sparks Sharp Debate in US Congress

There has been more debate in the U.S. Congress over the effort by China to acquire UNOCAL, the U.S.-based oil company. Many lawmakers are concerned about the economic, geopolitical and even military implications of such a deal.

When the House of Representatives overwhelmingly approved a resolution two weeks ago describing the Chinese bid for UNOCAL as a threat to U.S. national security, the government in Beijing was quick to respond.

Aiming its words directly at U.S. lawmakers, China accused them of "politicizing economic and trade issues," and called on Congress not to interfere in what it called normal commercial exchanges between the two countries.

Earlier, the House had approved another measure aimed at blocking the Bush administration from approving a China-UNOCAL deal.

On Wednesday, the House Armed Services Committee considered a range of issues in connection with the UNOCAL matter, from China's expanding energy needs and military capabilities to U.S. dependence on imported oil.

James Woolsey, a former CIA director, is among those who believe the UNOCAL sale is part of a Chinese strategy to acquire strategically important assets. "China is realistically assuming that there may be a great world scarcity in oil, because potentially of terrorist attacks and otherwise, or just because of natural growth in the market, thereby driving up the price and it is doing everything it possibly can to ensure that it has access that could replace the access that other countries, including the United States have."

Lawmakers focused on the role a Chinese acquisition of UNOCAL could play in assisting Beijing's military buildup.

"China is building a military which will, at some point, be formidable if it continues at the same pace it is growing at right now," said Congressman Duncan Hunter, the Republican chairman of the Armed Services Committee.

Jerry Taylor, director of natural resources studies at the CATO Institute, believes the UNOCAL deal would not be harmful, noting there have been other foreign acquisitions of U.S. assets. "I don't think that this is anything out of the ordinary as far as the U.S. economy is concerned. It is certainly not unprecedented for foreign-owned oil entities to buy oil assets in the United States and far larger assets have been sold to these entities in the past," he said.

The more China invests in the United States, says Mr. Taylor, the less chance of conflicts later on. But his argument, including the fact that UNOCAL production accounts for a small percentage of world oil output, didn't persuade Republican Congressman Walter Jones. "We are putting ourselves into such a position that the American people are going to wonder what in the world are we doing, are we sleeping up here in Washington, or are we watching the shop as we see it given away?," he said.

Frank Gaffney, a former Reagan administration official and noted critic of China who heads the Center for Security Policy, asserts China's attempt to acquire UNOCAL is part of a larger strategy. "[A strategy] that views this very differently from the free market capitalist 'Hey as long as it makes sense by the numbers' approach, that too many American businesses have taken. And if we don't stop approaching these things, especially looking at them piecemeal, we're going to wake up defeated economically, and perhaps without a fight militarily," he said.

China's National Offshore Oil Company is 70-percent owned by China, a fact many lawmakers have cited to support their strong opposition to a deal.

In its resolution approved at the end of June, the House of Representatives calls on President Bush to conduct a thorough investigation of any deal in which the Chinese company acquires UNOCAL.

Shareholders of California-based UNOCAL will vote next month to decide between that bid, worth about $18.5 billion, and a lower-priced bid already approved by the UNOCAL board of directors from U.S.-based Chevron Corporation.