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The Rise of China

Concerned by the prospect of putting American technology and resources in the hands of state-owned, Beijing-based companies, the U.S. Senate last week passed a bill aimed at slowing down any foreign takeover of U.S. firms. The move comes on the heels of a takeover earlier this year of I.B.M.’s personal computer division by China’s largest computer maker, Lenovo, and a failed bid by a Chinese consortium to acquire U.S. appliance manufacturer Maytag.

Analysts wary of China’s intentions believe that the Unocal bid should be reviewed for security considerations. Peter Morici, who teaches International Business at the University of Maryland, warns that China’s bid for Unocal may be driven by other motives. He says,"“This is not Maytag, this is not ThinkPad. This is China seeking strategic American expertise at a time when it’s made threatening noises toward Taiwan. It’s building a blue water navy; and seems intent on challenging the United States in international institutions, which were put in place to defend democracy.”

And a recent Pentagon study goes further, saying that China is modernizing its military with the long-term goal of projecting its power beyond Taiwan, potentially posing a threat to other, modern forces in the region.

But most economists view the recent spate of Chinese bids for U-S companies as purely commercial transactions. They point out that China, the world’s most populous country also has the world’s fastest growing economy, with an annual growth rate of nine percent in the third quarter of 2004. According to U.N. figures, China became the world’s third largest trader in 2004. Currently, it consumes about six million barrels of oil a day; and according to some projections, it will need three times that amount in twenty years. Consequently, Nicholas Lardy of the Washington- based Institute for International Economics sees the Unocal deal as a mere drop in the China’s oil bucket. He says, “Unocal is a relatively small company. It produces two to three-tenths of one percentage point of global output of gas and oil. I don’t see any reason that the transaction should be blocked on national security grounds.”

Most analysts view China’s transactions in the United States as part of Beijing’s efforts to be more competitive in an increasingly globalized economy. Political Scientist Eric Heginbotham of the Council on Foreign Relations says China is looking for quick ways to break into foreign markets as its economy expands. He adds, “Their purchases of U.S. brand names can be seen largely as an effort for them to secure brands that are recognizable in the West, particularly in the United States, but also elsewhere. These are companies that have solid production capabilities, but it’s very difficult to do the branding that’s necessary to make them recognizable outside of China. So this is a way to sort of short-circuit the process that generally takes years or decades to build a brand name, and just go ahead and purchase the name.”

Mr. Heginbotham adds that China’s scramble for resources in the U.S., Latin America and Africa is an effort to secure equity stakes and resources. But he acknowledges that this strategy, while economically driven, employs political means such as bolstering a regime in a given country in return for guaranteed access to energy resources. He says, "Many of their deals, particularly on the resource side in Latin America and Africa involve political tie-ups with local regimes, and the offer of political and other types of economic support in exchange for privileged access to resources, energy, oil, as well as other types of mineral resources.”

And this alarms some experts who point out that the United States and China are the world’s number one and two oil consumers respectively, and that their needs will only increase. Travis Tanner, Assistant Director of Chinese Studies at of the Nixon Center acknowledges that the current global energy market is cause for concern. He says,“You’re talking about oil production running at almost capacity, over ninety percent right now. And if we take into account] China’s growing economy, and the United States’ and the rest of the world’s growing dependence on oil, then it’s obviously not moving in a positive direction.”

Some analysts say the United States and China are already engaged in an oil rivalry, with China losing its presence in oil-rich Iraq to the U.S. Analysts skeptical of Beijing’s motives, compare the Chinese challenge to the threat posed by Italy and Spain’s fascist regimes to Great Britain and France in the 1930s. Among them is the University of Maryland’s Peter Morici, who warns that China is using Wall Street tactics to mask its military ambitions, and says," I think that China is cynically playing the instincts of Wall Street by trying to distract attention from its military agenda. The fact is that it serves China’s interests to distract America, to catch us sleeping.”

Peter Morici goes on to compare China’s quest for resources to Japan’s drive in the 1930s to control resources and raw materials, which eventually led to war. But many experts dismiss these comparisons, or any parallels between China’s foray into U.S. markets and Japan’s investment spree in the 1980s, saying China’s transactions are market-driven. Some, including Deputy Director of the Nixon Center, Travis Tanner contend that it is in the interest of the United States to encourage an active Chinese role in the global economy. Mr. Tanner says, "Their profitability in the domestic market isn’t so great. They’re growing. They’re trying to compete on the international market, and I think we should be encouraging that. We want China to become a part of the global economy as much as possible. That just makes them have more of a stake, and I think that helps reduce concern over security issues. As China and the United States become closer, intertwined economically, I think it’s a stabilizer.”

Ultimately, however, most analysts say China’s proposed acquisitions should be viewed as a wake-up call for American leaders to prepare U.S. markets for a potential flood of competition, notably from China.

This report was first broadcast on the VOA News Now "Focus" program. For other Focus reports, click here