The offer by CNOOC Ltd., a state run Chinese oil firm, to buy Unocal Corp. for $18.5 billion raises all sorts of issues. (Link)
- The offer for Unocal comes on the heels of an offer by top Chinese appliance maker Haier to buy Maytag. (Link) How would a sustained burst of acquisition activity by Chinese firms play out given the politics of our trade deficit with China? CNOOC reportedly is offering to preserve Unocal's US jobs, which will make its bid more attractive to politicans who would face job losses if Chevron's proposal to buy Unocal prevails. In general, however, one imagines that in the short term the politicos worked up about the trade deficit will get equally worked up by Chinese direct investment here. In the long term, however, investment by Japanese firms in US plants (e.g., all those US auto plants built by Toyota and Honda) appears to have contributed to a lessening of US-Japanese trade tensions.
- Unocal faced litigation over alleged human rights violations in connection with its Burmese operations. CNOOC has taken flack for human rights problems associated with its investment in an Indonesian project. (Link) On top of which, of course, there are longstanding concerns about human rights issues in connection with Chinese state run companies in general. You have to figure this will generate political heat that may complicate the bid.
- CNOOC presumably is interested in Unocal mainly because of the latter's extensive Asian oil holdings. How will Unocal's East Asian host countries feel about further expansion of Chinese influence over their economies and natural resources?
In Canada, takeover activity by Chinese firms has triggered a review of foreign investment rules. In the current political climate, in which many Republican politicians (and some Democrats too) view China as a potential strategic competitor, it would be surprising if CNOOC's bid for Unocal did not face rough water in Washington.
