26 June 2005
Houston, We Have a Problem - China and Unocal
Let�s take China and its apparently unsolicited offer to buy Unocal for $18.5 billion. This bit of news brings out many issues we�ve been ignoring. In "we" I include myself and all other voters and all politicians from a district leader to the President. China�s bid for Unocal may not change anything, much as the US allowing Swiss pharmaceutical companies to own most of the supply side of branded prescription medications in the US and worldwide. A currency-related issue would be the amount of US-earned profits China would allow to return to the US. Incorporating US operations in Delaware seems to be the proven way for retaining some of the profits here. Shell does that, as does British Petroleum (BP). At some point, however, some percentage of the US corporation profits go to the owners overseas.
What makes China�s bid harrowing for the Bush Administration:
1. The US-Chinese trade relationship is ambiguous at best because of human rights issues and constraints on political activities; which country�s these are can be debated. Advocates and opponents come from every part of each party's conservative-liberal spectrum.
2. China is a totalitarian regime with nuclear weapons. Would protectionist actions by Bush be views as a positive contribution to the security of the US oil reserves or would free trade stances achieve the ideological and commercial objectives of this Administration?
3. China and the US have opposing military goals and alliances in Asia regarding North Korea, Taiwan, just to name two. China�s and the US�a political strategies for the Pacific Rim, South East Asia and the Indian sub-continent seem to have the same goal of excluding influence and power of the other.
4. China has only a few decades of market economy experience within its governmental institutions after a collectivist ideology of 60 years under Communist social, political and economic institutions. Some people in the US might view this bid as China's encroachment and a means of establishing itself as a major player in global markets including OPEC as a fait accompli.
5. US refining capacity does not meet the domestic demand for petroleum products because environmental protection law and regulation require public participation for obtaining an approved modernization plan. Such a plan has to be comprehensive enough in scope to attain what efficiencies technology has available, yet the NIMBY (not in my backyard) attitude of residents and businesses nearest to the project are strong enough to prevent any major reconstruction of refineries. Disposing of the replaced components of a refinery presents a nightmare to hazmat officials and to environmentalists. A China-owned Unocal solution: build a new refinery from scratch in China and close down US production capacity. Tankers might find it easier to go to a Chinese harbor than to the US side of the Pacific Ocean. Although the actual number of workers is low for operating a refinery in the US, moving Unocal refining out of the US could create a huge political problem for Bush, Cheney and those who support them in Congress.
What deal might the US require for this purchase of Unocal to proceed? Chevron�s recent purchase of Unocal seems to have been ignored so far in publicity about the bid. Perhaps the Chinese have heard privately that the FCC will disallow a merger of Unocal into Chevron for anti-competitive reasons. Who would benefit from recognizing Chevron as the Unocal owner? Not the Unocal shareholders; rather, the Chevron shareholders would receive return on their investments. I foresee that some Grand Juries, lawyers and judges are going to spend the next several years learning the economics of international petroleum.
Another part of a "deal" for this deal could be an exchange of the mineral and chemical concessions China has in Sudan and elsewhere in Africa. I think the reason behind US inaction to stop the genocide in Dafur is concern that US intervention would alienate the Chinese commercial interests involved in trade negotiations with the US. Oh, it's a wicked world out there.
Remember the old Chinese curse: May your life be interesting.
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What makes China�s bid harrowing for the Bush Administration:
1. The US-Chinese trade relationship is ambiguous at best because of human rights issues and constraints on political activities; which country�s these are can be debated. Advocates and opponents come from every part of each party's conservative-liberal spectrum.
2. China is a totalitarian regime with nuclear weapons. Would protectionist actions by Bush be views as a positive contribution to the security of the US oil reserves or would free trade stances achieve the ideological and commercial objectives of this Administration?
3. China and the US have opposing military goals and alliances in Asia regarding North Korea, Taiwan, just to name two. China�s and the US�a political strategies for the Pacific Rim, South East Asia and the Indian sub-continent seem to have the same goal of excluding influence and power of the other.
4. China has only a few decades of market economy experience within its governmental institutions after a collectivist ideology of 60 years under Communist social, political and economic institutions. Some people in the US might view this bid as China's encroachment and a means of establishing itself as a major player in global markets including OPEC as a fait accompli.
5. US refining capacity does not meet the domestic demand for petroleum products because environmental protection law and regulation require public participation for obtaining an approved modernization plan. Such a plan has to be comprehensive enough in scope to attain what efficiencies technology has available, yet the NIMBY (not in my backyard) attitude of residents and businesses nearest to the project are strong enough to prevent any major reconstruction of refineries. Disposing of the replaced components of a refinery presents a nightmare to hazmat officials and to environmentalists. A China-owned Unocal solution: build a new refinery from scratch in China and close down US production capacity. Tankers might find it easier to go to a Chinese harbor than to the US side of the Pacific Ocean. Although the actual number of workers is low for operating a refinery in the US, moving Unocal refining out of the US could create a huge political problem for Bush, Cheney and those who support them in Congress.
What deal might the US require for this purchase of Unocal to proceed? Chevron�s recent purchase of Unocal seems to have been ignored so far in publicity about the bid. Perhaps the Chinese have heard privately that the FCC will disallow a merger of Unocal into Chevron for anti-competitive reasons. Who would benefit from recognizing Chevron as the Unocal owner? Not the Unocal shareholders; rather, the Chevron shareholders would receive return on their investments. I foresee that some Grand Juries, lawyers and judges are going to spend the next several years learning the economics of international petroleum.
Another part of a "deal" for this deal could be an exchange of the mineral and chemical concessions China has in Sudan and elsewhere in Africa. I think the reason behind US inaction to stop the genocide in Dafur is concern that US intervention would alienate the Chinese commercial interests involved in trade negotiations with the US. Oh, it's a wicked world out there.
Remember the old Chinese curse: May your life be interesting.
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