Chinese Takeover Bid for Unoca

“So you want to buy all your junk at the lowest price at Wal-Mart. And since most of that junk is made in China, the Chinese have vast reserves of our currency. And the Chinese want to buy oil. They want it as much for their industries as you and I do for our vehicles. So who is going to get the oil?

http://www.nytimes.com/2005/06/22/business/worldbusiness/22WIRE-CNOOC.html?ei=5065&en=4d771759a933fc89&ex=1120104000&partner=MYWAY&pagewanted=print
last edited: 6/23/05 11:52:48 AM”

“the Chinese are also trying to buy Maytag which owns Hoover and Jenn Aire applicances.”

“Hey, they gave us Majong man. Ya can't front on dat!

:)”

“And spaghetti and fireworks.”

“Hoovers suck anyway.”

“Reminds me of Japan back in the '80's.

From the Spectator:

China Won't Be a Superpower

[...]

 The Chinese, their money and their manufactured goods are everywhere,
and pundits in search of New Year themes have been full of predictions
about China as the coming global power. The great William Rees-Mogg,
never one to hold back from a bold forecast, says this ‘is beginning to
look like the Chinese century’. The former diplomat Sir Jeremy
Greenstock, on the Today programme, spoke of China as ‘an increasingly
large presence on our horizon’, conjuring the image of those huge alien
spaceships that loomed over the world in the film Independence Day.

 The People’s Republic, we are repeatedly reminded, is sustaining
growth of 9 per cent a year, on the strength of massive inflows of
foreign investment. It is now the second largest national economy after
the US, measured in terms of ‘purchasing power parity’ (PPP), and will
soon be bigger than the whole of the EU. It has a prosperous middle
class of 100 million people, most of them connected to the Internet and
among them at least 10,000 whizz-kids like Mr Zhang and Mr Liu, with
net assets of more than $10 million each. Every factory enterprise that
makes another Chinese fortune destroys jobs in the US and Europe, while
a large portion of the dollars China earns is reinvested in US Treasury
bills to finance America’s notorious deficit — giving China, one way
and the other, a hard-to-beat hand of cards in global economic affairs.
Hence superpowerdom is Beijing’s for the taking, in this decade or the
next.

 Or is it? The time is surely ripe to rehearse the counter-arguments on
this one, and let me start by declaring a bias: the last day I stood in
Beijing’s Tiananmen Square was 4 May 1989, which was the first day the
students marched in with their banners, and were there to stay until
the tanks crushed them a month later. Before and after that traumatic
moment, I made many visits to Taiwan, a country which achieved
prosperity and democratic progress by refusing to be part of China. In
the same era I was often in Tokyo, where hotel bookstalls were full of
tomes by American gurus predicting the rise of Japan as the global
giant of the 21st century on the strength of its fabulous industrial
and financial supremacy; after the Tokyo stock market collapsed — never
to recover — at the end of 1989, the books were pulped and the
arguments never heard again.

 So it is worth reminding ourselves why China is not necessarily
destined for greatness, and certainly does not deserve our unmixed
admiration. First, its present growth rate is very far from
sustainable, dependent as it is on slave wage rates, corrupt
bureaucracy, near total absence of environmental controls and a
financial system which is at best rickety and at worst, by Western
standards, insolvent. Second, as Bill Emmott wrote in 2003 in 20:21
Vision, China today is in fact only ‘a modest country at best’, whose
gross domestic product per capita, even on a PPP basis, is still only a
fraction of that of neighbours such as South Korea, and on a par with
Ukraine.

 And although China is obviously far from modest in population, at 1.3
billion, it could be overtaken on that front within a couple of decades
by India, which also has claims to superpower status in terms of
technology, weaponry and what China most glaringly lacks, a democratic
government that the world respects.

 To enlarge that last point, many observers argue that China cannot
continue to advance economically without reforming politically. The new
middle class, concentrated in the coastal provinces, is content simply
to get rich by paying its dues to the party elite, but a younger
generation, more aware of the freedoms enjoyed elsewhere, may not be so
compliant. Eventually, lack of democracy will itself become a brake on
economic progress, holding back reforms and imposing too many costs —
all those bribes for local officials, all those well-paid jobs for
their cousins. At that same point, foreign investors will become
disenchanted by the lack of an untainted judicial system which might
help them enforce contract terms and get their money back.

 But the party will not loosen its grip without a fight, and meanwhile
there are still a billion Chinese who are not part of the economic
miracle — instead they are underemployed peasants like Mr Zhang’s
displaced and disgruntled ex-neighbours, whose only hope of a better
life is to stare through the fence that keeps them out and wait for
remittances from their offspring, who labour for a pittance in urban
sweatshops. One day they may rise up to cut the throats of the rich and
powerful, taking China back to the civil wars of its pre-Communist
past.

 And lastly — my guiding text here is Niall Ferguson’s The Cash Nexus —
we should remember that money is not always the answer to everything.
Mr Zhang may be able to buy a château, but today’s Chinese leaders
cannot so easily buy themselves a seat at the top table. International
reactions to the two relative unknowns now at the top, President Hu
Jintao and Premier Wen Jiabao, tend to echo General de Gaulle’s remark
on first seeing a diminutive Japanese prime minister of the 1960s: ‘Who
is that transistor radio salesman?’

 The truth about superpowerdom is that it is partly to do with economic
might, but also a matter of culture, education, science, military
hardware and statesmanlike posturing. It is about coercing or
persuading other parts of the world to want to be like you — which
Britain, France, the Soviet Union and the United States have all
achieved in their time and in their spheres of influence. How many
French millionaires do you know who want to build replica Chinese
pavilions in the suburbs of Paris? China produces thousands of gifted
musicians who have adapted to the Western tradition — Lang Lang, for
example, was the world’s best-selling classical pianist last year —
and, needless to say, proud British piano marques such as Broadwood are
now actually manufactured in China. But how many European musicians
adapt the other way, and how many Spectator readers have ever willingly
sat through a Chinese opera? We have always liked Chinese food and we
have recently warmed to Hero and Crouching Tiger, Hidden Dragon in the
cinema, but a survey this week said that China is one of the five
countries where Britons would least like to live. In a broad cultural
sense, it is China that wants to imitate the West, and not the other
way round.

 As for progress for the benefit of mankind, the Chinese may be queuing
round the block for MBA courses taught by professors flown over from
Harvard, but their tally of Nobel prizes won on home ground is
precisely zero (the roll includes two Chinese-born, American-based
particle physicists, Chen and Lee, in 1957, and one Taiwanese American
chemist, another Lee, in 1986). By comparison, the University of
California alone has notched up 15 laureates since 1980. As for
literature, the 2000 prize went to Gao Xingjian, born in Jiangxi
province, who had to burn a suitcase full of manuscripts during the
Cultural Revolution and find exile in France before he could write
freely. Ancient China was a great and splendid civilisation; the China
built by Mao and Deng is not.

 Militarily, on the other hand, China is very big, at least in one
sense — and it has unresolved territorial issues over Taiwan (which the
US might feel obliged to defend) and the South China Sea that might one
day lead to conflict. According to a helpful public website provided by
the CIA, China has 208,143,352 men between the ages of 15 and 49 who
are fit for conscript military service. But only 2.5 million of them
are permanently in uniform, many of their senior officers are busy
making fortunes in real estate, the defence budget is surprisingly
small because Beijing is so bad at collecting taxes, and the national
stock of long-range missiles of the sort which really make you a global
player numbers only about 20, according to the International Institute
for Strategic Studies. That would make a pretty short fireworks display
compared with what America has in its armoury.

 Finally, then, to statesmanship. The Chinese government chipped in £31
million for the tsunami earthquake relief, half of what the British
public has so far donated and a fraction of Japan’s offering, but a
hundred times more than miserly South Korea. If China was in any useful
sense a leader of its region, this would be the moment for Mr Hu or Mr
Wen to step into the spotlight, but they have already been upstaged by
President Bush. And no one even bothers to ask them what they think of
the continuing war in Iraq.

 As for all the other fashionable issues on which statesmen like to
pontificate, China scores no points at all on human rights and very few
on public health: it made a hash of the Sars epidemic, and has only
belatedly faced up to HIV/Aids, which according to the World Health
Organisation could afflict ten million Chinese by the end of the
decade. In the battle to eradicate poverty, it can claim about 300
million successes, but a billion failures. On global warming, China
signed the Kyoto protocol while remaining one of the most shameless
offenders on the planet, a situation which can only worsen as its
manufacturing prowess increases.

 It is, in fact, a vast environmental hazard zone, as any recent
visitor to its dustbowl provinces and smog-laden industrial towns can
confirm. To quote the CIA again, ‘Air pollution (greenhouse gases,
sulphur dioxide particulates) from reliance on coal produces acid rain;
water shortages, particularly in the north; water pollution from
untreated wastes; deforestation; estimated loss of one fifth of
agricultural land since 1949 to soil erosion and economic development;
desertification; trade in endangered species.’

 So there is no sense in which the rest of Asia or the world should, or
does, seek to march to China’s drum. And there are a great many reasons
to bet that China’s economic surge will not go onwards and upwards for
long. Let us wish Mr Zhang and Mr Liu a prosperous New Year, but let us
not confuse a fast buck with a bid for global leadership.”

“From Stratfor:

> China's Economy: Running Out of Borrowed Time
>
> Summary
>
> Chinese economic growth accelerated to 9.5 percent in the fourth
> quarter as measured from the previous quarter at an annualized
> rate, according to a Jan. 25 National Bureau of Statistics
> report. This indicates that the steps China took in 2004 to cool
> its overheating economy have failed. Beijing appears to be
> waiting until first quarter 2005 statistical reports are released
> before deciding whether to take further steps to slow the
> economy. This is a risky proposition at best, given that time is
> not on China's side.
>
> Analysis
>
> A Jan. 25 report from the Chinese National Bureau of Statistics
> stating that the country's gross domestic product growth
> accelerated to 9.5 percent year-on-year from the third quarter's
> 9.1 percent is unwelcome news for Beijing. In 2004, the Chinese
> government took steps to cool down the country's boiling economy
> and managed to slow growth from 9.8 percent in the first quarter
> to 9.1 percent in the third. Though the government had some
> success, these latest figures show that the measures taken were
> insufficient.
>
> On Jan. 26, Qi Jingmei, an economist at the Chinese State
> Information Center, a research arm of the country's top economic
> planning body, said China would most likely renew its efforts to
> slow the economy by raising interest rates, increasing the
> reserve ratio for banks or increasing investment restrictions in
> overheated sectors such as steel, cement, real estate and the
> automotive sector.
>
> What Stratfor finds surprising is that Qi said China probably
> would wait until figures detailing economic activity in the first
> quarter of 2005 were available before deciding a course of
> action. With the costs of international credit trending upward
> for 2005, excess capacity continuing to grow and foreign
> investors increasingly aware of the instability of the Chinese
> economy, this wait-and-see approach entails a loss of time that
> China can ill afford.
>
> China's first efforts to rein in its economy in 2004 came as an
> unexpected shock to investors when Beijing announced an across-
> the-board credit freeze in March. Beijing's admission that the
> economy was overheating was a rude awakening that provided the
> first clue that the Chinese dragon might be blowing more smoke
> than fire. On its own, increased caution with regards to the
> Chinese economy does not present risks to Beijing. It is what
> looms on the horizon in the global economy for 2005 that
> represents real peril.
>
> Global interest rates are set to rise in 2005, led by the United
> States, which will need to steadily raise rates from the
> abnormally low levels of the last several years in order to curb
> inflationary pressures as solid economic growth continues in
> 2005. As interest rates rise in the United States, capital will
> flow away from developing economies and toward the United States,
> with international credit becoming more expensive. Foreign firms
> borrowing money to invest in China's booming export sector --
> currently the engine of the country's growth -- will find it more
> expensive to continue doing so as the year progresses. With
> profit margins already thin for foreign firms with Chinese
> operations, many companies will decide that their money will be
> better served elsewhere.
>
> Stratfor does not believe U.S. interest rate hikes will reveal
> the first cracks in the Chinese economy until the second half of
> 2005, after those higher rates have had a chance to bite. In the
> meantime, China is creating a more precarious situation for
> itself by forestalling action to put the brakes on its economy.
> Overinvestment has created bubbles throughout the Chinese
> economy. The longer China waits to slow its economy, the larger
> these bubbles will become, and the louder the sucking sound will
> be when they burst.
>
> The property market offers an ideal illustration of the size of
> the bubbles in China's economy. Property firm CB Richard Ellis,
> in a recent survey of prime office real estate throughout world,
> listed two Shanghai districts and Beijing in the top 50 most
> expensive areas in the world. The problem for China is not high
> prices, but occupancy levels in these districts that are as low
> as 70 percent. With overinvestment in sectors such as steel and
> cement driven largely by the need to employ migrants moving en
> masse from rural to urban areas behind this excess capacity, this
> is a classic bubble scenario.
>
> If a demand shock should hit the property market, such as one
> that would be caused by the departure of a multitude of foreign
> firms, occupancy rates would plunge, and the resulting oversupply
> and reduced demand would lead to a collapse in prices. The
> property bubble in China today is similar to that which existed
> in Japan in the 1980s. When demand collapsed in Japan in the
> early 1990s, property prices fell through the floor, and the
> Japanese economy -- and property prices -- have yet to recover.
> China currently is following in Japan's footsteps, and the
> sustained deflation that Japan continues to be mired in grows
> more likely in China with each day that passes without greater
> economic intervention efforts.
>
> International investors -- who increasingly are aware of the
> Chinese economy's structural weaknesses, expecting higher global
> interest rates and now having witnessed the government's failure
> to reduce excess capacity -- likely are to be more skittish about
> sudden changes in China's economic policies than they were in
> 2004. Additionally, any steps China takes to slow its economy
> will need to be decidedly more forceful than those that failed in
> 2004. Factor in that Beijing's wait-and-see approach will allow
> the bubbles in the economy to grow still larger, and the
> intervention will need to be that much more aggressive when it
> comes.
>
> With more time for excess capacity to grow, more aggressive
> government intervention in the offing as a result, and more time
> to realize that the global economy will not be working in China's
> favor in 2005, even the most optimistic investors likely are to
> see their confidence in the Chinese economy shaken. This will
> make the eventual hard landing that much harder.”

“"So there is no sense in which the rest of Asia or the world should, or
does, seek to march to China’s drum. And there are a great many reasons
to bet that China’s economic surge will not go onwards and upwards for
long. Let us wish Mr Zhang and Mr Liu a prosperous New Year, but let us
not confuse a fast buck with a bid for global leadership."

China is an environmental disater in the making........house of cards.

Thanks, Mutt!!”

“China has their problems but that still won't prevent them from unloading worthless fiat US dollars on real assets and natural resources owned by companies in the United States. They are looking to dump this currency somewhere but no one in the rest of the world wants much of it. The world is flush with dollars. Hence the Chinese are going for something of substance.”

“there was a time a while back when walmart waved the flag proclaiming all the made in America goods that they had-not any more--”

“Mark, I'm beginning to think you're right - and that's a significant departure from my views of the last decade or so.”

“China: An Offer Reveals Beijing's Broader Energy Goals
 June 23, 2005 22 20 GMT


Summary

China National Offshore Oil Corp. Ltd. (CNOOC) has bid $18.5 billion to
acquire Unocal Corp., a U.S. oil firm that previously agreed to be
purchased by Chevron for $16.4 billion. The deal would require CNOOC to
take out a $16 billion loan from a group of Western and state-owned
banks. CNOOC's move illustrates three major trends in Chinese economic
behavior: the drive to increase energy self-sufficiency through
technology, the push to acquire American assets, and the reliance on
state banks to advance broad Chinese policy goals. Though the deal is
not likely to go through, the offer shows that China will pursue its
energy goals aggressively in the future.

Analysis

China National Offshore Oil Corp. Ltd. (CNOOC) offered $18.5 billion
for U.S. energy company Unocal Corp. on June 23. While this offer is
unlikely to be accepted, it casts light on important trends in Chinese
economic and energy policy.

CNOOC's cash offer follows a bid by Chevron Corp. to buy Unocal for
$16.4 billion. CNOOC would put up $3 billion and borrow the remaining
$16 billion from Western banks, state-owned banks and its parent
company, prompting a cut in CNOOC's debt rating by Moody's and Standard
& Poor's. CNOOC would also have to pay Chevron a fee of $500 million.
Chevron's bid, on the other hand, consists of 75 percent stock and 25
percent cash, which has prompted Unocal shareholders to consider the
Chinese offer.

China's recent economic explosion has increased the country's energy
demand drastically. A decade ago, China was self-sufficient in oil.
Now, close to half of Chinese oil comes from foreign sources, and total
consumption is pushing 7 million barrels per day. This deal would
double CNOOC's oil and gas production and increase its reserves by 80
percent. Also, the fact that half of Unocal's reserves are in Asia only
sweetens the deal for China.

The most important aspect of the acquisition, however, is
technological. Although Unocal is not on the cutting edge of the energy
industry, the deal would provide CNOOC with a significant technological
boost. China needs ready-to-go technological infrastructure to meet its
long-term demand. Offshore-production technology will become
increasingly important for China as it expands operations in the South
China Sea and West Africa.

China's push for Western acquisition is not limited to energy. Chinese
investment conglomerate Haier Group made a bid for Maytag Corp. last
week, and China's largest computer company, Lenovo, made a bid for IBM
last month. China's need to send capital abroad, its increased focus on
brand names, and its outward economic thrust lie behind this trend.
After years of massive capital inflow into China, the Middle Kingdom is
beginning to send money back abroad in the same fashion that the
Japanese did during the 1980s.

Of the $16 billion CNOOC would borrow for the proposed acquisition, $6
billion would come from the Industrial and Commercial Bank of China (a
state-owned bank), $7 billion would come from CNOOC's parent company,
China National Offshore Oil Corp. (in essence, a state-owned bank), and
$3 billion would come from the Goldman Sachs Group and JP Morgan. As
Stratfor has noted, China's use of state banks as a policy tool and the
substantial amount of bad loans held by state banks represent a
significant problem for China. While a potential acquisition of this
size being leveraged to this degree would be abnormal by Western
standards, the loans would not be bad by Chinese standards and would
not exacerbate the trend of bad loans. JP Morgan and Goldman Sachs are
likely involved in the venture to build political capital in China in
order to facilitate future ventures there. Should the acquisition go
through, other Unocal assets would easily provide enough equity to
cover the Western banks' portion of the loan.

However, this deal's chances in Washington are grim. U.S. Rep. Richard
Pombo and U.S. Rep. Duncan Hunter, both of California, have penned a
letter to President Bush expressing concern about the deal, focusing on
national security issues. China's economic relations with the United
States are already strained by congressional pressure on Beijing to
revalue the yuan. Furthermore, Chevron, which has stated publicly that
it and Unocal are "substantially finished with the regulatory process,"
is not likely to take a hands-off approach to the matter. Whatever
clout it possesses in Washington is no doubt being leveraged to thwart
the Chinese purchase.

Regardless of whether CNOOC's bid fails, which it probably will, the
expansionist position of Chinese energy companies will persist. These
companies will be increasingly ready to use easily accessible capital
to acquire the technology they need for energy self-sufficiency. And as
major energy companies rarely go up for sale, increased Chinese efforts
to acquire technology from contractors and consultancies is likely.”