I Guess Its Time To Weigh In On The Unocal/CNOOC Bid...

I have no problem with people or even Congressional Representatives asking the question if a takeover by a foreign entity of a large US based company is in the best interests of the United States. It is a Congressman's job to ask these questions. I don't have a problem with airing out the question in the press, blogs or other medium. We live in a free society and these things should be discussed.

I don't think that there is question of national security involved for the USA. China also has the option of bidding up the price of oil with long-term contracts if they so choose instead of buying an oil company. In either case, prices rise or supply is constrained. Cynics may argue that they will divert oil. Maybe they will but why would they? Price is price and they too want to buy oil at the cheapest prices possible.

Some may argue that the Chinese government is subsidizing the transaction and therefore its unfair. So they are giving benefit to who? To CNOOC so that they can pay investors a higher price? Great for the investors, they will deploy their new assets in new productive investments and a rising tide raises all boats.

I think that maybe the reason that China, from a public policy perspective, is looking to add assets from overseas companies isn't that they are trying to deploy US dollar reserves into more productive investments, but that there is something that they need that they currently don't have.

What I think what they are looking for isn't distribution as Paul Krugman so cynically offered in his piece several days ago [I will deal with his us against them comments in another post] but in something somewhat more nebulous. I argue that Chinese companies need to gain experience and expertise and by adding Unocal to their portfolio, they are picking up 10's of thousands of highly experienced individuals with a depth of knowledge of the oil and gas business that they would not be able to develop at home. CNOOC will gain abilities and Unocal will gain access to China and other places where development is needed and the combination of the two may have benefits beyond just the monetary. The rapidly growing Chinese economy has hidden may internal ills and when the growth starts to moderate, the inefficiencies take a heavier toll. The Chinese are smart enough to know that they cannot go it totally on their own.

The closer the integration between the US and Chinese economy or in this case, between China and the world, the less likely is there to be destructive conflicts. I look at this type of marriage as being one of positive national interest for all parties.

Update: I should disclose that I am a CNOOC shareholder.