Hemlock Wants To Know If His Holdings Of CNOOC Are Still A Good Investment....

In the interest of disclosure, I too have shares in CNOOC as-well-as other Chinese oil holdings Petrochina and China Oilfield Services. Hemlock asks...

Does it contribute to long-term national security or simply the leaders’ sense of autarkic, centrally planned well-being? Wouldn’t it make more sense to invest the funds in the domestic economy today, in order to create the wealth to buy raw materials at their global market prices in decades ahead? Like countries not run by paranoid cliques do.

So, I am stuck with this conundrum – will ultimate control by a paranoid clique make CNOOC a more or less profitable investment in the long run? Paranoid cliques make bad decisions. But bad decisions have unintended beneficiaries.

Well, I have always been worried about management in Chinese companies. Obviously, this is not a market based bid for Unocal. CNOOC would simply been unable to afford it unless they received the subsidized loans from the state owned parent. So was CNOOC instructed to attempt to buy Unocal or did CNOOC dream this up and then approach the parent with the idea and seek the subsidies? I bet that it was a policy decision at some high level in government. And this has to be incredibly worrying for anyone investing in Chinese equities. Are the decision makers in this transaction capable of or knowledgeable enough to make such a decision? Senior politicians are just that, politicians and not grizzled experienced business people that make hard-nosed choices based on fundamentals and facts. So, if the Chinese government is doing this for some policy reason such as national security, this opens a pandora's box of corporate actions to pursue national security.

So, what is to stop the Chinese government from doing similar actions if they deem it be in the best interests of China? Would they be tempted to do this at the expense of public shareholders? Why not? We don't really know if this makes sense for public shareholders except that the stock price did move nicely when the subsidies were announced.

Its very difficult to invest in China and get something that is clean and one where risks are disclosed and are comprehensible. I focused my China investments in oil since it is a globally priced commodity that is faced with large increases in demand domestically. Most of my other investments focus on management's capability to function profitably in the global market that have had a track record of success. Investments in Chinese companies do not offer that to a very large extent and I for one am thinking of cutting down my exposure in Chinese oil companies for those exact reasons.