5 augustus 2005

Economic war (The Flemish Beerdrinker)

It’s final: Unocal will be bought by Chevron, and not by the Chinese oil company Cnooc. The protectionists in America have won. Although Unocal is only a small oil company, American politicians were up in arms when Cnooc made it’s take-over bid. Two major arguments were made to block to deal. First, it’s about oil and that’s a strategic asset which cannot get into the hand of foreigners, let alone China. Second, Cnooc is a state company and is awash with no interest bearing loans from state owned banks. So they don’t follow the rules. Yes, oil is a major commodity but as said before, Unocal presents just a fairly small drop. If Cnooc would acquire Unocal nothing would change much in international oil markets. More important is the following point. Trade, including trade in companies and shares, is a positive sum-game. But by blocking this kind of "trade" Americans could end up with an alternative that is much worse. It could drive China into the hands of unfriendly but oil-producing regimes like, say, Iran or the Sudan. It could convince the Chinese that commerical transactions or not worthwhile and that they have to get the oil in other - perhaps more violent - ways. And while trade is a positive sum-game (althougt the deal get’s portrayed as a zero sum game), (economic) warfare is a negative one. But the Chinese have a good argument now: the Americans started it. Yes, China is not following the rules. That’s problematic. For China. China appears to want to built "national champions" to keep the economy going. But economic history shows that such state led and supported champions mostly turn out to be major failures. Supplying massive loans to all those inefficiënt state companies is a major drag on China’s economy. Unless China puts it’s financial sector in order (for instance, by selling Chinese state banks to foreign ones, which is beginning to happen) economic growth is bound to slow down in the future. But thank’s to all those loans Cnooc has so much cash that not only it could bid higher than Chevron to acquire Unocal, but at the same time it could preserve American jobs, while Chevron could not. Why anyone - except perhaps the Chinese people - would object against the subsidising of American employment by the Chinese government is beyond me. Cnooc by the way may be state owned but it’s also one of China’s best managed companies with two highly-regarded non-Chinese businessman on it’s board. So concerning corporate governance it has no lessons to take from America where a few major share-holders, under political pressure, sell the company to the lowest bidder, denying the rights of all other shareholders. The United States and China depend on each other. Their economies also are the major drivers of the world economy. A downturn in one of both economies would hurt the other one and ultimately the rest of the world. It could lead to a major crisis. So it’s no time for economic warfare over a small oil company. It’s just isn’t worth it.

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