- The Washington Times - Tuesday, August 9, 2005

China’s biggest offshore oil producer last week dropped out of a bitter battle to acquire an American energy firm, but China watchers don’t expect that setback to keep other Chinese companies from trying to buy into the U.S. market.

Unocal Corp. shareholders today are expected to vote on an acquisition bid worth more than $17 billion from Chevron Corp., the No. 2 U.S. oil company and the last suitor standing after a politically charged fight with China’s CNOOC Ltd.

CNOOC was stymied by U.S. congressional opposition, but U.S. companies offer brand names, distribution networks, close contact with customers and know-how too valuable to ignore.

“China is definitely going to continue to look to make acquisitions abroad. They are looking to gain global reach and gain access to global markets,” said Cameron Fagan, director of research at Straszheim Global Advisors, a Los Angeles economic and market research firm focused on China.

China’s ventures into foreign mergers and acquisitions have been marked by some high-profile successes and stinging failures.

Chinese companies stumbled in bids for U.S. appliance manufacturer Maytag, Canadian mining group Noranda and U.S. oil and natural gas producer Unocal.

But Chinese companies starting last year successfully bought IBM Corp.’s personal computer unit, French television maker Thomson SA, which owns the RCA brand, and failed British automaker MG Rover Group.

Next in line may be Australian energy companies, British telecommunications companies and several U.S. brands with global reach but vulnerable owners.

Straszheim speculates that American icons such as furniture maker La-Z-Boy Inc., General Motors Corp.’s Buick division and high-technology companies such as software developer Atari Inc. might be next in line.

“Instead of trying to build a brand, they will just acquire a U.S. brand,” Mr. Fagan said.

Other China watchers are less certain, largely because of strong anti-China sentiment in Congress. Energy-related investments, for example, seem out of the question.

James Woolsey, former CIA director, said Congress should continue to object to energy or other strategic acquisitions until China adopts democratic reforms and plays by international rules.

“It’s unclear what sort of investment China can make with all its American currency that will not disturb Congress,” said Jerry Taylor, director of natural resource studies at the Cato Institute, a Washington think tank.

China has built up an impressive bankroll of American currency, running a $15.8 billion trade surplus with the U.S. in May alone. China’s government invests part of its running surplus in U.S. Treasury securities, acquiring $243.5 billion worth through the end of May, second only to Japan.

Instead of buying more and more bonds, China’s government appears interested in encouraging international acquisitions. CNOOC, for example, was in line for several billion dollars in government-subsidized, no- or low-interest loans to buy Unocal.

That type of financing raises questions.

“Generally, foreign investment in the United States is good; it creates jobs,” said William Primosch, director of international business policy at the National Association of Manufacturers. “But in the case of China, a country still in the transition phase to a market economy, there are questions raised [about subsidized loans]. We have not fully come to grips with it.”

Mr. Primosch said the United States had not come to grips with Chinese investment in part because, until now, there has been so little of it. At the end of 2004, China’s direct investment in the U.S. reached $409 million, according to the Bureau of Economic Analysis.

By comparison, all foreign investment in the U.S. totaled $1.5 trillion, and U.S. direct investment in China climbed to $15.4 billion.

“Just because of China’s size and rapid growth, many see it as a competitive threat. But China should be expected to invest more here, because this is where their customers are,” Mr. Primosch said.

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