China vs. Unocal: Lost in Translation?

That's what I mean by China's communist rulers not being quite up to speed on how to get along with the other kids in the sand box. (QN) Like an immature school yard bully, China still doesn’t quite get it yet.  China?  A word of advice from Quillnews: Nix with the threats.  To be successful, you are just going to have to learn how to play well with others. China walked right into it yesterday.  (UK Tele, NYT, WP) Said the Foreign Ministry in a written statement:   

We demand that the U.S. Congress correct its mistaken ways of politicizing economic and trade issues and stop interfering in the normal commercial exchanges between enterprises of the two countries. Cnocc's bid to take over the U.S. Unocal company is a normal commercial activity between enterprises and should not fall to political interference. The development of economic and trade cooperation between China and the United States conforms to the interests of both sides.

Locked in a high stakes big time Media-ville struggle to snatch Unocal from under the nose of Chevron (QN), China’s Foreign Ministry fell into a Chevron political trap that any ward boss in Queens could have sniffed out. In response to a throw-away gesture by Congress, China uttered a statement that in the DC political environment was precisely the wrong thing to say: China threatened the Congress of the US.  Oops!

The previous few days, China had showed some skill and restraint in response to the  398-15 vote by the House of Representatives last Thursday for a non-binding resolution that called on Bush 43 to block the Unocal bid.  A takeover by a Chinese state-run firm "would threaten to impair the national security of the United States", the resolution said. After the vote, China wisely ignored this meaningless gesture by House members (which – helping the people blow off some steam in meaningless gestures – is one of their jobs).  On Monday, China merely informed the Treasure Department that it would welcome a review of its bid for Unocal assets before an Aug 10 vote by Unocal shareholders. (BBC)

But China’s (uh) diplomats couldn’t leave well enough alone.  China's foreign ministry turned what should be a run-of-the-mill oil patch squabble over who gets what, into a bilateral matter between the US and China. (Editor's aside:  I guess the guys who used to write Mao’s speeches about running dogs, insects feeding on the people and other such rich Red rhetoric got tired of all this new age touchy-feely global market talk.)  For some reason, China’s diplomats felt the wisest thing to do was tell Congress it mend its ways and to threaten the US over its trade imbalance.  Hmmm. 

Quillnews observation:  Okay, let’s not get excited over a few Chinese knuckleheads playing to their Neanderthal base.  There's too much at risk between the US and China to get diverted by this dust up over petroleum resources that will be consumed in a heavy holiday weekend. The US has much more at stake than a small oil company based in California that has some valuable properties but is no longer competitive. The US and China are set for a big time pow-wow in the fall when China’s president Hu Jintao comes to the US for a visit with Bush 43. There are real-life security issues on the table: North Korea and its nukes, Taiwan’s future, the growing imbalance of trade between China and the US, and a run-away military buildup by China. This is no time to let a run of the mill oil patch slug fest mess things up.  It is time for grown-up leadership in China to pay attention and head-off what could be an East Asian arms race involving nuclear weapons. For Quillnews' readers concerned about oil security, remember there is one market for oil - the world.  A barrell for one is a barrel for all.  From a security point of view, what matters is:

1. That oil be available from as many suppliers and from as many locations as possible;
2. That it be sold openly at the market price; and
3. That no one producer monopolize, inhibit, threaten or manipulate oil supplies to prevent the free market from setting prices at their lowest possible level.

Any player that wants to survive in the oil game - be it a company or a country - is more than willing to leverage political hot-button optics to its home advantage from time to time.  Chevron is seeking Unocal's in-ground assets as a way to grow its own paltry portfolio of potential oil and gas development projects, so it can continue to compete with ExxonMobil, BP, Shell and the various state petroleum companies with larger balance sheets and reserves.  Chevron has crafted up its arguments against Cnooc as being “unfair” because it’s bid for Unocal is backed by loans from the Chinese government.  The point-paper used by Chevron advocates repeatedly goes back to the “unfair” nature of China’s bid for Unocal, appealing to American’s sense of “fair play” and “a level playing field.” Said a Chevron exec: "Clearly, this is not a commercial competition. We are competing with the Chinese government, and I think that is wrong."    

Fine, but Chevron is a big time oil outfit used to operating in places with governments and without governments.  It is also a competitor of Cnooc and, when advantageous, more than pleased to also partner with Cnooc and other Chinese oil guys in the Caspian, in Australian LNG export schemes and elsewhere.  Don’t let the flag waving get in the way of this deal, whichever way it goes.  Unocal's shareholders are more than able to decide if Cnooc’s bid is legit. The money cops at the US Treasury know how to look hard at the footnotes and small print. Chevron has lots of high-priced talent at work on this deal. Since April 4, when its offer was formally endorsed by Unocal's board, Chevron has managed to secure the approval of both the Federal Trade Commission and the Securities and Exchange Commission in a record time. That shows Chevron has some pretty decent legal talent in DC making the case.  Don't let the merits get Lost in Translation.  Unocal’s shareholders shouldn't have the decision about getting their best deal taken from them because China's diplomats don’t know how to talk without getting Americans’ blood boiling.