National Security, China and the Unocal Deal

The Washington Times (Washington, DC), July 5, 2005 | Go to article overview

National Security, China and the Unocal Deal


Byline: THE WASHINGTON TIMES

With oil prices recently piercing the $60-per-barrel level and the Pentagon expressing understandable concern about China's accelerating military build-up, national-security implications are clearly raised when a Chinese oil firm makes an unsolicited bid for 100 percent ownership of the ninth-largest U.S. oil company. Last month the China National Offshore Oil Corp. (CNOOC), 70 percent of which is owned by the self-proclaimed Communist Chinese government, made an $18.5 billion offer to purchase Unocal, the California-based oil and gas firm that controls 1.75 billion barrels of oil equivalent, mostly in Asia.

The offer was the latest manifestation of China's long-term "energy-security" policy. In addition to embarking upon a staggering nuclear-energy program, for which it should be commended, China has been busily buying energy resources around the world and signing long-term oil and gas contracts with state-controlled suppliers, including Iran and Sudan.

Ultimately, before China can take control of Unocal's assets, the purchase will have to be approved by President Bush. An agreement by Unocal to be acquired by CNOOC would trigger a review by the highly secretive Committee on Foreign Investments in the United States (CFIUS). CFIUS is a multi-agency task force created in 1988 to closely examine the national-security implications of foreign investments in U.S. corporations. Under the law that established the committee, the president has the ultimate authority to accept or reject any recommendation by CFIUS.

In testimony before the Senate Finance Committee about U.S.-Chinese economic relations on June 23, the day after CNOOC formally made its offer for Unocal, Treasury Secretary John Snow, who chairs CFIUS, said that he "would fully contemplate" that a CFIUS review would take place.

On the national-security front, there appear to be more than enough concerns to warrant an exhaustive review. "I think there is a fairly strong argument [in favor of blocking a CNOOC/Unocal deal] not simply because Unocal is a national asset," Thomas Donnelly, a defense expert who is a member of the U.S.-China Economic and Security Review Commission, told the Financial Times. "Part of the picture is also the strategic question of how China is approaching energy supplies," Mr. Donnelly explained. Reporting to Congress, Mr. Donnelly's commission analyzes the security implications of U.S.-Chinese financial relations. C. Richard D'Amato, the chairman of the U.S.-China Economic and Security Review Commission, told the Los Angeles Times: "When we're so dependent on foreign suppliers, giving away American sources of petroleum and hydrocarbons doesn't make sense." William Reinsch, who served as a senior export-control official in the Clinton Commerce Department, told the Wall Street Journal that CNOOC's "ownership of natural resources like this does raise national-security issues. …

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