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Critics see security threat in China oil bid

Posted on: Wednesday, 13 July 2005, 11:41 CDT

By Paul Eckert

WASHINGTON (Reuters) - The bid by China's state-run CNOOC Ltd. to buy U.S. oil producer Unocal Corp. is part of a calculated drive to overtake America economically and politically and would severely limit U.S. influence in Asia, American critics of the attempt said on Wednesday.

"I believe the PRC's aim is inexorably to supplant the United States as the world's premier economic power and, if necessary, to defeat us militarily," Frank Gaffney, a Pentagon strategist under the late President Ronald Reagan, told a congressional hearing.

Gaffney, a consistent critic of communist China, was one of several witnesses who testified at a hearing of the U.S. House of Representatives Armed Services Committee whose chairman opposes the deal.

The chairman, Duncan Hunter, told the meeting said a successful completion of CNOOC Ltd.'s $18.5 billion takeover bid for Unocal would greatly boost China's leverage over U.S. interests in Central Asia.

Marshalling national-security arguments against the offer, which ultimately will be decided by an administration review panel, Hunter charged that the chairman of CNOOC's parent company, Fu Chengyu, answered to the ruling Chinese Communist Party's Politburo.

As an example of where China's power could rise, Hunter, a California Republican, cited investments by California-based Unocal in pipelines running from Cental Asian oil fields through Azerbaijan, Georgia and Turkey.

"China's purchase of Unocal would dramatically increase its leverage over these countries, and therefore its leverage over U.S. interests in those regions," he said in an opening statement at the first congressional hearing on CNOOC's bid.

Another critic, Richard D'Amato, chairman of the congressionally created U.S.-China Economic and Security Review Commission, said China's strategy for meeting its energy needs flies in the face of U.S. policy to rely on open markets, to promote energy security for all and to promote sharing arrangements in case of supply disruptions.

But Jerry Taylor, director of natural resource studies at the free-market-oriented CATO Institute, disputed the idea that a CNOOC-UNOCAL linkup would give China an "oil weapon."

"Only a naval blockade could prevent (the United States) from buying all the oil it needs from international oil markets," he said.

CNOOC's cash bid exceeds a $16 billion-plus cash and stock offer from Chevron Corp., which has been recommended by Unocal's board and gained U.S. regulatory approval.

Sources close to the deal have told Reuters they expect both suitors for Unocal to adjust their offers.

Although Congress has been vocal against CNOOC it would be the Committee on Foreign Investments in the United States (CFIUS) that would review whether a foreign purchase of Unocal would harm U.S. national security.

The Wall Street Journal on Wednesday reported that the multi-agency panel chaired by the U.S. Treasury Department, has declined to begin an early review of CNOOC's bid for Unocal, preferring to wait until the companies reach a deal.

House lawmakers last month backed a spending measure that would block CFIUS from approving CNOOC's bid but it is not yet clear if the provision has sufficient support in the Senate to become law.

President Bush has declined to take a stand on the issue, saying he will await the review process.

(Additional reporting by Jim Wolf)

Source: REUTERS

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