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U.S. critics see security threat in China oil bid

Posted on: Wednesday, 13 July 2005, 16:17 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 could damage U.S. interests in Asia, American critics of the offer 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 strident critic of Communist China, was one of four witnesses who testified at a hearing of the U.S. House of Representatives Armed Services Committee that was dominated by criticism of the CNOOC offer.

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

Marshaling national-security arguments against the offer, which will be decided by a Bush administration review panel, Hunter said the chairman of CNOOC's parent company, Fu Chengyu, answered to the Chinese Communist Party's Politburo.

As an example of where China could deny the United States access to oil sources, Hunter cited investments by Unocal in pipelines running from Caspian Sea 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," the California Republican said in opening the first congressional hearing on CNOOC's bid.

CHINA SEEN AS "BULLY"

Approval of any CNOOC deal will ultimately be made by the Committee on Foreign Investments in the United States (CFIUS) a multi-agency panel chaired by the U.S. Treasury.

The Wall Street Journal on Wednesday reported that CFIUS has declined to begin an early review of CNOOC's bid for Unocal, preferring to wait until the companies reach a deal.

The House last month backed a spending measure that would block CFIUS from approving CNOOC's bid but it is not clear if there is enough support in the Senate for it to become law.

James Woolsey, a former CIA director, said China was among the "worst of the worst" dictatorships and like a bully elbowing his way into a new school. "This is a sharp elbow, this attempt to take over this company," said Woolsey.

The only witness called who saw no harm in the proposed CNOOC-UNOCAL linkup was Jerry Taylor, director of natural resource studies at the free-market-oriented CATO Institute, who argued the deal could never give China an "oil weapon."

He said Unocal production accounted for a "small and trivial" 0.23 percent of world oil output and any oil China derived from Unocal would displace oil it now buys elsewhere.

China would have to occupy the entire Middle East to have a significant impact on oil flows and prices, Taylor said.

But Taylor was attacked by other witnesses and by lawmakers, who said he was naive to focus on market logic.

Robin Hayes, a North Carolina Republican, closed questioning with a warning that: "It would be a catastrophic mistake to allow Unocal, a security asset, to be sold to the Chinese government-slash-military."

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

(Additional reporting by Jim Wolf)

Source: REUTERS

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