CNOOC's bid for Unocal tests US' China ties
(Los Angeles Times)
Updated: 2005-07-12 06:44

U.S. corporations have been investing in China for years, setting up joint ventures or wholly owned enterprises, mainly to take advantage of China's cheap manufacturing base. But the pace of American investment activity has jumped in the last two years, with pledged investments exceeding $12 billion in 2004, after running in the $6-billion to $8-billion range from 1992 to 2002, according to the U.S.-China Business Council.

It's unclear what share of total investments involved mergers and acquisitions, but those deals are proliferating as more Chinese businesses mature and Beijing continues to divest state-owned assets and open various industries to greater foreign ownership, under its obligations for joining the World Trade Organization in 2001.

New regulations last December allowed foreigners to buy shares of Chinese insurance and media companies. China's huge retail sector also became completely open to foreign ownership, although U.S. businesses complain that Beijing has been dragging its feet in liberalizing wholesale and distribution activities.

Some sectors are restricted. Foreigners can buy only as much as 20% of banks and as much as 50% of telecommunications and life insurance businesses.

And one notable industry remains closed to foreigners — energy, which is under state control. That's prompted some to ask: Why should CNOOC be allowed to buy Unocal when a bid by Unocal for CNOOC would be a nonstarter?

But many others point out that it's less an issue of fairness than what the respective laws of the two nations permit. The U.S. allows such an acquisition, whereas China doesn't.

"To say, 'You can buy us, but we can't buy you' ignores the overall context in which these companies operate," said Steve Chu, a principal at Strategic Impact Group in Shanghai, which provides investment funds and advice. By and large, he said, foreign investment in most Chinese industries, including state-owned enterprises, is quite open. The Chinese intended it that way to develop their economy and push domestic companies to become more competitive.

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