June 28, 2005,
We ignore China’s acquisitions strategy at our peril.
What are we to make of the hostile takeover bid for Unocal Corporation unveiled Thursday by the PRC’s state-owned China National Offshore Oil Company (CNOOC)? Is it, as the Chinese and their friends would have us believe, just another commercial transaction an example of the natural and desirable free movement of capital and a test of America’s oft-stated commitment to free trade?
Or is it, instead, but the latest manifestation of a long-term and increasingly ominous Communist Chinese plan for translating its immense trade surpluses into strategic advantages advantages that will ineluctably redound to the detriment of the United States and its vital interests?
Despite efforts to construe this proposed purchase as desirable by Wall Street types and others whose willingness to do China’s bidding has earned them the derisory moniker of “panda-huggers,” a sizeable bipartisan group on and off Capitol Hill is correct in perceiving CNOOC’s gambit as very much the latter.
At this writing, it is far from clear whether the Bush administration will concur. In the face of critical comments about the deal last week, Treasury Secretary John Snow and Federal Reserve Chairman Alan Greenspan aligned themselves with the see-no-evil crowd. The sheer brazenness of the CNOOC play for a U.S. oil company at a moment when energy is much on Americans’ minds, however, may translate into a case of strategic overreach by China and compel even an unwilling executive branch to oppose such a purchase.
It is not just that a PRC takeover of Unocal vividly illuminates the many moves the Communist Chinese have been making all over the world lately to acquire and otherwise assure access to energy resources. From Siberia to Venezuela, from Indonesia to Sudan, from Iran to Canada, from Azerbaijan to Cuba, China’s efforts can be seen in a world in which such resources are certainly finite, and possibly contracting as designed not only to secure them for Chinese needs, but to take them off a global market upon which the United States is increasingly dependent.
Indeed, China’s yawning appetite for oil has contributed directly to the soaring costs of gasoline at America’s pumps in recent months. Thus, the in-your-face quality of this proposed purchase whereby U.S.-owned energy assets, know-how, and technology would migrate to what is, at best, a competitor is sure to produce widespread opposition across the country that official Washington cannot ignore.
The larger problem, however, is that China is not simply interested in cornering the market on energy and the Unocal deal underscores this point. The oil company happens to own the only mine in America capable of producing what are known as “rare earth” minerals: the MolyCorp mine in Mountain Pass, Calif. These minerals are used today in a host of important industrial applications, including as ingredients for permanent magnets. Such magnets are critical components in many advanced weapon systems, for example the U.S. military’s precision guided munitions known as JDAMS.
According to George Washington University professor Peter Leitner, an expert in strategic technologies and materials, the MolyCorp mine was shut down a few years ago in the wake of several suspicious instances of alleged environmental damage. In Leitner’s estimation, it was no coincidence that family members of top Chinese officials (known as “princelings”) had been tasked a short time before with securing a dominant position in rare earth minerals for the PRC. An agent for the princelings representing the PRC’s rare-earths industry in San Francisco even boasted that he would put the MolyCorp mine out of business. In any event, the United States today depends entirely on imports of rare earth minerals largely from, guess where China.
In short, Communist China’s play for Unocal is of a piece with a broader plan for securing dominant positions with respect to strategic energy resources, minerals, materials, technologies, choke points, and regions all over the planet (including, notably, our own hemisphere and Africa). The unifying purpose: China is positioning itself to supplant the United States economically and strategically and, if necessary, to defeat us militarily in the decades to come.
In keeping with the admonitions of the ancient Chinese strategist, Sun Tsu, the PRC appears confident that by doing the first two decisively, it can accomplish the third without having to fire a shot. Just in case, Beijing is also feverishly giving its armed forces the capability to fight us should push come to shove.
It is against this backdrop that the China National Offshore Oil Corporation’s attempt to outbid the American oil giant Chevron Corp. by nearly $2 billion for Unocal must be viewed. With the resources of the unfair-trade-enlarged Chinese national treasury at CNOOC’s disposal, no firm in the American private sector is likely to be able to compete financially.
Therefore, it will almost certainly require government action to prevent Beijing from once again having its way with sensitive American assets and national-security equities. And such action will probably only be forthcoming if a larger view of the stakes is adopted by American officials particularly those in the Treasury Department-led interagency group responsible for evaluating potentially problematic foreign investments.
Unfortunately, past experience with this Committee on Foreign Investment in the United States (CFIUS) does not inspire much confidence. Treasury whose job it is to encourage foreign investment in this country is the classic fox guarding the chicken coop. And federal departments such as Defense and State that are supposed to bring national-security-mindedness to CFIUS deliberations have rarely voiced objections to the piecemeal sell-off of strategic American assets, let alone succeeded in blocking them.
A contributing factor to this sorry record has doubtless been the absence of any formal national appraisal of the strategies being employed against us by the Chinese and their business operations. In a letter to congressional leaders last week, Richard D’Amato and Roger Robinson, the chairman and vice chairman respectively of the congressionally mandated U.S.-China Economic and Security Review Commission, warned that quadrennial reports required by law concerning “whether foreign governments or companies have a coordinated strategy to acquire U.S. critical technology companies” have not been submitted for the past twelve years. Presumably, that is because were such studies to be rigorously done their findings would be inconvenient to the panda-huggers and their agenda.
Clearly, in today’s China, we are up against a country that has a strategy to acquire U.S. critical technology companies. If we continue to ignore it let alone enable it by acquiescing to the sale of companies like Unocal we will do so at our peril.
Frank J. Gaffney Jr. is an NRO contributor and president of the Center for Security Policy in Washington.