Unocal and China

Michael Higgins who blogs at Chocolate and Gold Coins but is writing in the comments section of Crooked Timber asks a good question about the CNOOC bid.

If Unocal went out of business, would we have cared? If China had spent $10 billion on new tanks, would we be quaking in our boots? (I’m glad they are not doing this). But if neither happens but instead one Chinese company buys Unocal and keeps their employees employed, we should be concerned?

Although I didn't get into this in my original post, it's also not clear to me what we gain by "owning" Unocal.  If the assets of Unocal are in America or an ally then CNOOCs bid gives us greater power over China not less.  If the assets are in Asia then in the event of a major conflict we would have to use the military to control the assets whether we own them or not. Steve Carr, also writing in the comments section of Crooked Timber, expresses this point well.

The United States doesn’t own, in any sense, Unocal’s reserves—the vast majority of which are, by the way, in Asia. So it’s not losing anything, because it doesn’t have anything. If, in this imaginary future that Krugman is conjuring, the US wants those reserves, it will have to take them by force—first nationalizing Unocal (or whatever American company comes along to pick up Unocal if the CNOOC bid is dropped) and then seizing and defending the reserves militarily against the Chinese (who, in Krugman’s model, will presumably be trying to take them). If Unocal is bought by CNOOC, and we want the reserves, we’ll again have to take them by force from a public company. The second seems mildly more difficult than the first, but in both cases you’re talking about a massive use of military force to secure energy resources. If we do end up in that future, I have a hard time believing that who owns the deed to the natural-gas fields in Indonesia is going to make much of a difference to anyone.

There is, then, no real downside (in strategic terms) to letting the deal go through. But there’s a real downside to blocking it: alienating China, making it clear to them that we perceive them as an enemy, looking like hypocrites in the eyes of the world, interfering with rights of Unocal shareholders, etc.

Other good comments from Tino at Truck and Barter.