Free-Trade Firefight
A Chinese bid for American oil giant Unocal has Congress baring its protectionist fangs
Not so when it comes to China. At its current pace of 9 percent or so annual growth, the world's seventh-largest economy is rapidly scaling the ladder of economic heavies. China is already America's third-largest trading partner and ran a $161.9 billion trade surplus with the United States last year.
When China invests solely in U.S. treasury securities--it now holds $230 billion of U.S. government debt, second only to Japan--few seem to mind. But now growing Chinese firms are flexing their muscles: This spring, Chinese computer maker Lenovo Group bought IBM's personal-computer unit for $1.75 billion, and Haier Group, the largest appliance maker in China, has a $1.28 billion bid pending for Maytag.
China watcher Donald Straszheim of Straszheim Global Advisors says Chinese firms are attempting to buy "reach," recognizable brands with existing distribution networks and customer bases. "I see much more of it coming," he says.
Acquisitions of onetime iconic brands set politicians' nerves on edge and aggravate existing unease about the Chinese currency, the country's domination of the global textile industry, and Beijing's lax enforcement of intellectual-property laws.
But it is CNOOC's bid that tipped the scales. At a time of $60-a-barrel oil and with China seeking deals with major U.S. suppliers Canada and Venezuela, "now is not the time to sell a refinery to a Communist-controlled country," says Michigan Democratic Rep. Carolyn Kilpatrick. She authored the bill to block the Treasury Department from reviewing the deal.
Over in the Senate, New York Democrat Chuck Schumer asks, "Does anybody honestly believe that the Chinese would ever let an American company take over a Chinese company?"
Schumer may not like the answer. Last year Anheuser-Busch bought Harbin Brewery Group, one of China's largest and oldest beer makers, and now has more breweries in China than in the United States, including a 27 percent stake in Tsingtao Brewery Group. Bank of America recently paid $2.5 billion for a 9 percent stake in China's biggest mortgage lender, with an option to up the stake to nearly 20 percent.
So far, China has been investing the bulk of its trade surplus in U.S. treasuries. The Unocal bid, partly subsidized by the Chinese government, shows China is interested in a better return on its money. Still, American investment in Chinese nonfinancial assets was about $4.2 billion last year, compared with Chinese investment of $181 million here. "U.S. foreign direct investment in China dwarfs their foreign investment here," says Nicholas Lardy of the Institute for International Economics, "though that might change if they buy one Unocal per year." Things being what they are in Washington, however, it looks like the Chinese may not get that chance.
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