Unocal and China
So Mr Hu, the Cnooc exec, says "Stay out of business" to the Politicians~ hmmmm- Self Interest? Well, let's face it U.S. has been the kings of self service...maybe we don't like some other country is getting into the act-Still what are the long term ramifications?
Date: 7/7/2005 10:07:35 AM ( 16 y ) ... viewed 1044 times
A Deft Balance in Orchestrating China's Oil Offer
By JOSEPH KAHN
Published: July 7, 2005
BEIJING, July 6 - Fu Chengyu, the chairman of Cnooc Ltd., says that profits, not politics, are behind China's most ambitious takeover bid, his company's $18.5 billion proposal to buy the Unocal Corporation.
Strategic energy policy and the whims of Beijing leaders do not concern him much, Mr. Fu, an English-speaking, American-trained executive, said. "I have no talent for politics," he said, "only business."
Vincent Yu/Associated Press
Fu Chengyu, Cnooc's chairman, seems at ease with Americans.
Yet Mr. Fu, who is also Cnooc's Communist Party secretary, recently made the company a showcase for President Hu Jintao's political campaign "to keep party members in the vanguard." China's leading official newspaper, The People's Daily, prominently cited an aphorism Mr. Fu coined, "Excelling at political work makes us stronger competitors."
As Cnooc attempts China's largest foreign acquisition, Mr. Fu faces delicate dual tasks. He has had to prove his political reliability to Chinese leaders even as he works to persuade the United States that his company cares only about commerce.
For all of China's economic growth along market models, the Communist Party still holds sway over big investments and personnel appointments at the elite state-owned businesses. Suspicions of political motives behind Cnooc's offer to buy Unocal have already fueled opposition to the deal in Washington.
Philip Andrews-Speed, an expert on China's energy industry at the University of Dundee in Scotland, remarked: "China's energy strategy is to make its oil companies into major players globally. But to accomplish that, they may have to show that the companies are not in fact following a government strategy."
Chinese officials, with $650 billion in foreign exchange reserves, have been urging the biggest and best-known companies to go out into the world to acquire technology, expand their markets and emulate Western multinationals.
Yet in the critical areas of energy and high technology, the largest Chinese companies are often viewed as mercantilist fronts for a one-party state, focused more on serving China's needs than pursuing profits.
Ultimately, China's full integration into the global economy could depend on whether companies like Cnooc establish a convincing commercial track record abroad - or on political change in Beijing.
Cnooc has always been a hybrid. It owes its existence to a government directive in 1982 that anointed it as the joint-venture partner for overseas companies exploring for oil in Chinese waters. The company is now in the inner sanctum of the top 50 state-owned companies, many of them with the political leverage of government ministries. It takes on risky exploration projects in disputed waters of the East China Sea.
Cnooc's public relations line during the battle for Unocal has been enforced by the powerful Propaganda Department of the Communist Party, local journalists and editors said.
On the other hand, Cnooc is unusually lean and profit-driven. It employs just over 2,500 people and offers few of the social perks, like schools, housing and hospitals, that bloat the budgets of most big government-run enterprises.
The company's shares trade in Hong Kong. Outside directors on its board have a real say in the company's affairs, initially delaying its plans to buy Unocal for further study. Company managers hone their skills in partnerships with Western concerns.
Mr. Fu and Cnooc's public relations teams in Beijing, Hong Kong, Dallas and Washington emphasize that the bid for Unocal should be seen as a matter of market economics, not politics. That capitalist-flavor appeal has been amplified by the company's American lobbyists and media advisers, the law firm of Akin Gump Strauss Hauer & Feld, and Public Strategies.
"The idea of buying Unocal was purely initiated by our company," Mr. Fu said during an interview in his spacious office suite overlooking the diplomatic quarter of Beijing. "The idea did not come from the government, and not one cent of government money is involved in the deal."
Mr. Fu, 54, speaks English with only a hint of a Chinese accent, having learned the language when he got his master's degree at the University of Southern California. He spent his early years at Cnooc working in joint ventures with foreign companies, including Chevron, his rival in the bidding for Unocal.
A Deft Balance in Orchestrating China's Oil Offer
He has cultivated a Western image, telling visitors that he prefers coffee to tea for the extra caffeine jolt it gives him and hinting that he thinks like a maverick, not a politically correct steward of one of the country's influential businesses.
Asked about his relations with Chinese leaders, he jokes that there are few he can talk to.
"I don't think there's anybody in the government who understands our business," he said.
Yet whether or not they understand, there are signs that they care. Cnooc has followed a path set by the Politburo and repeated by President Hu as recently as last week, when he told a Politburo session on energy, "We must enthusiastically push ahead with international cooperation to develop energy resources and fully make use of international markets."
The company's proposal to buy Unocal was vetted by the Assets Supervision and Administration Commission and ultimately approved by the State Council, China's cabinet, two people briefed on Cnooc's negotiations said. Zhou Xiaochuan, the governor of the Chinese central bank, helped put together the financial package, these people said.
The terms of the financing reflect Cnooc's elite status. In addition to injecting its own cash and using bridge loans from J. P. Morgan and Goldman Sachs, its investment bankers, the company will rely on a big bridge loan from the Industrial and Commercial Bank of China, the largest state-owned commercial bank, and a capital infusion from its parent.
Cnooc says the loan from the bank was made on commercial terms. But at $6 billion, it is exceptionally large by Chinese standards. It comes shortly after Beijing transferred $15 billion from its foreign-currency reserves to the Industrial and Commercial Bank to help it prepare for its initial public offering.
China National Offshore Oil, the parent of Cnooc Ltd., will provide $7 billion. Cnooc agreed to pay back $2.5 billion, interest-free, by offering new shares within two years. Some $4.5 billion is payable over 30 years at the relatively low interest rate of 3.5 percent.
Mr. Fu acknowledged that the government reviewed the financing. But he said this was only because Cnooc wanted to use domestic funds overseas, requiring a relaxation of foreign exchange controls. He said the bank loan, while large, was "entirely commercial," and the infusion from the parent company should not be considered political either.
The contention that the deal is devoid of politics has become a propaganda theme in China. Newspaper journalists said they were instructed last week by the Propaganda Department to write about only the commercial implications of the Unocal purchase, not its strategic value.
Liu Jianchao, the Foreign Ministry spokesman, emphasized the same point when asked at a news briefing about the objections of members of the United States Congress.
"I think this is normal business activity," he said. "The relevant people should not make a fuss and should not interfere in business deals for political reasons."
But some trade experts say that Cnooc may have miscalculated in thinking that its free-market argument would be persuasive, and underestimated the protests its bid would provoke in Congress. "The reaction shows how much ambivalence there is in the United States about China and the globalization it represents," said Clyde V. Prestowitz, a trade official in the Reagan administration and president of the Economic Strategy Institute in Washington. "And as a rising military power, China is not viewed as a strategic partner but as a strategic competitor."
Overseas, it is Cnooc's sister oil and gas companies, the China National Petroleum Corporation and the China National Petrochemical Corporation, known as Sinopec, that often undertake the most politically and diplomatically sensitive energy projects. China's energy ties to Iran and Sudan, which have put it at odds with American foreign policy, do not involve Cnooc.
But Cnooc has taken the lead in developing offshore gas deposits in the East China Sea, throwing itself into the center of a hot political dispute between China and Japan, which both claim the rights to develop reserves there.
The East China Sea project suffered a setback late last year when Cnooc's two foreign partners in the richest discovery, the Xihu Trough, withdrew. The two, Shell and Unocal, were recruited in part for their expertise in deepwater exploration.
Shell and Unocal cited commercial reasons for dropping out. But they pulled back at a time of rising animosity between China and Japan, also a big importer of oil. By buying Unocal, Cnooc could again make use of the American company's technology in the East China Sea and in other ventures.
Mr. Fu said the withdrawal of Shell and Unocal had no bearing on the decision to buy Unocal. He said that he did not consider the Xihu Trough an especially difficult challenge and that the technology for ocean exploration was available elsewhere.
However sincere his focus on commerce, politics and business do mix in China's state-guided market economy. Mr. Fu's predecessor as Cnooc's leader, Wei Liucheng, shepherded the company through its overseas share listing. He is now governor of Hainan Province.
Mr. Fu said he expected no such reward, whether or not Cnooc acquired Unocal. "I feel confident that in 10 years I can make Cnooc one of the world's leading oil companies," he said. "But if someone places me in the government, I am sure my performance will be much worse."
9th ~Be careful when a businessman says he has no head for politics
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