Venturing Abroad

In 1949, China witnessed a political revolution; in 1978, Deng Xiaoping started an economic one. His famous line for China’s pragmatic new direction: “It doesn’t matter if a cat is white or black as long as it catches mice.” He welcomed foreign companies to China bringing fresh air into a dusty political economy. This open door policy got economic reforms underway, but it was later superseded by the government’s appeal in the late 1990s for businesses to be bold and to “venture abroad” (zouchuqu). The Energy Institute at the National Development and Reform Commission (NDRC), a pseudo Chinese Energy Ministry, helps to coordinate this new movement by listing resources and nations that can expect to enjoy a “preferential” status. Oil and natural gas figure prominently among the listed natural resources, as do a host of oil-rich nations with less-than-friendly relations to the United States. When a Chinese oil company identifies an oil asset in a listed nation, for instance, it can count on expedited bureaucratic formalities and subsidies in the form of low-interest loans.

The modus operandi of China’s oil diplomacy can be summed up with the golden rule to “do unto others as you would have others do unto you.” Business is business, so Beijing turns a blind eye to infelicities in the political life of countries with which it has dealings – and it expects these same countries to reciprocate in kind. This “hands-off” approach has frequently given China’s oil companies
a “competitive advantage” in negotiating deals with regimes that are ill-disposed to being lectured on human rights and democracy.

This has caused some in the U.S. to lose sleep. A 2006 Bush administration National Security Strategy report frets over China’s relations with so-called “misruling states,” since China’s burgeoning trade with them seriously undermines the efficacy of American sanctions. In response, Chinese intellectuals are quick to accuse the United States of hypocrisy. In reference to a slew of overseas oil asset acquisitions by Chinese oil companies, China’s national news agency recently ran a headline that announced: “we buy our oil, we don’t steal it,” pointing a polemical finger at U.S. military involvement in Iraq.

Yang Fan, China’s most prolific economist, thinks the U.S. is acting in contradiction to the tenets of neo-liberalism, a view which sees the generation of greater wealth for all through the systematic dismantling of barriers to the free flow of world trade. In bidding for Unocal in 2005, CNOOC exceeded Chevron’s cash-and-stock offer by US$700 million but the deal was quashed – not on the
basis of objective, economically-relevant criteria, but because of politics.

The Economist, a leading economic and political publication, cogently debunked the claim that a CNOOC takeover of Unocal posed a national security threat to the United States. Unocal’s shareholders were deprived of the fair market value for their shares, but the greater damage was Beijing’s loss of faith in America’s commitment to free market principles. “We demand that the U.S. Congress correct its mistaken ways of politicizing economic and trade issues and stop interfering in the normal commercial exchanges between enterprises of the two countries,” the Chinese Foreign Ministry urged vainly during the bidding war.

Pan Rui, a professor at the Centre for American Studies at Fudan University in Shanghai, believes a major change in China’s relationship with the United States is on the horizon. “We invest too much in U.S. federal bonds, and they don’t make us much money,” he said. “Now we’re learning to invest more wisely, to try to invest in American companies and industries.” As Chinese companies – petroleum-related and otherwise – gain experience in overseas M&A activities and trans-national management, they will be less likely to hesitate before engaging in more hands-on investments that promise higher returns.

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