China goes global

In fact, China's State Asset Supervision and Administration Commission unveiled its "Go Global" strategy two years ago, to help 30 to 50 Chinese companies to stand on their own internationally by the end of the decade. Unocal is more than an American company; it is already a multinational with serious Asian interests and it makes sense for CNOOC to acquire it.

However, the bid has exposed lots of self-satisfied hypocrisy on both sides of the Pacific-but more on the American side than the Chinese. There is a basic capitalist principle at stake here. If it is the Unocal shareholders' interests that were really the issue, then take note that the Chinese company is offering US$2bn more than rival Chevron.

There should be no argument, but CNOOC is obviously also aware that in the real world, American companies' actual main purpose is to overcompensate their executives, not to reward shareholders, and so it has astutely offered to retain much of Unocal management. Equally astutely, it also knows that it needs their expertise and experience to keep the show on the road and the oil in the pipes.

It may be, as the US Congress fears, that some recidivist old cadres in Beijing do entertain pipe dreams of getting dibs on American energy supplies. However, that erroneously assumes, as much of the commentary from Washington usually does, that the US has some kind of prior lien on all oil, wherever it is in the world. This is not so.

While it is true that the Chinese Communist Party, through the government, controls CNOOC, frankly, it is difficult to choose between a country where the government has ultimate control of many of the major corporations and one where ultimately the major corporations seem to control the government.

It is interesting that these superficially reversed chains of command result in a similar end, for both the US and China. Both governments encourage an insatiable and unchecked thirst for oil and other carbon-based fuels.

If the Chinese government could override the commercial interests of its booming auto manufacturers and oil companies, then rationally it would be adopting a completely different strategy. It would be telling the hundreds of millions of citizens for whom a two-wheeler has been the height of their vehicular ambitions for the last half century, "hang onto your bicycles"

It should be seeking to reduce demand for oil as much as trying to expand supplies. It would be ensuring that China does not become an infernal empire of a billion gas-guzzling, emission-emitting SUVs. The government may not worry much about the consequences for global warming in the long run, but the consequences for Chinese breathing are already upon the citizenry in all the choking cities.

While the US administration may welcome yet another ally in its battle against the Kyoto protocols in the form of CNOOC, there are wider American interests at stake. In fact, the rational American response should be to welcome this Chinese rush to globalization, which actually gives the US more leverage over China than it had before. It is a well-known axiom that the bigger a debtor you are, the more interest your creditors have in keeping you afloat. And not even bankrupt Britain at the end of the Second World War owed the US as much the US now owes China.

Before anyone in Washington gets too cocky, they should remember two very important principles of diplomacy from former, wiser Presidents. One is president Teddy Roosevelt's, "speak softly and carry a big stick" The second is president Lyndon Johnson's memorably Machiavellian dictum that it is better to have people inside the tent urinating out, than vice versa. Someone should tell the hayseed legislators in Congress that they should really be more careful about their tone when they speak about the nation whose inflow of recycled dollars into US Treasury Bonds has kept their dollar afloat, paid for the balance of payments deficit, and the federal budget deficit.

It has puzzled many of us for a long time why China's government would invest its surpluses in a rapidly depreciating currency, the US dollar, and in an asset, US Treasury bonds, that has a really lousy interest rate of return. Certainly if Beijing's central bankers were managing my pension, I would have pulled my money out long ago.

If you really wanted to look for political motivations, it should be there, rather than in any paranoid suspicions about taking over American oil. However, from a political and macroeconomic point of view, those billions invested in the US deficit bind the fortunes of both countries together inextricably.

Beijing could say "sell? instead of "fire" but it would be mutually assured economic destruction. Washington could renege on its bonds, but only at the risk of putting the US dollar on a par with the North Korean won.

Maturely, the US Congress should see the Chinese decision to invest those dollar surpluses in corporate assets rather than "IOUs" as President George W Bush described the Social Security systems T-bond holdings-as symptomatic of a coming of age for Chinese capitalism. It is now acting on rational business principles-and perhaps discreetly reminding legislators that their profligate ways do have consequences.