The MTRC rejected the idea because extending services at such light traffic times would only bring further losses. Cathay subsequently took a stake in the railway and nothing more was heard of the idea. Once a stakeholder, the airline immediately saw the sense of management's argument.
The lesson is that sponsors of wasteful plans, like one calling for keeping stations and lines open all night for a dribble of passengers, usually have a better chance of coming to their senses as stakeholders. It applies to the wider world of global stakeholders, be they American, European or Japanese investors buying stakes in Chinese companies, or the other way around. The more crisscrossing of shareholdings, the more informed the participants; the better the population of shareholders, the better the companies become under their oversight.
An additional benefit for Chinese investors and companies that venture offshore is tougher offshore regulation; the quicker China comes to understand and appreciate international norms of transparency and disclosure, the quicker it will see the benefit of aligning its own markets with international best practice.
Benefit to all
And the faster that happens, the faster foreign and domestic investors alike will pile into China's markets. On these grounds alone, the bid by China National Offshore Oil Corp (CNOOC) for Unocal should be welcomed. But the deal should also be welcomed by Unocal shareholders because it offers US$2.1bn more than Chevron's offer. And it should be welcomed by Unocal employees, because as Macquarie Research and others have pointed out, they will have more hope of retaining more jobs under CNOOC, which has committed itself to keeping employees in place, rather than under Chevron, which has not.
Lastly, Americans in general should welcome an investment in the United States economy – a healthy change from China simply collecting more IOUs in the form of US Treasury notes. Despite this, Washington lobbyists and their Congressional confederates are pressing the Bush administration to stop the deal on national security grounds. Among other concerns, they worry about China diverting supplies from the United States – even though Unocal operates almost exclusively in Asia and sells its output very largely in other foreign markets, not in the US.
Some argue CNOOC is not a "real company" and until the government divests its 70% stake in it, the deal should be blocked. This seems a little brazen coming from America's oil industry, which raised cartels and trusts to a very high art form; indeed, the great trustbusters of the early 20th century must still be turning in their graves with Washington's recent sanctioning of the Exxon-Mobil merger: these were two of several companies created when Washington originally broke up the Rockefeller family's Standard Oil trust – which closed down competitors and fixed supplies and prices across the United States for decades.
The fact is many in China, including many reformers in the central government, would welcome Beijing's withdrawal from CNOOC, and other state-owned enterprises. As a restructured publicly-listed company, it would undoubtedly perform better and return more value to shareholders. It is even possible that a restructured CNOOC would think twice about bidding for Unocal, much less topping Chevron's bid by as much as it has.
"Not a real company"
But it is nonsense to suggest CNOOC should be barred from buying Unocal on the grounds that it is a state company. As inefficient as some can be, state companies from the West as much as from the East have been conducting international business for decades. Indeed, it is as well for Boeing that the proponents of the "real company" argument were not in charge when government-owned British Airways, Air France, Air Canada and other major carriers set out to buy their jumbos; or later, when Air China or Singapore Airlines ordered theirs; or when China turned to government-owned Electricite de France to build nuclear reactors, for that matter – or signed on French-government-owned Alcatel to build phone networks.
In the oil sector specifically, many companies in the West have at one time or other been state-owned-among them, British Petroleum, Elf Aquitaine of France, ENI of Italy, not to mention their equivalents in Canada and Mexico north and south of the US. Most have since privatized and it might be good for CNOOC to be encouraged by their example – but what's important here is that BP and others of that generation were never barred from an acquisition on the grounds they were state owned.
China naturally faces mounting pressure to source more oil as its economy grows and living standards rise, as they need to do; but if it ever consumed half of what the US consumes on a per capita basis, the world would go through a meltdown. That is why China invests so much in intercity trains and urban rapid transit, which is something the US might do more of, instead of encouraging three-car households.
China also needs more oil to accommodate more manufacturing, much of it American, as more companies shift their production here. But there is also a natural consolidation in the oil industry and its impact is being felt by China's oil producers as much as by others. Drilling companies are finding it increasingly difficult to replace the reserves they pump out of the ground and have to turn to acquisitions to correct the mismatch.
Rational voices in the din
Not everyone is in a panic, thankfully. Philip K. Verleger, an energy specialist at the Institute for International Economics, told The Washington Post recently that, "there is absolutely no reason" why Americans should care who owns Unocal's oil and gas reserves (which are put at about 1.75bn barrels-of the world's estimated 1trn known reserves).
No matter who owns the oil, the cost of it would still be determined by global supply and demand and if China started setting its own price it would only be robbing itself of what it could get for Unocal's oil on the world market. So while China could in theory divert Unocal supplies from other markets to the Mainland in a crisis, they would not come any cheaper than others sourced from another supplier. China's ownership of Unocal "won't change the price of oil, or the availability of oil," Robert Priddle, a former executive director of the Paris-based International Energy Agency, asserted in the same Post article.
If the US is serious about engaging China, it should not interfere with the rules of the market it so ardently champions and let the highest bidder take the spoils.
The Unocal debate has again raised questions about China stalking the world and picking up strategic acquisitions to fill gaps in different sectors – be they in textiles, electronics, the automotive or shipping industries or somewhere else. One analyst even recently ventured that General Motors might get a call from China one day. Although a full buyout seems unlikely, given GM's parlous debt and seeming insoluble employee benefits problem, it is conceivable that Chinese companies might nibble away at its choicer bits, as GM did at Daewoo in South Korea.
Natural path to take
One doesn't have to be a giant of prescience to see how acquiring more overseas assets is a natural path to follow for the emerging global industrial giant. A recent case in point was Haier which, in league with US private equity partners, put in a bid for washing-machine maker Maytag Corp – topping a bid by another private equity firm, Triton Holdings (which had progressively reduced its bid from over US$24 a share to US$14, when Haier happened by with its bid of US$16 per share).
Like Lenovo's takeover of IBM's PC business, the white-goods bid is an attempt to address China's difficulty in creating world brands. Both IBM and Maytag are strong brands, even if they had ceased to be strong businesses in their segments, and both buyers hope to use their names and channels to get their own brands off the ground in the world's richest consumer markets.
Right now, China is for the most part one big original equipment manufacturer, or OEM, for someone else. There is not an OEM anywhere that does not dream of emerging as its own recognized company, with a brand it can call its own. Again, there is nothing especially unusual about Chinese companies pursuing this dream.
Come to that, the most surprising feature in the latest chapter in China's American shopping story is how so many people are surprised by it all. Once everyone recovers, it might be good if markets will be allowed to get on and decide who owns what.