Unocal, CNOOC and the politics of investment

By Cameron Carswell | 5 August 2005

On Tuesday, the Chinese-controlled firm CNOOC (listed on the Hong Kong stock exchange), withdrew its $18.5 billion bid for the American firm Unocal owing to "unprecedented political opposition".

This is a worrying step in a country where investment supposedly moves freely. The US government at the end of July passed legislation to delay the Chinese, which was perceived by many to be an encouragement to Chevron's rival bid, a US based company.

One reason for the behaviour of the US Congress is that the parent company of CNOOC is controlled by the Chinese state, leading to "strategic reasons" for interfering with the bid. However, most of Unocal's business lies in supplying the Far East markets anyway, negating such arguments.

It is therefore a shame that strategic reasons are cited as a justification for inhibiting the free movement of investment. Energy is important to the development of the Chinese economy, and the more it develops the more goods it can supply to the US and in turn demand from them. The managers of CNOOC obviously feel they can do a better job than the Chevron of exploiting the resources held by Unocal. They should not be denied just because of their nationality.

Our advice? Let the market (the shareholders of Unocal) decide which bid they feel offers them better value, rather than the state.