Wednesday, August 03, 2005

Tsk! Tsk! Demise of Capitalism

Where are the principle of Capitalism? Is caiptalism so protective that it will not allow lucrative bids by China's state owned companies. It will not help China to open up itself for Capitalism.

Bogus fears send the Chinese packing FU CHENGYU, chairman and chief executive of China National Offshore Oil Corporation (CNOOC), did all he could to make his firm appear like a western, commercially-minded enterprise in its pursuit of Unocal. But on Tuesday August 2nd, Mr Fu pulled the plug on CNOOC’s $18.5 billion bid for America’s eighth-largest oil firm. This leaves the way open for Chevron, America’s second-largest oil company, to pursue its own $17 billion offer for Unocal.

Despite its reputation as one of China’s best-managed companies and the presence on its board of two respected non-Chinese businessmen—Evert Henkes, formerly of Shell, and Kenneth Courtis of Goldman Sachs—CNOOC’s bid for Unocal met with considerable hostility from American politicians. Indeed, in explaining the decision to abandon its bid, the Chinese company said that it had “given active consideration to further improving the terms of its offer, and would have done so but for the political environment in the US.”

Not even CNOOC’s promise to preserve American jobs could prevent a wave of criticism across Washington, which centred on the perceived threat to national security of placing precious energy reserves (albeit located largely in Asia) in the hands of a firm that, despite its semblance of westernisation, is still linked to China’s communist government. The political resistance to CNOOC’s bid culminated in the insertion into an energy bill of a clause requiring a four-month study of China’s energy policy before the bid could continue—a move that would, in effect, force CNOOC to raise its offer to compensate investors for the delay. But the company insisted it would not countenance paying more “just because we’re Chinese”. The final nail in the coffin may have been the decision by Institutional Shareholder Services, an influential advisory group, to recommend Chevron’s lower offer, citing the opposition to CNOOC’s bid and the risks associated with it.


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