BEIJING — As Fu Chengyu sees it, the political maelstrom brewing in Washington over his Chinese oil company's bid to buy Unocal Corp. stems from a misunderstanding of global oil markets and the deep reforms that have taken place in China over the last two decades.
The chief executive of CNOOC Ltd. said those opposing the $18.5-billion offer because of national security concerns might simply be "scared and surprised" by China's rapid rise in the world.
"The Chinese people and government are learning from the U.S. We are adopting the free-trade system very quickly, even though it's not perfect," Fu said Friday in an interview, speaking in English. He cited his company as an example: "We are using U.S. bankers, advisors, exactly meeting the processes of U.S. market requirements" for mergers and acquisitions.
If CNOOC's bid for Unocal is thwarted by politicians, Fu says, it will send a powerful message to the Chinese and the rest of the world. "Suddenly, [it would be as if] we found out that our teachers [of free trade] said that what they told us was not workable."
He said China would not hoard Unocal's reserves of oil and natural gas because doing so would require shipping them long distances, at high cost, or breaking long-term contracts.
Fu's comments came shortly after the U.S. House of Representatives passed two measures late Thursday, Washington time, aimed at blocking CNOOC's proposed takeover of El Segundo-based Unocal. One was a resolution expressing concern that such an acquisition could harm U.S. national security. The other, an amendment to an appropriations bill, seeks to prevent the Bush administration from using federal funds to approve the Chinese bid, which topped a $16.5-billion offer made by Chevron Corp. in April.
Other Chinese have raised the specter of a backlash if CNOOC's bid is derailed by politics. "The consequence will be all the other Chinese companies will despise the Western game rules," said Han Xiaoping, general manager of Falcon Power Ltd., a consulting firm in Beijing.
CNOOC said Friday that it had filed papers with the Committee on Foreign Investment in the United States, a multiagency group led by Treasury Secretary John W. Snow that examines proposed deals by foreign entities from a national security point of view. CNOOC is seeking an expeditious review. Unocal shareholders are set to vote Aug. 10 on Chevron's bid.
CNOOC's offer, unveiled two weeks ago, has engendered considerable opposition from those who say the oil company is simply an agent of the Chinese government. CNOOC's stock is listed in Hong Kong and New York, and 71% of its shares are owned by state-controlled China National Offshore Oil Corp.
During the interview on the 23rd floor of CNOOC's Beijing office tower, Fu wouldn't say precisely what role the Chinese government had in CNOOC's bid for Unocal. Most China analysts believe that at the very least, Beijing signed off on the decision. A state-owned bank has agreed to provide CNOOC with $6 billion in loans to finance the purchase.
"It's a political decision. Nobody in China can write a check" that big, said Oded Shenkar, a management professor at Ohio State University and author of "The Chinese Century."
For the Chinese, Shenkar said, this kind of aggressive bid "makes their hands stronger in negotiations" with the United States over trade. "This is another card, another joker that they pick up. It sends a signal that they mean business and are not going to be a passive player."
Fu stressed, however, that the government "cannot make business decisions on behalf of management, or replace our decision with theirs. Never."
"This is what has changed in China over the last 20 years," the 54-year-old Fu said. "Even though the government has ownership, operating the assets is purely the right of the business unit. It is similar to [any] public company," he added. "The ownership is shareholders. But who runs the assets? The management."
Fu, who earned a master's in petroleum engineering at USC, took issue with those contending that a Chinese company's takeover of Unocal would threaten America's security. Some have raised fears that China, which has been hunting for energy around the globe, is trying to hoard oil resources for itself.
Unocal, though, is a small player in oil; the company's assets are predominantly natural gas, mostly in Asia. Overall, Unocal's U.S. production accounts for less than 1% of total American consumption of oil and gas. At any rate, Fu reiterated a pledge to continue delivering Unocal oil to the U.S. and other countries that get it now. While it's true that China needs oil, Fu said, in today's world, where crude is traded freely, economics and local rules dictate where oil is shipped.
"The Unocal assets in the world cannot be delivered to China, because most will be supplied to the local market," said Fu. "You have to look at the economics.... Shipping oil from far distances will cost more than from short distances."