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	The Chinese Bid for Unocal: The Issues Revisited Some investment in China is a good thing, but dependence is dangerous. Perhaps we should increase our investment exposure elsewhere? The Chinese Bid for Unocal: The Issues Revisited Anyone familiar with this writer will know that eighteen years of living and working in China has made her critical and skeptical of much of the Chinese business environment, fraught as it is with risk and corruption. Add to the business environment China's authoritarian political system, with paternalistic practices so alien to our own, and the country indeed becomes a place in which we believe - and advise - great caution should be taken, and an ongoing process of due diligence in one's commercial activities should be a fundamental part of any business plan. Thus, like many others, this writer's knee-jerk reaction to the China National Offshore Oil Corporation's bid for Unocal was negative. We at China Channel know CNOOC very well; China Channel partner Roland Evans was a manager in a British / CNOOC joint venture in the 1990s. The thought of this organization, or, for that matter, any company so largely identified with and controlled by the Chinese government, buying into US-held oil supplies, is discomforting to us. However, there is a problem with our, and American, unease with this bid. Can we, in fact, legitimately oppose a bid of this sort, without laying ourselves open to charges of hypocrisy and the application of a double standard? Why does China need more oil than it can produce? A very large part of the answer is that the US and Europe got their wish. China may have had the desire to open itself economically to the global economy, but that desire would have been largely unrequited had not the United States, Europe, and Asian tigers been willing to satisfy it. The bid for Unocal, and for companies like it around the world, is indeed worrying, but it is a natural extension of the policies which we ourselves have pushed China to accept in order to bring it into the global economic fold. We are the ones who demand low-cost manufacturing, and the power to sustain it in the economic zones to which Virginian, American, and other companies have flocked. It is the United States which pushed China for access to its automotive manufacturing market, with lobbying in the 1990s that went as high as then-President Clinton himself. Did we think that those cars we so wanted to make and sell to the Chinese would run on water? On the one hand, we don't want China to use nuclear power. We don't want China to build more dams. We don't want China to buy our oil companies. But on the other hand, we do want China to have more power so that we can build factories to produce our goods with their cheap labor. We do want China to have access to more oil in order to be able to buy more of our cars, which, although built in China, still carry household American names and contribute to those companies' bottom lines here in the US. We do want China to let us buy into their companies (such as the Bank of America purchase of 9% of the China Construction Bank). If we want to be freer to be critical of and oppose certain Chinese investments in the US, then we need to be less strategically invested in China, and less dependent on China to support our industrial requirements. It must be clearly understood - now - that dependency is the position in which we find ourselves. We have put entire industries, entire supply chains, into China, without a great deal of thought as to the ultimate consequences of this move. Perhaps the CNOOC bid for Unocal is a wakeup call we should heed. Some investment in China is a good thing, but dependence is dangerous. In order to overcome this dilemma, therefore, we believe we should increase our exposure in other regions. I recently had the privilege of participating in the Governor's Trade Mission to India. Our years in China have given us at China Channel not only substantial understanding and experience in the needs and challenges of developing economies, and the issues that foreign companies need to address when approaching those economies commercially, but also a great interest in applying the China lessons to other deserving and viable regions. India is one of the countries which attracts us; stable African countries are also tremendously interesting. The infrastructure in India is no worse than China's just a few short years ago, and in many regions, China's is still just as far behind. Infrastructure issues in India should be seen as an opportunity, as they were and are in China, rather than as a hindrance to commercial activity. The widespread use of English, a legal system that is recognizable in America, as it is largely based on English common law, a diversity of religions and peoples, freedom of the press, universal suffrage - all of these make India an attractive investment destination - and one in which we don't have the serious security concerns that we sltill have with China. And then there is Africa. Perhaps the commitments made at the G-8 summit, perhaps Live8, will spur Virginians and others to seriously approach previously unconsidered investment environments in Africa, giving us yet more opportunities to create a more balanced mix of investments abroad, and to therefore lessen our dependence on investment regimes with which we have serious policy concerns. Uganda, for example, a former British colony and a member of the Commonwealth, is a country which has attributes familiar to many Americans. English is the official language of Uganda, and is spoken universally throughout the country. Two-thirds of Ugandans are Christian. The legal system is based on English common law. With substantial natural resources, developing economic and export processing zones, a strategic location in East Africa, and a government that has had huge success in combating AIDS, many companies in Virginia and the US should perhaps be looking at this interesting nation as we all look at how to help Africa develop. Some political problems exist, but security concerns for the United States are minimal, and a small amount of investment in a country like this would go a long way…for both sides. Will we pay attention and take action on the principles and proposals that have come out of the G-8 summit? Will we take the risks associated with investing in countries whose abilities to create substantial ROI have not yet been proven? They were not only not proven in China when we began to invest there, in many cases they are not proven yet. From a purely self-interested point of view, it does not make sense to continue to put huge amounts of investment into China, to make ourselves virtually dependent on Chinese cheap labor, if we are not prepared to pay in strategic terms for the consequences of our actions. If we are not comfortable with Chinese global policies or intentions, then why are we financing them? The logical thing to do, therefore, is to divert some of our attention, and consequently some of our investment capital, into other regions of the developing world. Not only is it the right thing to do, it is the smart thing to do, as well. Bonnie Girard, President China Channel Limited info@chinachannellimited.com www.ChinaChannellimited.com