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http://www.washingtonpost.com/wp-dyn/conte...1101671_pf.html

Bush Adviser Helped Law Firm Land Job Lobbying for CNOOC

By Jonathan Weisman
Washington Post Staff Writer
Tuesday, July 12, 2005; D01

President Bush's top independent intelligence adviser met last winter with investment bankers in China to help secure his law firm's role in lobbying for a state-run Chinese energy firm and its bid for the U.S. oil company Unocal Corp., according to his law firm, Akin Gump.

The involvement of James C. Langdon Jr., chairman of the President's Foreign Intelligence Advisory Board and a major Bush fundraiser, underscores the tangled Washington connections beneath CNOOC Ltd.'s bid. Both CNOOC and its rival for Unocal, Chevron Corp., have enlisted lobbyists and public relations professionals with deep ties to the Bush White House and Republican leaders in Congress. Wayne L. Berman, a principal lobbyist for Chevron, is a Bush "Ranger," having raised at least $200,000 for the president's campaign. His wife, Lea, is the White House social secretary.

Langdon's involvement, given his dual role as Bush intelligence adviser and energy lawyer at the law firm Akin Gump Strauss Hauer & Feld LLP, may prove politically problematic, some security experts said. Members of the intelligence board, known as PFIAB, are granted the highest security clearance and develop top-secret advisories and reports for the president, most of which are not even available to members of Congress.

"China is among the biggest intelligence challenges of the coming decades," said Steven Aftergood, director of the Federation of American Scientists' Project on Government Secrecy. "Along with the war on terrorism, it's not far behind, and one has to wonder whether Mr. Langdon's involvement in Chinese affairs will be tolerated by intelligence agencies that have different interests than those of Mr. Langdon's firm."

A partner at Akin Gump, Langdon served as a member of PFIAB in Bush's first term. On Feb. 25, the White House announced his reappointment to the board and his designation as chairman.

Langdon met with CNOOC's investment banking partner, Goldman Sachs Group Inc., in February, marshalling a long friendship with Beijing-based Goldman executive William Wicker to help win his law firm's lobbying contract, Akin Gump officials confirmed. They say he recused himself in late March from further involvement in the matter, either for Akin Gump or the PFIAB.

"He's not working on the deal," said Mark Palmer, a spokesman for Akin Gump who questioned whether it is important that a lawyer tried "to help the firm and then recused himself" from further involvement. Langdon did not return repeated telephone calls requesting comment.

Palmer acknowledged Langdon's close relationship with Wicker, Goldman Sachs's co-head of Asia investment banking, but he denied that Langdon was the key player in securing Akin Gump's lobbying contract. Langdon made one 36-hour trip to China in February, but the CNOOC issue was only one of several matters he was working on for the firm.

"As with all presidential appointees, it is appropriate that the appointee recuse him- or herself when there are potential conflicts," said White House spokeswoman Dana Perino. "Through a spokesperson, [Langdon] has indicated that he has recused himself from the matter at his firm and that he would recuse himself if it comes before the board."

CNOOC has already requested a review of its unsolicited $18.5 billion bid for Unocal by the Committee on Foreign Investment in the United States, a secretive 12-member review board that includes Cabinet members and White House officials. The PFIAB chairman does not sit on CFIUS, but a review of national security implications could stray into matters relevant to foreign intelligence, security experts said.

And any CFIUS review has the potential to yield internal administration dissent. Deputy Secretary of State Robert B. Zoellick is seen as a strong voice to keep Washington from interfering in what CNOOC officials have described as purely a business deal, but other senior officials have long been wary of China's rising strength, including I. Lewis "Scooter" Libby, the influential chief of staff of Vice President Cheney.

The House Armed Services Committee will hold a hearing tomorrow on the national security implications of the CNOOC bid. One of the committee's senior members and a prominent China hawk, Rep. Curt Weldon (R-Pa.), vowed to raise questions of Langdon's involvement, saying, "Unfortunately, corporate dollars often transcend national security."

A scheduled witness at the hearing, China hawk Frank J. Gaffney Jr. of the Center for Security Policy, called Langdon's work on his firm's behalf "an insight into just how extensive China's tentacles are in official Washington."

Energy experts agreed that Langdon could become a lightning rod despite having recused himself from the matter.

"I have a very high regard for Mr. Langdon, but an emotional issue like this is one thing that's very, very difficult to prepare for," said J. Robinson West, chairman of PFC Energy, a District-based energy consulting firm. "Fair or not, he may get dragged into this."

The President's Foreign Intelligence Advisory Board was established in 1956 to provide the president independent advice on the effectiveness of U.S. intelligence agencies. Past chairmen include retired Air Force Lt. Gen. Brent Scowcroft, Republican former senator Warren B. Rudman, Democratic former House speaker Thomas S. Foley, former defense secretary Les Aspin and top foreign policy adviser Clark H. Clifford.

"They have the ear of the president," said Aftergood, who called the board "disproportionately influential."

Scowcroft, Bush's first PFIAB chairman, led a highly sensitive effort to draft intelligence changes in the wake of the Sept. 11, 2001, attacks that remains top-secret. Under Rudman, the board was tasked to investigate alleged leaks of classified information from the nation's nuclear weapons laboratories.

Langdon's work for the CNOOC contract and his subsequent recusal point to the potential for conflicts inherent in citizen boards such as PFIAB that have access to highly classified information, Rudman said.

But, Rudman said, the PFIAB staff has established strict rules to deal with such problems.

"It's pretty hard to not have a member get into a conflict situation occasionally," he said.

© 2005 The Washington Post Company

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CNOOC May Raise Unocal Bid Up to $19 Billion

http://cbs5.com/topstories/local_story_194215913.html

Chinese Company and Chevron Face Off for Unocal
Hank Plante
Reporting

(CBS 5) A former CIA director is warning that a Chinese oil company's attempt to take over Unocal poses a threat to national security, and those fears could help Bay Area-based Chevron win the bidding war.

Energy is a national security issue according to those who want to block the Chinese company CNOOC from buying Los Angeles-based Unocal for $18.5 billion dollars. That's $2.5 billion more than San Ramon-based Chevron is offering for Unocal. So Congress stepped in with hearings Wednesday.

"We are dealing with a takeover attempt by the most powerful Communist dictatorship in the world -- an organ of its state, for all practical purposes, attempting to take over an American corporation," said former CIA director James Woolsey.

All of this is being played out against the backdrop of higher American oil prices, which many experts attribute to growing competition from China and India. And that competition will only increase, as those nations watch their economies explode with growth.

"What we see in this battle is China trying to gain access to more of the world's hydrocarbon resources: oil, gas," said Jim Jelter of MarketWatch.com. "They are doing it in a way that is reminiscent of the old Wall Street way of tackling resources -- just buying them after they have already been discovered by somebody else."

China, like the United States, imports most of its energy. They don't have enough resources at home to fuel their economy. That's another reason that the competition for oil between China and the U.S. is increasing.

"China today, with its expanding economy... may be the most rapidly expanding middle class in the world," said New York Times columnist Thomas L. Friedman. "It adds about 1000 cars a day to the roads in Beijing... They want the lifestyle that we have. They don't want to work for us. They want to be us."

And they want to own us, at least in the case of Unocal, which is why Congress is asking questions. Lawmakers may take action to block the Chinese bid, thus giving Unocal to Chevron. Unocal's board will meet to take all of this up on August 10.

http://www.iht.com/articles/2005/07/14/business/unocal.php

Ex-chief of CIA opposes sale of oil firm to China

Another crisis may occur in Japanese-Chinese relations RIA Novosti
Japanese Economy, Trade and Industry Minister Shoichi Nakagawa told journalists Thursday that the Japanese government has decided to allow a private-owned company to extract oil from territory disputed by Japan and China. This could fuel another crisis in relations between the two countries, the Asahi newspaper reported. Experts from Japan's Asahi newspaper said licensing the Teikoku Oil company to carry out appraisal drilling and then develop oil and gas fields in the East China Sea could severely damage Japanese-Chinese relations. China is in dispute with Japan over the border territory, meaning Tokyo's decision could exacerbate the countries' already uneasy relations. There are also concerns that this could provoke new anti-Japanese sentiments, similar to those that overwhelmed China in April, and deprive Japan, seeking to become a permanent member of the UN Security Council, of China's backing. Beijing reaction was immediate. "Japan is violating China's sovereign rights by authorizing the company to drill in this region," said Liu Jianchao, a spokesman for the Chinese Foreign Ministry. Jianchao said Tokyo's actions would aggravate the situation in the East China Sea, adding that the countries' territorial dispute must be solved verbally. Jianchao said Tokyo should withhold actions that might infringe on Chinese sovereign rights and damage bilateral relations. Japan and China are laying claims to the short string of the Senkaku Islands (known as the Diaoyutai Islands in Chinese) in the East China Sea, which Beijing thinks are rich in undersea hydrocarbon reserves. Protecting Chinese sovereignty over the islands was one of the main slogans at anti-Japanese rallies in China.
Japan stokes China sea dispute BBC News
China slams Japanese gas deal Aljazeera.net
China Daily - International Herald Tribune - Kazinform - Financial Times - all 46 related »

http://www.atimes.com/atimes/China/GG16Ad01.html

China to get first crack at Russian oil: Putin
John Helmer

MOSCOW - In his most detailed statement to date, President Vladimir Putin has spelled out Russia's priorities for transporting crude oil to Asian markets in the next decade. In diplomatic but unambiguous language, Putin rejected Japanese proposals, in favor of China.

In a press conference at Gleneagles last week as the new chairman of the G8, Putin identified rail deliveries to China from the new border terminal at Skovorodino as his first priority, with 20 million tons (385,000 barrels per day) the target for delivery, once Transneft, the state pipeline agency, builds the planned new pipeline to Skovorodino.

This terminal is 600 kilometers east of the main border rail junction at Zabakailsk and Manzhouli, where current Russian oil deliveries by rail cross into China. It is still unclear what rail capacity China has, or will build, to carry the oil from Skorovodino. Current maps show Russian and Chinese rail lines moving east-west in parallel on either side of the border. They are not yet connected.

An additional 10 million tons (192,000 bpd), Putin said, will be sent on by rail to the new tanker terminal planned near Nakhodka. Construction will take "around three years", the president noted. The president's remarks rejected wishful thinking from Tokyo that a Japanese government offer to finance a pipeline all the way to Perevoznaya Bay, near Nakhodka port, would tempt the Kremlin over Chinese insistence that deliveries to Beijing take priority. "As the oil in this [first-stage] pipeline increases through the development of new sources and fields in eastern Siberia," Putin said, "we will build a second section of the pipeline that will run right to the Pacific coast. This system will then be pumping 50 million tons [972,000 bpd]..."

This number is a discreet way of rebuffing the Japanese government, whose multi-billion dollar financing proposal for the Nakhodka-first pipeline has assumed a capacity of 80 million tons annually (1.5 million bpd). The pay-back terms may also have required such a large volume, despite the fact that, as Russian industry sources have repeatedly pointed out, the eastern Siberian oilfields are far too underdeveloped to fill the pipeline to that level within the next decade or longer. Niether the Russian government, nor the commercial Russian oil companies, have any intention of diverting crude from western Siberia in order to make up the difference for Japan's benefit.

Thus Putin's remarks ought to be read in Tokyo as marking a colossal failure on the part of Japanese interests who have promoted and lobbied for the Nakhodka plan for years. Like the Indians, whose failure to link billion-dollar investment promises to commitments of Russian crude oil supply have resulted in a comparably spectacular failure, the Japanese ought to be auditing how the money allocated to this task was spent; and blaming themselves for the dead end their tactics have now brought them.

In almost the same breath, Putin had less-than-reassuring words for the other goal in Japan's two-pronged strategy for Russia - a peace treaty resolving the status of the Kurile Islands. "Regarding the territorial issue," Putin said, "I would call it the problem of signing a peace treaty - I think you will agree with me that in order to someday settle this question, we need to work on it together, and in order to work on it, we need to meet, to understand each other and trust each other. In order to trust each other, we need to build up our cooperation. These are the issues we intend [to discuss] during my visit to Japan." In short, no Russian oil and no Russian and will go to Japan for the foreseeable future.

Putin's latest statement on the Russian geopolitics of oil was significant, too, for what he didn't offer Russia's most prominent strategic ally, India. This is despite the fact that the current Indian government, and its parastate oil and petroleum refining companies, ONGC and IOC, have made repeated, highly publicized attempts to secure new oilfield concessions in Russia from the Kremlin, as well as shareholding stakes in Russia's state-controlled energy companies.

None of these efforts has made the headway which China's President Hu Jintao and his oil men achieved on their visit to Moscow early this month. Referring to the two reported undertakings by Rosneft to the Chinese for exploration of a Sakhalin oil deposit, and for supply of gas to China, an Indian source observed: "Indian investment of $2.5 billion [in Sakhalin by ONGC] will bring energy security and prosperity to China. We don't shoot people in India, as the Chinese would have done if a Chinese investment had secured one of [the] world's largest oil and gas reserves for Indians. It would have been considered treachery."

In the Indian case, the source claims, still secret mandates have been granted by the Indians to US investment banks, and at least one French bank, to serve as intermediaries in arranging Russian oil resource acquisitions. The potential for corruption which these arrangements might inspire would be more noteworthy if there had been any reason to suspect that American investment banks can influence the Kremlin's oil and gas decisions. Indian officials express continuing optimism that they will secure oilfield concessions in time. They admit they have so far failed to reach any agreement on transporting to India any oil from the Sakhalin-1 oilfield, in which ONGC is a major investor.

John Helmer is the doyen of the foreign press corps in Russia. He first set up his Moscow bureau in 1989, and specializes in the coverage of Russian business.

(Copyright 2005 Asia Times Online Ltd. All rights reserved. Please contact us for information on sales, syndication and republishing.)

http://www.atimes.com/atimes/China/GG16Ad02.html

Let Unocal take care of itself
Max Fraad Wolff

China National Offshore Oil Corporation's (CNOOC) US$18.5 billion bid for Union Oil of California (Unocal) has triggered security alarms and prompted an outcry against the foreign purchase of a strategic American company. But there is no evidence Unocal needs or wants help suppressing a cash offer which pledges no US job cuts and commits Unocal's domestic reserves to US customers. Shareholders might even prefer that upward pressure be placed on Chevron Texaco's modest bid. This braying din was remarkably mute in the course of the acquisition of hundreds of billions of dollars worth of US assets by state-owned Chinese institutions: few were spooked by Chinese purchases of $220 billion in Treasuries, $200 billion in agency debt, a trade shortfall of $162 billion and recent purchases of well-known US businesses by Lenovo and Haier. Unocal is a mid-sized oil company with a majority of its assets and growth offshore. In 2004, 62% of its natural gas and 56% of its liquids operations were foreign. Why, then, the fiery rhetoric now?

Official statements from Congress and some in the administration suggest that the vital nature of Unocal's assets require state intervention. But foreign purchases of US firms with potential national security significance are almost routine. Earlier this year, United Defense Systems was sold to British BEA Systems despite the fact that UDS is a major Pentagon weapons supplier. Similarly, Mittal Steel's buyout of ISG went unopposed. Deutsche Telekom's 1999 purchase of VoiceStream represented the purchase of a US firm by a company that was not only a foreign firm, but partially owned by a foreign government. But the deal went through to create T-Mobile. Innumerable examples exist from the last 20 years.

Political gamesmanship and traditional returns to xenophobia are certainly involved in the CNOOC bid commotion, but curiously absent from the discussion is Unocal's history. The El Segundo, California-based company operates in Thailand, Indonesia, Myanmar, Bangladesh, The Netherlands, Azerbaijan, The Congo, Vietnam, Alaska and the lower 48 US states. The firm participates in exploration, production and development of oil, natural gas and liquids. Two interesting features about the nations where Unocal operates are noteworthy: first, the diverse list demonstrates Unocal's ability to operate successfully in difficult and unstable regions. Second, note the concentration of activity in China's territorial vicinity. Given this geographic focus, and China's economic rise, it is hardly surprising that a Chinese oil company would be interested in Unocal; indeed, a bid sooner or later would have been inevitable.

Unocal has intriguing connections with Afghanistan and Iraq. It has been widely reported that Zalmay Khalilzad, former US ambassador to Afghanistan and now US Ambassador to Iraq, while working for Cambridge Energy Research Associates in the mid-1990s, conducted risk analyses for Unocal on its ill-fated project to build a US$2 billion natural gas pipeline from Turkmenistan to Pakistan through Afghanistan. Other notables involved in this effort included Robert Oakley (of Iran-Contra fame), Henry Kissinger and Richard Armitage. In December 1997, Unocal Texas hosted Taliban officials during a US tour (during the Taliban period, completion of the pipeline would have required their cooperation). Clearly, this is no fledgling family firm unable to reckon with international friction.

Unocal's board of directors is deeply involved with national security issues - indeed, the board may have more familiarity with policymaking and consulting circles than Congress itself. Donald B Rice serves as a fine example. Rice currently serves on the US Commission on National Security and the Defense Science Board. He was the Secretary of the US Air Force, Deputy Assistant Secretary of Defense, and the CEO of the Rand Corporation. Another board member, Marina Whitman, who also sits on the board of the Institute for International Economics, is certainly able to understand the implications of CNOOC's purchase. Ferrell McClean, board member and former managing director of JP Morgan Chase, and James W Crownover, former director of uber-consulting firm McKinsey & Co, are on board to help Unocal evaluate its options. Clearly Unocal is competent to consider the national defense and international economic ramifications of its dealmaking activity. Which leads one to ask, what is Congress doing? Given the risks of politicizing the Unocal merger, why do it?

It is reasonable to make the inference that rather than concerns over access to oil per se, the calls for scrutiny of CNOOC's bid clearly stem from fear of losing the strategic value of a well-connected and internationally active firm. Unocal's activities and influence in tumultuous areas of Asia and the Caspian make it a valuable asset. Are we thwarting the needs of enterprise, and essential trade relations, by preventing the free allocation of assets by market forces? If so, this would be a significant message to our trade partners and set a consequential precedent. In this case it appears that the conventional wisdom is anything but wise.

Tensions are escalating in this conflict between a newly regulation-minded Congress and China. The oft-implied need for Washington to assist Unocal is absurd. This is a savvy and capable firm with an expert board of directors and a better track record in its offshore activities than the Unites States Congress. Objections based on congressional concern for national security and the uniqueness of the deal are not only hyperbolic, they are economically dangerous.

A massive web of economic relationships now links the US and China and has become indispensable to both countries, whether they realize it or not. The US is China's second-largest trade partner, and China is America's third-largest trading partner and its fifth-largest and fastest-growing export destination, going by 2005 figures. China is liberalizing quickly, allowing foreign firms to play a major role in its growth. Andy Xie of Morgan Stanley Hong Kong estimates that foreign capital accounts for 20% of China's GDP, the highest proportion among large economies. China's economy, much smaller and more trade-dependent than the US, is the largest non-OECD recipient of foreign direct investment; over $54 billion was invested in China in 2004. According to 2004 OECD records, US firms did almost half of all OECD offshore investing - $252 billion of the $668 billion total.

China's import tariffs on US agriculture and manufactures have been halved, along with reduced restrictions on finance and services. After China's 2001 accession to the WTO, and pursuant to APEC and other agreements, restrictions on foreign ownership and protected sectors have been relaxed. More than 50% of China's exports are done by offshore firms. American Fortune 500 firms lead this process, and are significant beneficiaries of China's growth and openness. As this goes to press, more than 100 US national firms operate in China through tens of thousands of joint and subsidiary ventures.

Thus, there is real danger attached to the escalating tensions over CNOOC. It is the response to this bid that we should be concerned with, rather than the bid itself. The two countries are mutually dependent and deeply intertwined, and neither nation could extricate itself from the other without incurring catastrophic economic pain.

Max Fraad Wolff is a doctoral candidate in economics at the University of Massachusetts, Amherst. This article has been republished with permission from PrudentBear.com.

(Copyright 2005 Max Fraad Wolff)

http://www.atimes.com/atimes/China/GG15Ad01.html

China oil bid tests US free market rhetoric
Emad Mekay

WASHINGTON - An unsolicited bid by the Chinese National Offshore Oil Co (CNOOC) to buy Unocal, a US oil company, has put Washington's free market rhetoric to the test, with disappointing results, some analysts say.

The global economic rules set by the victors of World War II have generally encouraged investors, typically from rich nations, to bid for companies in other industrialized countries or in poor nations in the name of open market and economic growth. US acquisitions of assets abroad were a record US$855.5 billion in 2004, up from $328.4 billion in 2003. US-owned assets abroad totalled $9 trillion at the end of 2004, according to the US Bureau of Economic Analysis.

But the CNOOC uproar demonstrates what happens on the rare occasion when a company from the developing world bids for one in the North. Even though the Chinese company has appeared to play by the rules set by Wall Street, the US Congress quickly recoiled into a defensive posture, calling the bid a threat to national security and urging the Bush administration to quash CNOOC's bid.

"From a public policy point of view, the bid raises serious national security issues as energy is a national security asset under any reasonable definition," said Michael R Wessel, a commissioner with US-China Economic Security and Trade Commission, an advisory group to the US Congress on relations with China. "CNOOC is a state-controlled company. It is not a free-market enterprise," he argued. Wessel said there is a strong chance that at a time of spiraling energy demand and limited supplies, "a state-controlled entity" could purchase a company and then "restrict access to other nations and other consumers of that asset".

The Bush administration, which will have the final say on the security issue, has been silent on the issue thus far. But Congress has been less hesitant. Two weeks ago, dozens of members of Congress sent a letter to the Treasury Department requesting a review by its Committee on Foreign Investment of CNOOC's $18.5 billion bid to buy Unocal, which topped the $16.5 billion bid by US oil giant Chevron. The congressional group, spearheaded by representatives from Texas and Louisiana, major oil-producing states, had warned that China's "aggressive strategy" to increase its energy sources could hurt the US because CNOOC was 70% owned by the Chinese government.

China responded by warning the US Congress to stop "politicizing economic and trade issues." CNOOC's chairman, Fu Chengyu, pointed out that Unocal accounts for just 1% of the total US oil and gas production, an amount that could not possibly pose a threat to US national security. The Chinese company also pledged to sell oil produced by Unocal inside the United States. On July 14, news reports indicated that CNOOC planned to raise its bid by paying an additional $2.5 billion into an escrow account, to further address the concerns of the Unocal board that any deal could be delayed or blocked on national security grounds.

None of this has appeased the critics of the deal. "China has entered into special arrangements with Sudan, with Iran and with other nations where it wants to own oil and other energy assets at the wellhead," said Wessel. "It is not looking long term to compete in the free market for energy assets like the US and other nations. So that raises serious concerns even if one did not have a concern about the 1.75 billion barrels of oil and gas equivalent energy that Unocal has. This is a seminal transaction that sets a precedent for future debates."

But Todd Malan, executive director of the Organization for International Investment (OFII), which represents foreign investments in the United States, said a move by Congress to block the deal outright would send a message that US rhetoric about open investment rules "is a one-way street".

This policy of openness has came to be known as the Washington Consensus, which forms the basis of the ideology governing most of the world economy and its patrons from international institutions, like the World Bank and the International Monetary Fund (IMF). But even the World Bank, viewed by some as an instrument of US foreign policy, has gently said it was natural for China to seek to acquire foreign assets, including in the United States. "China has reached a stage of development in which it makes sense for some of its companies to go global and invest worldwide," said David Dollar, the World Bank's country director in China. "As a US citizen, I think it is a good thing that Chinese companies are investing in the US, just as US companies have done in China for decades now."

Dollar said that aside from the economic benefits, such cross-investment means that each country has a greater interest in seeing the other's economy do well, encouraging governments to work together to maintain an open trading system and to coordinate their macroeconomic policies. "Integration between China and the US requires some painful adjustment on each side, but this integration is in the long-term economic and political interests of each country," he said.

Some US analysts, while acknowledging the right to protect national security, say CNOOC has made it difficult for Washington to argue that the bid poses any real threat. CNOOC, for example, has reportedly promised to divest Unocal assets or technologies, like seismic technology, deemed central to US national security. This may include facilities that Unocal owns and which are part of the US strategic oil reserves.

"To sort of wave your hand and say the Chinese represent a threat to the US and therefore we cannot sell anything that might be scarce in the world that they could use to strengthen themselves is hard to even imagine as justifiable by economics or by the logic of national security strategy," said Albert Keidel, a China expert with the Washington-based Carnegie Endowment for International Peace. "Certainly, purchase according to price has to be one of those rules that are pretty universal."

But US public opposition to the bid appear to be mounting in recent days. According to a Wall Street Journal/NBC News poll, the CNOOC bid is opposed by 73% of participants and supported by only 16%, with 11% unsure. Analysts say this will tend to strengthen the hand of Chevron in the competition for Unocal, and the company has not bothered to compete dollar-for-dollar with CNOOC. Chevron spokesman Donald Campbell said in a July 12 interview: "We have no plan to change our bid. We have the only [approved] merger agreement with Unocal.''

(Inter Press Service)

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http://www.csmonitor.com/2005/0715/p07s01-woap.html?s=hns

Beijing Downplays General's Nuke Comment Newsday
China tried to quell an uproar Saturday over a general's comment that Beijing might use nuclear weapons against the United States in a conflict over Taiwan, saying the statement was his personal opinion.
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http://www.abc.net.au/news/newsitems/200507/s1418134.htm

China not capable of Taiwan attack: US report

China's rapidly modernising military could pose a long-term threat to other regional armed forces but its ability to project conventional power beyond its borders remains limited, the Pentagon said.

In its long-awaited annual report, the Pentagon said Beijing's military build-up has already begun to put the regional balance at risk.

It also concluded that China does not now possess the military capability to attack Taiwan.

It described China as being at a strategic crossroads that could lead down three paths but "not yet set immutably on one course or another".

One path is peaceful integration and benign competition in the world or China would exert dominant influence in an expanding sphere.

A third path sees China as a less confident, inward-looking state focused on challenges to national unity and the Chinese Communist Party's claim to legitimacy.

"Questions remain about the basic choices China's leaders will make as China's power and influence grow, particularly its military power," the report said.

The Pentagon has been raising alarms over China's military modernisation for several years.

The annual report, always controversial, is the focus of even more attention this year because of increasingly vocal concerns in Washington over China's trade, currency and proliferation trends, as well as the military build-up.

It went through considerable vetting by US agencies besides the Pentagon and included the personal involvement of Defence Secretary Donald Rumsfeld, who in the past often left the task to his deputy, a former administration official said.

"As I see it, China is on a path where they are determined to increase their economy, the opportunities for their people and to enter the world community," Mr Rumsfeld told a news briefing before the report was released.

"They want the (2008) Olympics to go well. They are doing a number of things to leave the world with the impression that they are a good place for investment and a good economic partner."

While US-China ties have improved since 2001 - when a US surveillance plane collided with a Chinese fighter jet off the Chinese coast - the military build-up underscores why Washington opposes European Union military sales to Beijing, he said.

Asked if he saw "gathering clouds" and a threat similar to what Europe faced from Germany in the 1930s, Rumsfeld replied: "I guess the short answer is no."

-Reuters

http://www.washingtonpost.com/wp-dyn/conte...1900946_pf.html

Chinese Buildup Seen as Threat to Region

By Ann Scott Tyson
Washington Post Staff Writer
Wednesday, July 20, 2005; A16

China's military buildup is broadening the reach of its forces in Asia and poses a long-term threat not only to Taiwan but to the U.S. military in the Pacific and to regional powers such as India and Japan, according to an assessment released yesterday by the Pentagon.

The Beijing government is also improving and expanding its nuclear arsenal, fielding more advanced nuclear missiles capable of striking India, Russia and "virtually all of the United States," said the annual China military power report, based on U.S. intelligence and mandated by Congress. The report, however, said China's ability to project its conventional military power remains limited.

China's defense spending could grow to $90 billion in 2005 -- three times the Chinese government's official figure -- making the country's military budget the world's third-largest, after the United States and Russia, and the biggest in Asia.

The report comes as the Pentagon focuses on China's steady military modernization as a driving force in long-range U.S. defense strategy and overseas basing, American military officials and analysts say. It generated intense debate within the Bush administration, with the State Department pushing for a benign depiction of China's intentions, while the Pentagon sought to emphasize a potentially insidious threat, defense officials said.

The report suggests a renewed wariness of China on the part of the Bush administration, which has collaborated with Beijing on the effort to curb North Korea's nuclear programs and in the fight against terrorism since the Sept. 11, 2001, attacks. Yesterday's report reflected the fact that over the last several years, China's massive investment in defense has become far more stark and deliberate.

"Without a doubt, the direction Chinese military modernization has taken in recent years absolutely represents a growing threat to the U.S.," said Evan Medeiros, an expert on China's military at the Rand Corp. Still, several analysts agreed that U.S. military dominance in the region is secure for at least another decade.

The Pentagon's 45-page report is factual in tone, avoiding inflammatory rhetoric that would paint China as an inevitable foe. But it stresses that Beijing's future course is highly uncertain, and contains detailed charts documenting significant increases in weaponry and military investment.

Many of the advances reflect China's long-standing priority on building a force capable of preventing Taiwan from achieving formal independence from the mainland..

Last year, China expanded the number of mobile, CSS-6 and CSS-7 short-range ballistic missiles deployed on the coast opposite Taiwan from 500 to between 650 and 730. The increase signifies a faster buildup, now at a rate of about 100 missiles per year, while the range and accuracy of the missiles is also improving, the report said.

China now has more than 700 aircraft that can fly to Taiwan without refueling, including new advanced Russian Su-30 and Su- 27 fighter jets and a newly completed indigenous fighter, the F-10, which will be fielded for the first time this year.

In contrast to previous reports, this year's places a heavier emphasis on the threat posed by the modernization of the People's Liberation Army to other regional powers beyond Taiwan and to U.S. forces in Asia, as well as to the continental United States.

"Over the long term, if current trends persist, PLA capabilities could pose a credible threat to other modern militaries operating in the region," the report said.

Indeed, the report quotes a Chinese general as suggesting that China's focus on Taiwan is an obstacle to the projection of China's military power elsewhere. The Taiwan issue is of "far-reaching significance to breaking international forces' blockade against China's maritime security . . . only when we break this blockade shall we be able to talk about China's rise," Gen. Wen Zongren, political commissar of the PLA Academy of Military Science, said in an interview quoted in the report. "To rise suddenly, China must pass through oceans and go out of the oceans in its future development."

The report cited expanded Chinese naval operations such as the "intrusion" last year of a Han-class nuclear submarine in Japanese territorial waters, and new abilities of Chinese fighters to range farther into the South China Sea.

China last year deployed its first two Russian-made guided missile destroyers and is buying eight additional Kilo-class diesel electric submarines from Russia, giving it 12 of the stealthy vessels. The Kilo submarines will be equipped with long-range anti-ship missile systems that could be used to attack U.S. naval forces from 100 miles away or more, according to Roger Cliff, a military analyst at Rand Corp.

The Chinese navy's advances are coupled with development of new ground-to-ground and ground-to-air missiles to constitute a Chinese "anti-access" strategy aimed at countering the U.S. ability to operate near its borders, the report says. China's new S-300PMU2, a surface-to-air missile with a 100-mile range, would allow it "to engage aircraft over Taiwan," the report said, including U.S. aircraft aiding Taiwan in a confrontation with China.

China is also "qualitatively and quantitatively" improving its nuclear missile force, which is now capable of targeting most of the world, including all of the continental United States, the report said.

Of greatest concern, say U.S. military analysts, are the new, mobile DF-31 and DF-31A intercontinental ballistic missiles, which are expected to become operational as early as 2005 and 2007, respectively. Because they are mobile, the missiles are not as vulnerable to destruction by a first strike. "It's starting to give them a second strike capability against the U.S.," Cliff said.

Details on China's nuclear advances come against the backdrop of last week's warning by Chinese Maj. Gen. Zhu Chenghu that China would respond with nuclear weapons to a U.S. attack on Chinese territory. U.S. analysts who know Zhu say they believe that his views, which he stressed were just his personal opinions, were expressed with at least tacit approval from China's leaders.

"They think it's good to have a mad dog in your closet who might scare your potential adversaries," said retired Adm. Dennis Blair, former commander of the U.S. Pacific Command, who heard Zhu make similar comments earlier this year. "It always helps your leverage if your adversaries think you might do something stupid."

© 2005 The Washington Post Company

http://english.aljazeera.net/NR/exeres/2FC...A467AEF1991.htm

Rumsfeld: Russia helping to arm China

Wednesday 20 July 2005, 1:26 Makka Time, 22:26 GMT

The US is wary of China's military ties with Russia

China is gaining important new military capabilities from Russia and other countries, US Defence Secretary Donald Rumsfeld has said, arguing that a European arms embargo against the Chinese should be kept in place.


Some members of the European Union, including France, have sought an end to the embargo, which was imposed after the Chinese military crushed student protests in Tiananmen Square in 1989.

A new US assessment of China's military power "clearly points up the reason that the president and the United States government have been urging the EU to not lift the arms embargo on the People's Republic of China", Rumsfeld told reporters.

At the White House, President George Bush said at a joint news conference with Australian Prime Minister John Howard that the United States has a relationship with China that is "very important and very vibrant. It's a good relationship, but it's a complex relationship".

Universal values

Bush said the United States and Australia "can work together to reinforce the need for China to accept certain values as universal: the value of minority rights, the value of freedom for people to speak, the value of freedom of religion - the same values we share".

"To the extent the political system does not (open up), it will inhibit the growth of their economy and ultimately the growth of their military capabilities"

Donald Rumsfeld,
US Defence secretary

Also, the president said, Australia can press on China the need to be an active regional player, for instance by exerting its influence on North Korea to end its drive to become a nuclear power.

New report

The new assessment of China's military, the latest in an annual series required by US Congress, will be made public late on Tuesday, Rumsfeld said. He called it a straightforward account prepared by the Pentagon in close coordination with the CIA, the State Department and the White House's National Security Council.

"As I see it, China is on a path where they are determined to increase their economy, the opportunities for their people, and to enter the world community," Rumsfeld said, adding that the Chinese have been doing "a number of things to leave the world with the impression that they are a good place for investment".

At the same time China has rapidly increased spending on defence. Its annual military budget, estimated last year by the Pentagon at between $50 billion and $70 billion, is dwarfed by the Pentagon's $400 billion-plus budget.

China needs to be more open, politically as well as economically, Rumsfeld said, in order to be seen internationally as a more welcome partner.

Criticising China


Chinese missiles can "reach targets
in many areas of the world"

"To the extent the political system does not (open up), it will inhibit the growth of their economy and ultimately the growth of their military capabilities," Rumsfeld said.

Rumsfeld had previewed major conclusions of the report on China's military power when he spoke at an international conference in Singapore on 4 June.

He said then that it would conclude that China's defence spending is much higher than Chinese officials have reported publicly and that China is expanding its missile forces, "allowing it to reach targets in many areas of the world".

Taiwan issue

China is one of the few major countries that Rumsfeld has not visited during his 4 1/2 years as Bush's defence chief.

The potential for military confrontation is periodically highlighted by tensions over Taiwan, the island that split from the mainland in 1949 after the communist revolution.

China claims Taiwan as part of its territory and has threatened to invade if the self-governing island declares formal independence or puts off talks on unification.


Agencies

US Reports China at 'Strategic Crossroads' as Military Capability
Grows

http://enews.voanews.com/t?ctl=E4471E:2F72C9D

Annual report on China's military, required by Congress, was delayed
for several weeks as officials from several US government departments
worked to consolidate their views A report issued Tuesday by the
office U.S. Defense Secretary Donald Rumsfeld says China is at a
"strategic crossroads" as it works intensively to increase and
modernize its military capabilities. The annual report on China's
military, required by congress, was delayed for several weeks as
officials from several U.S. government departments worked to
consolidate their views in the document.

The report portrays an active, multi-faceted and secretive Chinese
military modernization program, encompassing new and improved air,
sea, missile and outer space systems, as well as restructured ground
forces that are more mobile, more lethal and more technologically
advanced. The report says China has drawn on lessons from the U.S. and
allied military campaigns in Iraq and the NATO mission in Serbia both
to improve its own plans, and to detect weaknesses in potential
adversaries.

It says China's military modernization includes efforts to make rapid
leaps in some of the most modern systems under development in other
countries, such as improved military satellites, anti-satellite
weapons and the capability to disable an adversary's computer networks
and communications systems.

The result, according to the report, is a change in the Asian military
balance and the potential for challenging U.S. and other modern
foreign forces operating in the region. But the report says China's
ability to project military power beyond Asia remains limited.

The Defense Department report says the main focus of China's military
planning continues to be Taiwan - which it says leaders in Beijing are
determined to prevent from acquiring independence. That includes plans
for quick, limited strikes on the island by missiles and aircraft in
order to remove leaders or convince them to change their plans before
any U.S. or other foreign force could intervene, as well as efforts to
prevent foreign forces from getting to or operating in the air and sea
lanes close to the Taiwan Straits. The report indicates that approach
appears to be taking precedence over any large-scale invasion of the
island, even though China is becoming more capable of doing that.

The report says China deploys its most advanced new military systems
to the coastal region directly across from Taiwan, including more and
better short and medium range missiles, but that most of China's
military hardware remains somewhat less capable. Still, some of the
more modern systems are mobile, including the medium-range missiles,
which the report says can now reach from Indonesia in the south to
Russia's Kamchatka Peninsula in the northeast and nearly to Moscow in
the northwest. That area includes a large percentage of deployed U.S.
Pacific forces.

U.S. Defense Secretary Donald Rumsfeld declined Tuesday to
characterize any potential threat from China, and instead referred
reporters to the report itself.

"It's a very accurate characterization of behavior, the behavior and
the collective decisions that are being made in that country with
respect to military investment and acquisitions," he says.

The report says China is working to improve its military largely by
acquiring hardware and technology from abroad. It lists Russia as
China's main foreign military supplier, but also says Israel has
provided some key technology, and that European countries and even the
United States have sold some important military equipment to China.
Secretary Rumsfeld says the report provides further evidence to
support U.S. opposition to the European Union's desire to lift its
arms embargo against China.

"It clearly points up the reason that the president and the United
States government have been urging the E.U. to not lift the arms
embargo on the People's Republic of China," Mr. Rumsfeld indicates.

Specifically, the report says lifting the EU arms embargo would help
China improve its weapons systems and its ability to produce its own
modern military equipment, would encourage Russia to sell more
advanced military equipment to China and would give China easier
access to Europe's modern military training methods, logistics
expertise and management practices. The report says Europe's proposed
new system of controls on military exports to China is "inadequate"
and lifting the embargo would have "serious and numerous"
consequences.

The report also expresses the concern that China's increased military
capability could make Chinese leaders more likely to use force against
Taiwan or elsewhere - a situation the report says could result in
dangerous miscalculations that "could lead to a full-fledged
conflict." But at the same time, the report says China's military is
becoming more capable of using force in limited and relatively precise
ways.

The Defense Department report also expresses concern that for all the
United States knows about China's military development, there is much
it does not know. It says U.S. analysts knew nothing of several new
Chinese weapons systems until they were officially unveiled. The
report says the United States does not even have a firm figure for
China's fast-growing defense budget, which it estimates could be as
much as $90 billion, three times the figure China has officially
announced for this year. Even that official figure of about $30
billion is double the official figure for the year 2000. If the U.S.
estimate is right, China would have the world's third largest defense
budget, after the United States and Russia. And the report says
China's strong economic growth and desire to further modernize its
military are being coordinated and are fueling each other.

The U.S. Defense Department's report also warns Taiwan that it must
develop countermeasures to avoid being "quickly overwhelmed" by
China's growing capabilities. It says Taiwan's defense spending has
declined steadily in real terms during the last ten years, and that
although Taiwan, with U.S. support, tries to maintain advantages in
selected key military areas, the growth of China's capabilities is
"outpacing" that effor

http://www.iht.com/articles/2005/07/20/news/china.php

China dismisses Pentagon report

http://news.bbc.co.uk/2/hi/asia-pacific/4700039.stm

Analysis: Pentagon report on China
Jonathan Marcus

http://news.xinhuanet.com/english/2005-07/...ent_3245714.htm

Pentagon report reflects "cold war mentality"

http://www.forbes.com/home/feeds/afx/2005/...afx2148379.html

US does not see China as threat militarily but watching situation - White House

http://www.theage.com.au/news/world/pentag...l?oneclick=true

Pentagon warns of Beijing power bid
Mark Mazzetti

http://www.thestandard.com.hk/stdn/std/China/GG21Ad04.html

China: Buildup includes missiles, warships

China Blasts Pentagon Report Saying It Is Military Threat

By Philip P. Pan

BEIJING, July 20 -- The Chinese government on Wednesday rejected a new Pentagon report that describes its military modernization program as a potential threat to U.S. forces and other regional powers, saying the assessment "ignores the facts" and "rudely interferes in China's internal affairs."

To view the entire article, go to http://www.washingtonpost.com/wp-dyn/conte...er=emailarticle

China Blasts Pentagon Report Saying It Is Military Threat Washington Post
The Chinese government on Wednesday rejected a new Pentagon report that describes its military modernization program as a potential threat to US forces and other regional powers, saying the assessment "ignores the facts" and "rudely interferes in China's internal affairs." In a sharply worded statement, a senior Foreign Ministry official, Yang Jiechi, defended China's "normal national defense building and military deployments" and accused the Defense Department of "scheming to use this as an excuse to sell advanced weapons to Taiwan," the self-governing island Beijing claims is part of Chinese territory and threatens to seize by force. "What authority does the United States have to gesticulate and make improper comments about China's defensive national defense policy and measures?" Yang asked, arguing that the U.S. military budget is nearly 18 times the size of China's. "China expresses strong dissatisfaction and firm opposition," he added. The statement came in response to the Pentagon's annual report on Chinese military power, which was released Tuesday after weeks of intense debate within the Bush administration on how to depict Beijing's intentions. The final, 45-page report avoids rhetoric casting China as an inevitable foe, but argues that its military build-up is broadening the reach of Chinese forces and poses a potential threat to Taiwan, to neighbors such as Japan and India and to the U.S. military in the Pacific. The report says China is improving and expanding its nuclear arsenal, fielding more advanced missiles capable of striking "virtually all of the United States," and predicts that total Chinese defense spending could grow to $90 billion this year, making the country's military budget the world's third-largest, after the United States and Russia. But the report also says China's ability to project its conventional military power remains limited. Yang, a vice foreign minister and former Chinese ambassador to Washington, said the report made "unwarranted charges" and defended the rapid rise in Chinese military outlays as a natural outcome of the country's economic growth. He said most of the new spending has been devoted to improving the living conditions of troops, adding that the military has also "updated some weapons equipment" to guarantee Chinese security in a complex international environment. "That is a right that China, as a sovereign state, should have, and other countries have no right to interfere," he said. The exchange of words comes at a sensitive moment in U.S.-China relations, days before Beijing is scheduled to host a new round of talks aimed at persuading North Korea to abandon its nuclear weapons program and months before Chinese President Hu Jintao is scheduled to visit the United States amid intensifying complaints in Congress about his government's trade practices.
China refutes US report on Chinese military power Xinhua
Chinese military looking beyond Taiwan, Pentagon says San Francisco Chronicle
Guardian Unlimited - Sify - Sydney Morning Herald (subscription) - Bloomberg - all 210 related »

China revalues yuan by 2.1 percent Reuters
By Alan Wheatley. BEIJING (Reuters) - China bowed to months of market and political pressure on Thursday by revaluing the yuan by 2.1 percent and abandoning the currency's decade-old peg against the dollar.
China drops dollar peg MarketWatch
China severs its currency's link to dollar BusinessWeek
National Post - Bloomberg - Forbes - CNN - all 143 related »

China Severs Its Currency's Link to Dollar

By Peter S. Goodman

SHANGHAI, July 21 -- China on Thursday said it would allow the value of its currency, the yuan, to increase slightly on foreign exchange markets, while also abandoning its decade-old fixed exchange rate to the U.S. dollar in favor of a rate pegged to a broader basket of world currencies.

To view the entire article, go to http://www.washingtonpost.com/wp-dyn/conte...er=emailarticle

http://www.atimes.com/atimes/China/GG21Ad03.html

Rocky waters for China's US Acquisitions
David Lenard

HUA HIN, Thailand - China's much-ballyhooed attempts to purchase overseas companies ran into trouble on two major fronts Wednesday.

First, the attempt by the Chinese oil company CNOOC to purchase California-based Unocal appeared to be faltering, as an 11th-hour counterbid by rival Chevron was accepted by Unocal's board on the grounds that the CNOOC bid was "too risky". A few hours earlier, William Blair & Co, which had been the largest single private investor in CNOOC, announced that it had sold all its CNOOC shares in recent weeks due to concerns that the company would overpay for Unocal.

Second, at almost exactly the same time, Qingdao-based electronics manufacturer Haier announced that it would drop its prior bid to purchase Maytag, the US maker of major appliances. Taken together, these two incidents showed that the attempted purchases of US companies by Chinese firms were facing unexpectedly strong opposition, both political and financial.

One-two punch leaves CNOOC bid on the mat
Until just a few hours ago, CNOOC appeared to be in strong contention for Unocal. Last Thursday, the Unocal board had instructed its management to continue negotiating with CNOOC, and expressed its willingness to continue negotiating with the Chinese firm if several conditions were met; these included financial guarantees to Unocal if CNOOC withdrew its bid, or the bid was blocked by the US government. Early this week, media reports indicated that CNOOC had responded to these concerns by setting aside US$2.5 billion in a US escrow account that would be available to Unocal shareholders if CNOOC walked away from the deal. CNOOC further pledged an additional $500 million "break-up fee" to be paid to rival Chevron if its bid was accepted; this was a necessary step because the Unocal board had already provisionally accepted the earlier Chevron bid.

Despite widespread rumors that CNOOC planned to raise its bid from $67 per Unocal share to $69, this step never took place. According to a CNBC report on July 19, CNOOC demanded that, in exchange for raising the share offer to $69, the Unocal board change its current recommendation to shareholders to accept the Chevron bid, and instead actively support the CNOOC offer. But, in what have been the final nail in the coffin for CNOOC's attempted takeover, the Unocal board could not accede to this request because company lawyers felt it conflicted with provisions in Unocal's merger agreement with Chevron that prohibited the company from taking any steps to support CNOOC, even if board members considered CNOOC's offer to be superior.

Meanwhile, Chevron's bid had actually declined in value to approximately $60 a share, because it consisted mostly of Chevron shares rather than cash, and Chevron shares had been declining in recent days due to investor fears that the company would be, in effect, caught in a bidding war with the Chinese government, the major stakeholder in CNOOC. Partly because of this, Chevron, which had been strenuously denying for weeks that it planned to raise its bid, did so late Tuesday night, sweetening the offer to about $63 per Unocal share. Although this brought the Chevron offer up to about $17 billion, which was still considerably below the final CNOOC offer of $18.5 billion, the added inducement was apparently enough to sway the Unocal board, which finally voted to accept Chevron's improved offer, avoiding the political and legal obstacles inherent to the CNOOC bid.

As of July 20, the fate of Unocal had still not been completely resolved. The ultimate decision will be taken at a Unocal shareholders' meeting scheduled for August 10, and it is still possible for CNOOC to raise its bid further in order to convince Unocal's shareholders to choose its bid over Chevron's. But many analysts considered this unlikely. DBS Vickers Hong Kong Ltd analyst Gideon Lo noted in an interview with Bloomberg that "Chevron's offer is probably high enough to force CNOOC to give up its bid...CNOOC has to offer at least 5-10% more, or Unocal will probably prefer'' Chevron. "The political situation in the US favors Chevron's bid," added Lo. "If CNOOC continues [to pursue Unocal], the market may react negatively. CNOOC is already offering too much.''

Shareholders flee at 'resource acquisition' strategy
A significant development on Wednesday both confirmed Lo's speculation and constituted another blow to the CNOOC bid. David Merjan, a portfolio manager at Chicago-based William Blair & Co, announced that the company had sold off its $160 million worth of Unocal shares. Blair was CNOOC's top non-government shareholder as of March 31, when it held slightly more than 0.5% of CNOOC shares. Many foreign investors had considered CNOOC a good investment because the company, led by USC-educated Fu Chengyu, was well known in Chinese business circles for being significantly better managed and more shareholder-return-oriented than the typical Chinese state company.

But according to Merjan, the Unocal takeover suggested a change in strategic direction for CNOOC that worked against shareholder interests. "They thought they would be able to continue down the path of organic growth and that acquisitions wouldn't be necessary...[the Unocal bid] showed a change of course," Merjan told the Washington Post. The William Blair manager also shared the perception, increasingly common in the US, that CNOOC was in effect acting as an arm of the Chinese government to acquire energy assets: "We were extremely uncomfortable when the Chinese government took a more active role in CNOOC...we look at this as securing assets as opposed to doing what's in the best interest of shareholders.'' It has been hard to argue against this perception given that CNOOC is, in fact, 70% owned by the state-controlled China National Offshore Oil Corporation, and according to the company's own website, all four of its executive directors are Communist Party members.

Still, CNOOC officials have maintained that their motivation is solely commercial. CNOOC chairman Fu Chengyu even personally contributed to the debate over the CNOOC bid, in a remarkable editorial published in, among other publications, the Asian Wall Street Journal and China Daily. Fu stressed the "friendly" nature of the offer, repeated CNOOC's public commitments to continue to sell US oil assets in the United States, and emphasized his company's focus on shareholder value: "We believe this merger will offer our shareholders, which include many leading US institutional investors, tremendous growth opportunities...Our company has grown shareholder value from a market cap of $6 billion when it listed [on the stock market] four years ago, to $25 billion today. I will continue to focus on bringing value to CNOOC shareholders and am convinced that the acquisition of Unocal can help us. I will also be focused on providing our better offer for Unocal shareholders, bringing oil and jobs to the US, and on our assurances that we will be an open and responsible participant in the process."

Some experts acknowledged that CNOOC has a better-than-average corporate governance reputation for a mainland Chinese firm. Stella Leung, a Shanghai-based partner with Los Angeles-based law firm O'Melveny & Myers LLP, said that "compared with other Chinese oil companies, CNOOC is probably better-run and more progressive". But such talk made little impression on ex-investors like Merjan, who noted that to acquire Unocal, CNOOC probably would have to increase its bid beyond what he already considered an inflated price.

Three's a crowd for Haier
Just as the Unocal takeover saga appeared to be nearing its climax, another attempted takeover of a US company by a Chinese firm fell through. On June 21, Haier, a major mainland electrical appliances manufacturer based in Qingdao in northeast China, announced a $16 per share bid for Newton, Iowa-based Maytag. The Chinese offer, which was organized in cooperation with financiers Bain Capital LLC and Blackstone Group LP, topped an earlier bid of $14 a share by buyout firm Ripplewood, which, backed by GS Capital Partners of Goldman Sachs Group and the J Rothschild Group, had been trying to acquire Maytag since at least December 2004.

In contrast to the Unocal offer, the Maytag buyout aroused little controversy (or indeed, interest) in the US, and prospects for the deal appeared good. But on July 17, Whirlpool, a Maytag competitor based in Benton Harbor, Michigan, unexpectedly upped Haier's offer with a $17 per share, $1.37 billion bid. Although Whirlpool's purchase of Maytag would raise antitrust issues in the US, given that the combined market share of the two companies for many categories of major appliances would approach 50%, Whirlpool officials have expressed confidence that their offer would not be disallowed on antitrust grounds. As for Maytag, on July 18, Maytag officials said that directors will consider the new bid from Whirlpool, but added that directors have not changed their recommendation that shareholders approve the proposal from Triton, an entity organized by the New York investment company Ripplewood Holdings LLC.

The sudden appearance of yet another Maytag suitor appears to have driven off Haier. Late on July 19, Maytag said in a statement that Haier America, a Haier Group Ltd subsidiary, had informed Maytag that the company and its partners would no longer pursue their bid. The specific reasons for Haier's action are not known, since Maytag did not release the letter from Haier, and Maytag spokesman John Daggett declined further comment. Haier officials contacted at the company's headquarters in Qingdao also refused to elaborate. However, the most logical explanation is that Haier simply concluded it did not make business sense to attempt to outbid Whirlpool, which is a much larger company than Maytag. In addition, Haier already owns US factories (for example, one in Camden, South Carolina), and its brand name has a reasonable reputation in the US market, particularly in the small refrigerator sector, so its need to acquire Maytag's manufacturing facilities and brand name is less than compelling.

Conclusion
The sudden spate of acquisition attempts by Chinese firms in the last year has several causes. Chinese companies are, consistent with China's rapid growth, becoming larger and more sophisticated, and to some extent the acquisitions are a natural outgrowth of this. Another cause is the very weak reputation of Chinese brands. Acquiring an overseas brand name is a short cut to respectability that can potentially allow Chinese firms to avoid the very expensive, decades-long brand-building effort that other respected Asian companies like Sony and Samsung have had to go through.

However, there are short-term causes as well. China has accumulated a huge amount of foreign exchange reserves, particularly US dollars, and if the Chinese government plans to revalue the yuan upward, it has an enormous incentive to spend those US dollars on something before they decline in relative value as a result of a revaluation. Regardless of whether a particular Chinese company is state-owned or not, because of the absolute primacy given to economic development by the Chinese government, there is no question that the major companies in the country operate in a close enough association with the government to make the term "corporate state" difficult to avoid. So, one interesting interpretation of the acquisitions would be that the Chinese state is simply attempting to boost its position in industrial assets while at the same time reducing its position in US dollars. If the much-anticipated revaluation proceeds, the former would retain their value while the latter would decline, making the acquisitions appear to be simply a sound asset-shifting move, one any astute investor would make under the circumstances.

To be sure, most of the nativist reaction in the US that has clouded the CNOOC bid is simply absurd. Regardless of whether one believes CNOOC's pledges to continue to sell US-derived oil in the US, it would be economically ridiculous for the company to do otherwise. Why ship oil products all the way across the Pacific when they can be sold just a few miles away for the same price? Having said that, the Chinese government has no one but itself to blame for much of the backlash against CNOOC. Non-Chinese know perfectly well that Chinese firms are ultimately subservient to the unelected regime in Beijing, and the efforts of Chinese companies to expand through overseas acquisitions will always remain vulnerable to "China threat" scare-mongering until the Chinese government decides to stop delaying serious political reform. Sadly for CNOOC and other would-be Chinese acquirers, president Hu Jintao has thus far shown himself to be as timid in this regard as his predecessor Jiang Zemin. But clearing the way for China's own globalizing enterprises is but one of the many ways that political reform could boost China's economy.

David M Lenard is a correspondent for Asia Times Online in Thailand.

(Copyright 2005 Asia Times Online Ltd. All rights reserved. Please contact us for information on sales, syndication and republishing.)

http://www.atimes.com/atimes/China/GG21Ad02.html

China According to the Pentagon
Ehsan Ahrari


The Pentagon's latest judgment on China's military preparedness is that "China is facing a strategic crossroads." In a July 19 report, the US Department of Defense (DoD) stated that, China is "focused on preventing Taiwan independence or trying to compel Taiwan to negotiate a settlement on Beijing's terms". It is attempting to counter potential US intervention in cross-Strait crises by building up "an expanding force of ballistic missiles, cruise missiles, submarines, advanced aircraft, and other modern systems".

Given that the report is vetted by the inter-agency process, it is rather dull reading compared to Secretary of Defense Donald Rumsfeld's June 5 statement in Singapore. He then accused China of enhancing its ability to project power at a time when it faced no threat.

It is taken for granted by now that the Bush administration is watching China's military modernization with interest. There is no alarmist element in the DoD report. America's military preponderance is unchallenged. But as a rising power, China is keenly interested in narrowing the power gap between the two militaries.

A very important aspect of this report is its discussion of "direct insight into China's strategy". Though Chinese culture is rather alien to the United States, a considerable amount of time has been spent by America's military institutions in studying ancient Chinese military philosopher Sun Tzu's perspectives on winning a war, about the use of deception in peacetime as well as during war, the necessity of conducting a successful information battle, and above all the art of strategic thinking among China's military leaders, from Sun Tzu to Mao Zedong and Deng Xiaoping.

In fact, compared to these last two leaders, the current leadership of China has not impressed the American side by its original thinking in the art of war. Still, as evidenced in this report, the Pentagon is fully focused on studying China's strategy. The report states, "... Chinese strategy, as they define it, is one of maintaining balance among competing priorities for national economic development and maintaining the type of security environment within which such development can occur".

The report notes that Chinese leaders, from Deng on, have described their national development strategy as a quest to increase "comprehensive national power".

"In peacetime, we can expect China to pursue economic progress as part of its strategy to build comprehensive national power. It has established a goal of doubling by 2010 the size of its economy in 2000 and raising GDP per capita ($1,250 in 2004) to the levels of an 'intermediate development country' (roughly $3,400) by 2049."

The report adds, "Chinese leaders value such progress for its own sake, as well as for the enhancements to military forces and national power this progress will allow." On this issue, the Pentagon goes to the heart of the current economic competition between the US and China and the vital linkage of this competition to its military preparedness. No country knows this linkage better than the United States, which has mastered it in order to remain at the top of the hierarchy of nations.

All rising powers use their economic revenues to build their military muscle. Britain and the Netherlands did that in the 18th century and emerged as major maritime powers. That in turn enabled them to acquire colonies in far-off lands. More recently, the United States built its military power by enhancing its economic power, especially in the period between the two world wars, and eventually emerged as the most durable superpower.

The secret of America's durability is in its constant attention to ensuring that its economy remains highly vibrant. The vibrancy of America's economic sector depends on the sustained ability of its productive sectors to remain at the cutting edge of technological development. That reality is ensured, inter alia, by constantly spending large amounts of money on research and development.

According to a recent report of the American Association for the Advancement of Science, "The (fiscal year) 2005 budget calls for a $5.45 billion increase in (research and development) funding over funds for 2004. But while the size of the total R&D pie will remain steady (when adjusted for inflation), a shift in priorities after 9/11 means that 'Them that's got shall get/Them that's not shall lose.'''

It added, "Under the Bush proposal, defense R&D, which already accounted for more than 55 percent of the federal appropriations for research, would have an additional $4 billion - more than three-quarters of the total funding increase - added to its R&D budget. The Pentagon, whose research budget would then total $69.9 billion, would use the increase exclusively for weapons development."

In the strategic thinking of Chinese leaders regarding military modernization, the resolution of Taiwan figures prominently. The DoD report states, "Some Chinese military analysts have expressed the view that control of Taiwan would enable the PLA [People's Liberation Army] navy to move its maritime defensive perimeter further eastward and improve Beijing's ability to influence regional sea lines of communication. Conversely, some of these analysts believe, the political status quo with Taiwan constrains China's ability to project power."

Still, China as a rising economic power has much to lose if it attempts a military resolution of the Taiwan conflict. The DoD report acknowledges that. It states, "China is deterred from taking military action against Taiwan on two levels. It does not yet possess the military capability to accomplish with confidence its political objectives on the island, particularly when confronted with outside intervention. Beijing is also deterred by the potential repercussions of any use of force against Taiwan."

In other words, "China's leaders recognize that a war could severely retard economic development." At the same time, China "must calculate the probability of US intervention in any conflict in the Taiwan Strait. It views the United States as having advantages over China in many scenarios involving the use of military force".

These annual reports issued by the Pentagon are important in the sense that they provide insight into the thinking of America's top military leaders. No one should conclude from them that China and the US are on a path to confrontation.

There is no doubt that, despite its inordinate preoccupation in conducting a global war on terrorism, the Bush administration has never lost sight of a rising China and its long-term implications for America's own dominance, not just in the Asia Pacific, but also around the world.

As America spans the globe, China is the only country that has the potential to become a challenger, or even an adversary, if for no other reason than the simple fact that it also wishes to be a dominant actor. As long as both sides pursue a general strategy of accommodation whenever feasible, and continue to keep the competitive aspects of their mutual ties at a manageable level, the world is likely to remain a safe place.

Ehsan Ahrari is an independent strategic analyst based in Alexandria, VA, US. His columns appear regularly in Asia Times Online. He is also a regular contributor to the Global Beat Syndicate. His website: www.ehsanahrari.com.

(Copyright 2005 Asia Times Online Ltd. All rights reserved. Please contact us for information on sales, syndication and republishing.)

http://www.iht.com/articles/2005/07/21/business/unocal.php

Bid Battle Not Over for Beijing

http://www.bloomberg.com/apps/news?pid=100...PUt0&refer=asia

CNOOC May Drop Unocal, Seek Marathon, Investors Say

http://www.antiwar.com/orig/hadar.php?articleid=6721

China Bashing for Beginners
Leon Hadar
July 22, 2005

He bought quite a lot of stuff at his favorite shopping mall over the weekend: cheap Chinese-made shirts (five), pants (three), suits (two), dresses (three), scarves, underwear and socks – and let's not forget those cheap Chinese-made toys for the grandchildren to whom he also sent e-mails through his personal computer, which was manufactured somewhere in Greater China.

Over dinner on Saturday night, he praised President George W. Bush's costly wars in Iraq and Afghanistan as well as his tax cuts and increase in domestic spending. Yes, defense spending will rise, and the budget deficit will expand, but there is no need to worry about current account deficits, a weakening U.S. dollar, or rising interest rates. The Chinese central bank will continue to buy U.S. Treasuries on the bond market, protecting the U.S. dollar and interest rates.

When he returned to his house in a suburb of Washington, D.C., he contemplated how the value of his mansion had tripled since he had purchased it 12 years ago. Some economic commentators have raised concerns over the popping of the U.S. housing bubble if the Chinese and other Asians start dumping their U.S. dollar reserves.

But he is not worried, since he knows that the Chinese and other Asians won't do that because they benefit from their large trade deficit with the United States. In fact, when it comes to that trade deficit, his son – who works for a company that invests in China – is one of the beneficiaries.

And so on Monday, after the long weekend in which he had become aware more than any time in the past of the rewards that he and his family – and most of the American people – are winning as a result of the growing ties between America and China, he returned to Capitol Hill. This is where he has been serving for more than 10 years as a lawmaker, representing a district in a state whose economy has grown as a result of increasing Chinese investment, he went on the floor of the House of Representatives, where he delivered a televised address in which he attacked China and warned Americans of the great threat that country is posing to U.S. economic and security interests.

"We have to wake up and start taking swift action against China before it's too late," he warned, as he specifically denounced the $18.5 billion bid from the China National Offshore Oil Company (CNOOC) for Unocal, the U.S. energy company. His son's company should be permitted to invest in China, of course; you can only imagine the bashing China would have taken from our lawmakers if that wasn't the case and be accused of violating free-trade principles. But when it comes to a Chinese company trying to do business in America, well, free-trade principles don't seem to apply anymore.

This U.S. lawmaker may be just a product of my wild imagination, but if you had spent a few hours last Wednesday watching the hearing of the Armed Services Committee on CNOOC's bid for Unocal, you would have no choice but to conclude that he represents the current anti-China sentiment that has been building for a while on Capitol Hill, reflecting security concerns, complaints of currency manipulation, and intellectual property theft, and representing a mix of economic nationalism, strident jingoism, and just a lot of good old hypocrisy.

Grand Strategic Plan

"There is so much heat in this hearing room, that perhaps we would now be able to resolve the energy crisis," commented one of the saner lawmakers after his colleagues, joined by a motley group of China-bashing "experts," accused China of a grand strategic plan to control the energy resources of the planet and use the "oil weapon" to destroy the U.S. economy and force the U.S. to surrender to Chinese demands on Taiwan and other issues.

Indeed, committee chairman Duncan Hunter, a hawkish Republican representative from California, made it clear he wanted CNOOC's proposal to be rejected on "national security" grounds.

It was not surprising, therefore, that most of the witnesses during the hearing, led by R. James Woolsey, former director of central intelligence, were promoting the same anti-China line and calling on the Bush administration to stop the takeover of Unocal by the Chinese company.

Woolsey, one of the leading neoconservative figures in Washington, argued that CNOOC's bid for Unocal should be seen as part of Beijing's strategy for energy security in competition with the U.S. CNOOC is nothing more than "an organ, effectively of the world's largest communist dictatorship," is the way Woolsey put it, and allowing it to buy Unocal "should be beyond the pale, given the nature of the Chinese government."

He didn't explain, however, why the central bank in Beijing should be permitted to finance the U.S. deficit – the economic security of the American democracy being taken hostage by the "world's largest communist regime" – and how American commitment to free trade would square with a move to block CNOOC from buying Unocal, even if that deal were to be approved by the shareholders.

In fact, Congressman Hunter is considering introducing legislation to block CNOOC from taking over Unocal even if the deal is approved by the government committee that reviews corporate takeovers by foreign enterprises.

The only voice of reason that was heard during last week's hearing was that of Jerry Taylor, director of natural resources studies at the Cato Institute, a pro-free-market think tank, who tried to challenge the notion that CNOOC's bid is part of Chinese policy to develop an "oil weapon."

Providing the lawmakers with an introductory session in Economics 101, Taylor explained that oil is a fungible commodity and that owning petroleum in the ground doesn't provide any nation with "energy security" from sudden changes in the oil and gas markets.

"Even if a Unocal-CNOOC transaction led to diversion of supply to China, it would have no net effect on the amount of oil available to buyers in the world market and thus zero impact on the price of crude oil in the United States or the availability of crude oil in the U.S.," Taylor stressed.

But the free-market argument was drowned in the nationalist and mercantilist rhetoric on Capitol Hill. Ironically, the lawmakers were exhibiting what psychologists describe as "psychological projection" (or projection bias) – that is, when one projects his or her own undesirable thoughts, feelings, desires, and motivations onto others. Instead of admitting that you don't like Bob, you project your dislike onto Bob. Hence, instead of "I don't like Bob," you tell yourself that "Bob doesn't like me."

Search for an "Oil Weapon"

In a way, American officials and lawmakers don't want to admit that it is the United States that is engaged now in a strategy aimed at controlling the oil resources of the Middle East, Central Asia, and the Caucasus, which would provide it with a leverage over other oil-importing countries, including China. But instead of admitting that, they are the ones searching for an "oil weapon" against the Chinese; they are accusing the Chinese of trying to gain control over oil resources in order to gain leverage over the Americans.

Apply the theory of projection and you'll be able to deconstruct Representative Hunter's following argument: Unocal is an investor in pipelines running through Azerbaijan, Georgia, and Turkey – "critical players and key U.S. allies" – and China's purchase of Unocal would therefore "dramatically increase its leverage over these countries and therefore its leverage over U.S. interests in those regions."

But if one were to argue that America is perhaps hoping that its alliance with those "critical players" and other "key allies" (Saudi Arabia, Iraq) would provide the U.S. with leverage over China's interests – use the "oil weapon" against it – or that Unocal is serving as "an organ of the U.S. government," he would probably be dismissed by Woolsey and Hunter as "anti-American." Unfortunately, as they advance a mercantilist and anti-Chinese agenda, they should not be surprised if they discover that they helped to create a mercantilist and anti-American China.

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.

http://www.nytimes.com/2005/07/24/business...059&partner=AOL

Who's Afraid of China Inc?

http://www.nytimes.com/2005/07/24/business...059&partner=AOL

Who's Afraid of China Inc?

Advantage, China

By James McGregor

BEIJING -- We're losing the intelligence war against China.

No, not the one with spy satellites, human operatives and electronic eavesdropping. I'm talking about intelligence : having an intelligent understanding of and intelligent discussions about China -- where it's heading, why it's bidding to buy major U.S. companies and whether we should worry. Above all, I'm talking about formulating and pursuing intelligent policies for dealing with China.

The Chinese government today understands America much better than our government understands China. Consequently, the Chinese government is much better at pulling our strings than we are at pulling theirs. China's top leaders, diplomats and bureaucrats have a clear framework from which they view the United States, and they are focused and unified in formulating and implementing their policies toward us.

In contrast, our government's viewpoint on China is unfocused, fractured and often uninformed. Is China still the Red Menace of the Cold War or a hot new competitor out to eat our economic lunch? Both views as well as a hodgepodge of other interpretations can be found in the halls of the White House, Congress and the Pentagon. Add to that confusion a vicious domestic political culture that brooks no compromise, and the chances of formulating a coherent China policy approach nil.

Playing the barbarians off against each other has been a core tenet of Chinese foreign policy since the imperial dynasty days when China's maps depicted a huge landmass labeled the "Middle Kingdom" surrounded by tiny islands labeled England, Germany, France, America, Russia and Africa. China was the center of the world and everyone else was a barbarian. That's why the Chinese are delighted by spectacles such as when rival members of a U.S. congressional delegation screamed at one another in front of their Chinese hosts in the Great Hall of the People. And what should they think of the time top Chinese officials laid out clear policy objectives to an American business audience and a U.S. cabinet member responded by saying "Jesus loves the Chinese people"?

Since the 1989 Tiananmen Square massacre, China policy has been a political football that American politicians kick back and forth to score points against one another. In the 1990s, it was a penalty-free game because the United States had the upper hand. China needed our capital, technology, know-how and insatiable consumer market to build its economy, as well as our blessing to join the World Trade Organization (WTO).

But those days are over. China's raging consumer market, its massive export machine, voracious appetite for global resources and more than $700 billion in foreign exchange reserves puts the ball in its court. It is difficult to overstate the transformation that has swept China in the past 15 years. To frame it in terms of comparable historical changes in the United States, China has been simultaneously experiencing the raw capitalism of the robber baron era of the late 1800s; the speculative financial mania of the 1920s; the rural-to-urban migration of the 1930s; the emergence of the first-car, first-home, first-fashionable-clothes, first-college-education, first-family-vacation middle-class consumer boom of the 1950s; and even aspects of social upheaval similar to the 1960s.

Today Chinese government officials and business executives admire, fear and pity the United States. They admire our entrepreneurial culture, free markets, legal system and ability to unemotionally discard what doesn't work while our best-in-the-world universities and enormous R&D capabilities create new products and services. China's economic reforms over the past 25 years have been aimed at creating a Chinese variation of the U.S. economic system and its ability to unleash entrepreneurial instincts and harness markets to build a world-beating economy.

China's fear stems from seeing our high-tech military machine in action. I will never forget standing in front of the Beijing train station during the first Gulf War, amid a sea of Chinese workers, thousands of whom had stopped their bicycles in the street to watch slack-jawed as huge outdoor TV screens displayed footage of American missiles screaming down Baghdad smokestacks. Just a few blocks away in the leadership compound of Zhongnanhai, Chinese officials imagined such destruction raining down on Beijing and realized that their strategy of defending China with swarms of peasant soldiers was as outdated as Maoist philosophy. They immediately embarked on a multi-decade plan to build a military as advanced as ours.

Chinese pity comes from their belief that we are a country in decline. More than a few Chinese friends have quoted to me the proverb fu bu guo san dai (wealth doesn't make it past three generations) as they wonder how we became so ill-disciplined, distracted and dissolute. The fury surrounding Monica-gate seemed an incomprehensible waste of time to a nation whose emperors were supplied with thousands of concubines. Chinese are equally astonished that Americans are allowing themselves to drown in debt and under-fund public schools while the media focus on fights over feeding tubes, displays of the Ten Commandments and how to eat as much as we can without getting fat.

China is all about unity, focus and leverage. Chinese officials and business executives are obsessed with a single question: What advantage do I have over you? No surprise then that Chinese officials are delighted to be funding ever larger portions of America's budget deficit. They know that if they sat out one U.S. Treasury auction, the U.S. stock markets would tumble. They yawn when Congress threatens to impose huge tariffs on Chinese imports, knowing that the resulting huge price increases at Wal-Mart, Best Buy and the Gap would cost some members of Congress their jobs. And while the Chinese do not relish sharing a border with the nutso North Koreans, they are happy to turn this bad situation to their advantage. The Bush administration desperately needs China's help in quelling the hermit kingdom's nuclear ambitions while we are bogged down in Iraq.

Still, China isn't even a fraction as powerful as it pretends to be. Beneath the bluster, it is a nation beset with internal problems. Pollution chokes its air and water. The growing gap between the haves and have-nots and rampant government corruption are triggering almost daily demonstrations. And China has no ideology other than enriching itself. The relentless commercial drive that has shaken China out of its imperial and socialist stupor has now become an end unto itself, leaving a population that is spiritually adrift. So far rapid economic growth, looser lifestyle strictures and straightforward political repression have held things together, but the Communist Party leadership knows that it needs a different formula for long-term success.

From a U.S. perspective, China's untempered commercialism suggests a nation out to milk us of everything it can. What is being lost in our vicious battles over China policy is that China and America have manageable differences and many complementary interests. With an intelligent and consistent China policy, the United States could help China and itself at the same time.

I offer these humble suggestions as a patriotic American who has lived in Beijing for 15 years -- and as a person who respects the Chinese people and what they are accomplishing.

Domestic politics should stop at the U.S. border. Trench warfare on China policy between the political parties and executive branch factions only plays into China's hands.

Stop preaching instant democracy. After the Tiananmen massacre, China's state media engendered a "nationalism of resentment." Aimed at cooling the ardor that young Chinese felt for America, the media portrayed the United States as having a secret agenda to keep China poor so that America can stay rich. A key part of this message is that America wants China to democratize because it will plunge the country into chaos. Those who survived the insanity of the Cultural Revolution see the point. Even Chinese people I know who are unhappy with their government believe that a nation with two millennia of top-down rule can only pluralize gradually. America can best help China inch toward political pluralism by trying to strengthen China's court system and rule of law and by making visas plentiful again for Chinese to attend our universities and public policy forums.

Let Chinese companies purchase or merge with U.S. companies unless the American company has genuine advanced military technology. We should also require reciprocity. Take the recent China National Offshore Oil Corporation Ltd. (CNOOC) bid to purchase Unocal Corp. Hysteria led to passage of a ridiculous House resolution by 398 to 15 expressing national security concerns about the deal, which involved a scant 0.8 percent of U.S. oil production. Instead, the United States should have responded as China would: Use the deal as leverage. America's politicians should have welcomed the CNOOC deal as long as China changed its own oil policies, which prevent foreign companies from operating gas stations in China, compel them to use Chinese companies when exploring for oil and almost always offer exploration leases for foreigners at the edges of promising fields to help China pinpoint the location of the biggest reservoirs for its own drillers.

Develop smart, workable rules on technology exports. Since the mid-1990s, China has been able to purchase almost any commercial technology it desires from Japan, Israel, Russia or the European Union. Bogged down in a bureaucratic quagmire of ever-changing rules and approval processes, U.S. machine tool makers and silicon chip equipment manufacturers have fallen behind. If this continues, we will endanger our own national security base by weakening our technology companies and their R&D capabilities. Nevertheless, many in Washington favor "catch-all control" regulations that could, for example, block a U.S. truck engine manufacturer from doing business with a Chinese firm that supplies some engines for Chinese army trucks. European and Japanese truck engine makers doubtless will be deeply grateful.

Vigorously push trade issues that provide a long-term win-win for China and its trading partners. Our focus should be intellectual property rights (IPR) protection. China's original modernization model was to invite foreign firms to manufacture for export in joint-ventures with Chinese companies. China was then supposed to learn to build its own companies and products. But many huge companies have been built through the wholesale theft of intellectual property and rampant copying of products. Within a three-block radius of my Beijing apartment, there are several dozen shops selling any Hollywood movie or American television series of note for $1 per DVD, copies of Prada and Louis Vuitton handbags for $10, nearly perfect copies of Callaway or Taylor Made golf clubs for $150, and fake North Face parkas for $35. Copied pharmaceuticals, car parts and the whole gamut of industrial products are plentiful across China. Worse, more and more such products are being exported. Chinese piracy is rapidly undermining political support for China in Congress and hampering the growth of its most innovative companies.

China knows the problem needs fixing but fears job losses and potential unrest in the towns and villages that host copycat factories. New U.S. Trade Representative Rob Portman could take a lesson from a predecessor, Charlene Barshefsky, who drafted a road map to guide China to WTO accession. As with WTO, China lacks the political will or consensus to come up with a plan on its own. The U.S. government should also back a new effort by the U.S. Chamber of Commerce and the American Chamber of Commerce in China to rate Chinese provinces and cities by their level of IPR enforcement. Public embarrassment and internal competition for foreign investment may prove to be stronger motivators than foreign complaints.

I understand America's genuine security concerns regarding China. But they should not be overblown to the point where they undermine our economic security. I also understand that reaching a political consensus isn't easy. But I am worried about the erosion of the sensible center. Chinese and U.S. politicians share the blame. As a global economic power, China can no longer employ IPR policies appropriate for a banana republic. And responsible members of Congress can no longer gin up China hysteria to get votes.

The stakes are getting too high.

Author's e-mail: jlmcgregor@jlmcgregor.com

James McGregor is a journalist-turned-businessman and former chairman of the American Chamber of Commerce in China. His book "One Billion Customers: Lessons From the Front Lines of Doing Business in China" (Simon & Schuster/ The Wall Street Journal Books) will be published in October.


http://www.washingtonpost.com/ac2/wp-dyn/e...er=emailarticle

In land of bicycle, car boom brings freedom of open road
The car's potent symbol of 'having arrived' now packs a triple threat
of purchasing power, style, and convenience in China. By Amelia Newcomb
http://www.csmonitor.com/2005/0803/p01s01-woap.html?s=hns

http://www.atimes.com/atimes/China/GH06Ad03.html

China as imperialist; China as colonist
China Marches West: The Qing Conquest of Central Eurasia by Peter Perdue
Taiwan's Imagined Geography: Chinese Colonial Travel Writing and Pictures, 1683-1895 by Emma Jinhua Teng.
Buy China Marches West Buy Taiwan's Imagined Geography

Reviewed by Macabe Keliher

In the 17th and 18th centuries, China as a state underwent a great transformation, the consequences of which reverberate to the present day. Through extensive and sometimes protracted military conquest, China's last imperial dynasty, the Qing (1644-1911), effectively altered the special understanding the empire ruled from Beijing by doubling the territory under its command and colonizing the lands of what we know today as China.

The territory directly controlled by the Qing's predecessors, the Ming dynasty (1368-1644), only went as far north as Beijing, and the western frontier began at Gansu. Taiwan lay overseas and beyond the fringe. With the rise of the Qing dynasty in the mid-17th century, and its extensive state-building enterprise in the 18th, Tibet, Xinjiang, Mongolia, Manchuria and Taiwan came under the jurisdiction of the Chinese empire for the first time in history. Indeed, in less than 200 years the Qing widened their frontiers in a fashion as dramatic, if not more so, than the US. Through literary and scientific works, and state-building institutions, the Qing redefined the entire spatial and ethnic composition of what constituted the Chinese state.

Yet our modern day histories of China either treat the Middle Kingdom as a static socio-political phenomenon of two millennia or fail to address the vast measure of expansion the Qing achieved. Early European Sinologists and the later Harvard crowd have created the image of a 2,000-year stasis of politics and culture that could not for the life of it modernize, and which eventually failed because of the rise and encroachment of the West. Chinese histories have likewise made China out as a great peace-loving nation that fell victim to Western imperialism. In these standard histories, China has always been China, from the Taiwan Strait to the western ridges of the Himalayas.

Such history, however, is akin to writing US history without the mention of westward expansion, or to treating US republicanism as a mere transplanting of the British parliamentary system. A key development in the historical process is missing. Furthermore, this traditional history of China sets it apart from the rest of the world, as a unique and timeless civilization.

In the past decade, China scholars have flexed their creativity to break the chains their academic forefathers have forged, and produced a number of insightful works on the history of China. This new breed of scholars has torn up all that we thought we knew of China's past to reveal a dynamic, evolving, and in many ways modern Chinese state and culture. Works from scholars such as Pamela Crossley and James Hevia showed a state partaking in the formation of nationalism and the subjugation of empire. James Millward's book on Xinjiang, Beyond the Pass (Stanford, 1998), was the first work to look at the incorporation of a non-Han Chinese territory into the Chinese state proper. In these works the specter of Chinese imperialism and colonialism - in the Western sense - becomes clear.

Peter Purdue's new work, China Marches West, and Emma Jinhua Teng's first book, Taiwan's Imagined Geography, take this new trend in China scholarship to the next level in exploration of how the Qing effectively conquered and colonized neighboring regions to make them parts of their empire; parts that are considered integral to China today. As they demonstrate, the Qing conquest of non-Chinese lands through military force, and central rule from a metropolis, are very much the characteristics of an imperial tradition.

The Zunghar state
Key to Perdue's argument in China Marches West - and one of the book's major contributions - is the Zunghar state. In the 15th century, Central Asian nomads had carved out a territory in what we know today as Western China and Mongolia. Over the next two centuries they formed a state called Zungharia, which expanded north into Russia and west to the Pamir Mountains to encompass all of modern day Xinjiang, half of western Mongolia and parts of Siberia. "The Mongols ... created an increasingly state-like apparatus of rule in Central Eurasia, one that grew from a loose tribal confederation to approach the structure of a settled regime". (p 518)

Perdue points out that the Zunghar state was nomadic in its roots and offered the last alternative on the world scene to the settled agriculture society. It is true that it built capital cities, sponsored trade, developed bureaucratic procedures and even promoted agriculture, but the state drew much of its resources from taxes on caravan trade and tribute from its neighbors. Furthermore, in times of drought or hardship, nomads would invade settled areas on the Chinese frontier.

For China's emperors - both in the Ming and Qing - the existence of the Zunghar state, which refused to acknowledge the superiority of the dynasty, threatened not only Chinese territory, but also the majority Han-Chinese metaphysical world order. "If they were allowed to survive they would seriously endanger the nation," Perdue wrote." (p 251)

Thus began the Qing conquest of the west. Military campaigns in the late 17th and early 18th centuries attempted to bring the Zunghars into submission, but truces were broken and rebellions rose. In the 1750s the Qing employed what Perdue calls the "final solution" to the northwest frontier problem. What took place was one of the largest genocidal wars in history, even by today's standards, and the complete extermination of the Zungharian peoples. An estimated 600,000 people were killed and the steppe depopulated.

The Qing set up Xinjiang as a military camp and later employed Mongolian collaborators to govern the region. In the 1760s Han-Chinese civilians began to migrate westward, and by 1781 some 20,000 households were established in Xinjiang. Imperial conquest had succeeded and formal colonization had begun.

The secrets of Qing success
Yet herein lies the puzzle: previous dynasties had for centuries attempted to neutralize the western nomads; how did the Qing not only succeed in neutralizing but completely eliminating them?

Perdue cautions against viewing Qing expansion here as "a linear outgrowth of previous dynasties". Rather, "it represents a sharp break with the strategic aims and military capabilities of the Ming dynasty." (p 507) The Qing had developed the necessary military, economic, and diplomatic institutions not only to wage a successful campaign in the west but to undertake a vast expansionist project that began in the early 17th century and ended in the mid 18th. We must view these institutions and innovations as creations of the Qing, not developments from previous dynasties.

The Qing began as a Manchu tribe in the northeast. They had organized their society to make war and united all the regional tribes under one banner and then marched on Beijing where the Ming dynasty lay in disarray and crisis in 1644. In possession of the resources of China, the Manchus continued expansion and institutional change. They pushed commercial penetration, agriculture reclamation, revamped transportation networks, mapped the empire, and streamlined the bureaucratic command system. All of these innovations, Perdue argues, allowed the Qing to move their militaries further west then any previous dynasty, and to succeed in battle.

As titillating and provocative as this book is, it is quite unfortunate that the main points become so obscured in a rambling narrative of Chinese history. At 725 pages, China Marches West is like a Charles Dickens novel: intimidating, dense, discursive at times, and full of information or stories that have nothi