The chairman of CNOOC Ltd., the Chinese energy firm embroiled in a thorny campaign to purchase the U.S. oil company Unocal Corp., voiced dismay on Wednesday over what he called "overreaction" from Washington by those portraying the deal as a threat to fair trade and U.S. national security.
In an interview with The Washington Post at CNOOC's headquarters in Beijing, Chairman Fu Chengyu said critics of his company's bid for Unocal were guilty of viewing China through an outdated lens by failing to appreciate how economic reforms have forced Chinese companies to adopt market principles and focus on profitability.
"They don't understand what has happened in China in the last 20 years," said Fu, speaking fluent if halting English. "Most of the concerns are related to politics and not the commercial side. I didn't expect that so many people would be so sensitive to this. We are following a system that was set up by Western leading companies, especially the United States. We are walking along a path that they paved, so we thought, 'This is natural.' " But Fu expressed confidence that CNOOC would eventually convince critics that its acquisition poses no menace. He said his company might consider upping its $18.5 billion bid if needed.
"Our board has made the decision that we have to win this bid," he said.
As CNOOC continues its pursuit of Unocal, the conflict has become symbolic of the struggle by the United States to adjust to the implications of China's growing force in the global economy. Since CNOOC stunned markets last month with its unsolicited offer for Unocal, seeking to trump a lower bid from the U.S. oil giant Chevron Corp., a vocal segment of Congress has assailed the deal as a provocation in an already tense trade relationship between China and the United States.
Some have warned that the takeover would hand a slice of the U.S. oil supply -- albeit a tiny one -- to a company still owned by China's Communist Party-led government. Others have cast CNOOC's reach for Unocal as an example of how China's companies have an unfair advantage in their global quest for new markets, drawing on sweetheart credit from local banks and the bottomless largesse of the state.
Last week, the House of Representatives overwhelmingly approved a resolution urging the Bush administration to scrutinize the deal as a potential threat to U.S. national security.
Even within China, some analysts have said the deal is driven less by commercial interests and more by the government's desire to secure new stocks of energy in an era of ballooning consumption at home. In recent years, China's government has urged its companies to seek new sources of energy around the globe to limit the country's dependence on the volatile Middle East. It has often pursued deals in places barred to Western companies because of human rights concerns and diplomatic imperatives. In recent years, China has signed contracts to buy energy in Iran and Burma, countries that the Bush administration has attempted to isolate. China's largest energy company, China National Petroleum Corp., is the largest investor in a consortium running much of Sudan's oil industry, by far the largest source of funds for a government accused by the Bush administration of perpetrating genocide.
"Of course this deal is about China's energy security," said Shen Dingli, an international relations expert at Fudan University in Shanghai. "That's why the government created these companies: to go out and get oil for China."
Fu, 54, took pains to rebut such characterizations during the interview, pressing what has become CNOOC's mantra: His company's interest in Unocal is a commercial issue that has nothing to do with China's energy security and everything to do with boosting profits.
"I'm not a government leader," he said. "Nobody tells me how to run this company. We are in our own business. I just have one job, one responsibility, which is to make sure that I can continue to grow this company."
He called Unocal "a strategically perfect fit," noting that 70 percent of its energy reserves are in Asia, and many of them in Indonesia, where CNOOC is already the largest offshore oil producer. Unocal boasts substantial natural gas reserves, while CNOOC is focused on developing liquefied natural gas terminals that can serve industrial customers in booming coastal cities. Overall, capturing Unocal would double CNOOC's total energy reserves.
Fu dismissed concerns that his company might hoard energy for China's use, saying that if CNOOC closes the deal, Unocal will continue to serve its existing customers in the United States and Southeast Asia.
"I don't see any national security issue to this," he said.
In an attempt to underscore that point, CNOOC last week filed for a review from the Committee on Foreign Investment in the United States, a panel that assesses the national security implications of foreign firms taking over U.S. companies.
Fu is widely seen as the driving force behind his company's pursuit of Unocal. Educated at the University of Southern California, he is a veteran of the executive ranks at several foreign energy companies, among them Amoco, Chevron and Shell. Jocular and relatively comfortable in English, he is touted here as part of China's new face -- a symbol of a once-insular country turning outward, one whose companies are thinking globally and operating with increasing independence from the state.
But that image is proving a tough sell, as CNOOC seeks to mollify critics in Washington. Fu heads not only CNOOC but also its fully state-owned parent company, China National Offshore Oil Corp., which holds 70 percent of CNOOC's shares. He owes those posts to appointments by the Communist Party, of which he is a member. CNOOC's parent is controlled by the State Administration for State-Owned Assets, the holding company for China's State Council, the functional equivalent of the U.S. Cabinet.
Analysts say Fu is playing two conflicting roles at once. He is the head of a profit-making company whose shares trade publicly on stock markets in New York and Hong Kong and whose shareholders demand profit. He is also accountable to a government that has grown keen to lock up new stocks of energy overseas by buying into oil and gas fields at whatever the cost.
"There is no way that CNOOC can make the decision to merge with Unocal without substantial government support and orchestration," said Li Weijian, an overseas energy expert at the Shanghai Institute for International Studies. "The oil industry is the most important industry for the Chinese government. Any projects within the industry have to meet the strict requirements of China's oil security strategy."
Fu denied that he and his company are agents of state policy, but he declined to state clearly how he balances his roles. He added that the Chinese government does not directly finance the company and therefore does not care what CNOOC does with its money. He said China's energy security concerns are not his problem. "That's not our job, that's the government's job," he said. "We are running the business on commercial terms."
Those pointing to CNOOC's bid as a sign of unfair trade have focused on two issues -- the terms of finance and the purchase price, which analysts say is far higher than the market dictates. CNOOC is worth $22 billion, yet it is offering $18.5 billion in cash for Unocal, aided by $7 billion in loans from its state-owned parent, with $2.5 billion of that interest-free. The bulk of the remainder would come via loans from the Industrial and Commercial Bank of China, a state-owned lender. Without generous, state-guided credit, CNOOC could never contemplate the deal, analysts say.
Fu said that under China's tight controls on capital, the deal requires central government approval to shift such a large sum overseas. But he said the decisions by the state bank and CNOOC's parent to extend credit reflect only the commercial merits of the deal.
Ultimately, he said, CNOOC's purchase of Unocal would further the advance of private enterprise in China: If the deal goes through, CNOOC will issue more shares, diluting the government's ownership.
CNOOC made its own road much harder by waiting until Chevron already had a deal in hand to offer its own bid, Fu acknowledged. Unocal shareholders are set to vote on Chevron's offer on Aug. 10. Chevron is now using the furor in Washington to its advantage, seeking to persuade Unocal shareholders to take its lower bid by asserting that CNOOC's offer might not pass muster with U.S. regulators.
Fu said his company delayed action because his governing board opted to first study Unocal's holdings more intensively. He pointed at the timing as evidence that his company takes no orders from the government.
If it all leads to failure -- if Unocal shareholders conclude the risks are too great and go with Chevron, or if the Bush administration blocks a deal -- Fu said he would have to reexamine his basic understanding of free trade.
"I would suddenly find out that what Westerners taught us is not the way the West wants to go," he said.
Special correspondents Jason Cai and Eva Woo in Shanghai contributed to this report.
China National Offshore Oil Corp. has oil rigs in China's Liaodong Bay. Subsidiary CNOOC Ltd. has offered to buy U.S oil producer Unocal, which has a majority of its oil reserves in Asia.