From China, a New Bid for Maytag and Status - New York Times

From China, a New Bid for Maytag and Status - New York Times


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June 22, 2005
From China, a New Bid for Maytag and Status
By DAVID BARBOZA
SHANGHAI, June 21 - The move by the Haier Group, a Chinese manufacturing colossus, to acquire the Maytag Corporation could transform Haier into one of the world's most powerful appliance makers and give the company a greater foothold in America and Europe.

In addition, analysts say, the purchase would be another big step in China's transition to capitalism.

A consortium of investors led by Haier, China's biggest appliance company, offered about $1.3 billion for Maytag, the troubled home appliance maker.

The bid, announced by Maytag officials late Monday, comes a month after the company agreed to be acquired by another investor group, led by Ripplewood Holdings of New York, for $1.13 billion. The move by Haier and a group of investors that includes the Blackstone Group and Bain Capital could touch off a fierce battle for Maytag.

The takeover bid also comes as the Chinese government is pushing big companies here to make bold overseas acquisitions in the hope of turning them into multinational corporations with global brands.

For instance, the Lenovo Group's purchase of I.B.M.'s personal computer division closed just last month. The acquisition, for $1.75 billion, was one of the largest by a Chinese company of a foreign entity so far.

And CNOOC, the Chinese offshore oil and gas producer, will consider making an $18 billion bid for Unocal at a board meeting Wednesday. Unocal agreed in April to be acquired by Chevron for $16.4 billion, and a bid from CNOOC might ignite a takeover war.

"Chinese companies are growing bigger, and their managers have such great ambitions that they want to take a big step and jump to the next level," said Hu Zuohao, a professor of marketing at Tsinghua University in Beijing. "They're no longer satisfied with the domestic market."

A takeover of Maytag, the third-biggest American appliance maker behind Whirlpool and G.E., would unite an American household name with a rising power in the world of washing machines, refrigerators, dishwashers and oven ranges.

But such an acquisition would not be without challenges: the companies sought by Chinese corporations tend to have well-known brand names that are slipping into decline, like Maytag. The maker of Hoover vacuum cleaners, Amana appliances and Magic Chef ovens, Maytag is entertaining takeover bids as it struggles with higher costs and lower profit in recent years.

Representatives of Maytag, based in Newton, Iowa, were not immediately available for comment Tuesday. A spokesman for Haier, based in the northeastern Chinese city of Qingdao, declined to comment.

In 1999, Maytag's stock hovered around $70 a share on strong profit. On Tuesday, Maytag traded at $16.06 a share, and that price reflects sharp recent gains on takeover speculation.

Maytag, which has more than 20,000 employees and had sales of about $4.7 billion last year, is still one of the world's biggest appliance makers, after Electrolux, based in Sweden, Whirlpool and G.E.

Haier is also a consumer goods goliath. The company is still largely government-owned, but has a publicly listed division. It has branched out in recent years to computers, home furnishing and cellphones.

Last year, Haier had $12 billion in revenue and 30 overseas factories, including a refrigerator factory in its own industrial park in Camden, S.C., according to the company's Web site.

The company, which has about 50,000 employees, is also a favorite of the Beijing government. In 1997, the government named Haier one of six companies it hoped to transform into one of the world's top 500 companies by 2010.

Its longtime chief executive, Zhang Ruimin, has even fashioned himself as a Chinese version of John F. Welch Jr., the hard-driving former chief of G.E. Mr. Zhang is the first businessman named to the Communist Party's elite ruling committee, the Central Committee.

While Haier's ownership structure and finances are opaque, its status as one of China's few brand-name companies is clear. The air-conditioners, refrigerators and other goods it makes are in millions of homes here.

Haier's profit margins, however, have recently thinned in some areas, analysts say.

If its takeover bid succeeds, Haier could face big challenges in combining its operations with those of the struggling Maytag, whose first-quarter earnings fell 80 percent, to $7.7 million.

"The companies that are sold to Chinese buyers are usually those who have been in financial trouble for a long period, meaning the managers in their own countries can't fix the problems," Mr. Hu at Tsinghua University said. "At this point, Chinese managers might not be experienced enough to tackle these kinds of problems."

For its part, Maytag shareholders face a new decision, after the company agreed last week to be acquired by Ripplewood for $14 a share. Late Monday, Maytag said in a news release that a group led by Haier had offered shareholders $16 a share.

In the statement, Maytag's lead director, Howard Clark, said: "We continue to support the Ripplewood transaction; however, we also believe that it is incumbent on us to pursue this possibility of achieving a higher price for our stockholders."



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Chinese Oil Giant in Takeover Bid for U.S. Corporation - New York Times

Chinese Oil Giant in Takeover Bid for U.S. Corporation - New York Times


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June 23, 2005
Chinese Oil Giant in Takeover Bid for U.S. Corporation
By DAVID BARBOZA
and ANDREW ROSS SORKIN
SHANGHAI, Thursday, June 23 - One of China's largest state-controlled oil companies made a $18.5 billion unsolicited bid Thursday for Unocal, signaling the first big takeover battle by a Chinese company for an American corporation.

The bold bid, by the China National Offshore Oil Corporation ( CNOOC), may be a watershed in Chinese corporate behavior, and it demonstrates the increasing influence on Asia of Wall Street's bare-knuckled takeover tactics.

The offer is also the latest symbol of China's growing economic power and of the soaring ambitions of its corporate giants, particularly when it comes to the energy resources it needs desperately to continue feeding its rapid growth.

CNOOC's bid, which comes two months after Unocal agreed to be sold to Chevron, the American energy giant, for $16.4 billion, is expected to incite a potentially costly bidding war over the California-based Unocal, a large independent oil company. CNOOC said its offer represents a premium of about $1.5 billion over the value of Unocal's deal with Chevron after a $500 million breakup fee.

Moreover, the effort is likely to provoke a fierce debate in Washington about the nation's trade policies with China and the role of the two governments in the growing trend of deal making between companies in the countries.

This week, a consortium of investors led by the Haier Group, one of China's biggest companies, moved to acquire the Maytag Corporation, the American appliance maker, for about $1.3 billion, surpassing a bid from a group of American investors.

Last month, Lenovo, China's largest computer maker, completed its $1.75 billion deal for I.B.M.'s personal computer business, creating the world's third-largest computer maker after Dell and Hewlett-Packard.

After years of attracting billions in foreign investment and virtually turning itself into the world's largest factory floor, China appears to be nurturing the growth of its own corporate giants into beacons of capitalism. China wants to be a player on the world stage, and it is eager to have its own energy resources, its own multinational corporations and its own dazzling corporate names.

And some of China's biggest companies are now on the hunt, trying to snap up global treasures.

"If there's an asset up for sale anywhere in the world, people are looking to China, particularly if there's a manufacturing element involved," said Colin Banfield, who runs the mergers and acquisitions practice at Credit Suisse First Boston in Asia. "And if these two deals go through this year, no one is going to doubt the credibility of the Chinese corporates when it comes to M & A."

The deal making and bidding wars are all the more remarkable because they involve Chinese companies taking on American multinationals in a series of transactions certain to be a boon for Western lawyers and investment bankers, many of whom have been betting hundreds of millions of dollars on China's rise.

Indeed, CNOOC is being advised by an army of bankers from Goldman Sachs, J. P. Morgan Chase and N M Rothschild & Sons of Britain.

In a response, Unocal said in a statement that its board would evaluate the offer, but that its recommendation of the deal with Chevron "remains in effect."

CNOOC's bid faces an uphill battle, with hurdles that probably rise above those usually confronting a corporate bidder. Already, lawmakers in Washington are questioning whether the Bush administration should intervene to block the bid for Unocal, which was founded in 1890 as the Union Oil Company of California.

Two Republican representatives from California, Richard W. Pombo and Duncan Hunter, wrote a letter last week to President Bush, after speculation concerning the deal arose, urging that the transaction be scrutinized on the grounds of national security.

They wrote: "As the world energy landscape shifts, we believe that it is critical to understand the implications for American interests and most especially, the threat posed by China's governmental pursuit of world energy resources. The United States increasingly needs to view meeting its energy requirements within the context of our foreign policy, national security and economic security agenda."

Energy Secretary Samuel W. Bodman said at a meeting of the National Petroleum Council late Wednesday that the government's review of the deal would be "truly a complex matter," according to Reuters.

In Beijing, Liu Jianchao, a spokesman for the Foreign Ministry, told reporters on Tuesday that "this is a corporate issue," according to Bloomberg News. "I can't comment on this individual case," Mr. Liu said, "but I can say we encourage the U.S. to allow normal trade relations to take place without political interference."

TCL, a Chinese company that began by making cassette tapes in 1981, is suddenly the world's biggest television set maker, after its acquisition last July of the television business of Thomson of France, which owned the old RCA brand.

Chinese companies still have a long way to go to become global giants that can compete head-to-head with Toyota, Siemens or General Electric. Most of the China deals are small in value - about $1 billion to $2 billion - when compared with big American or European deals.

Whether CNOOC's bid will succeed on it merits is unclear. It is interested in Unocal, once known for its 76 brand, less for its exploration and production in North America than for its huge reserves in Asia. Twenty-seven percent of Unocal's proven oil reserves and 73 percent of its proven natural gas reserves are in Asia, according to Merrill Lynch.

To succeed, CNOOC will have to persuade Unocal's shareholders to vote against their deal with Chevron. The new deal would then face a shareholder vote.

Even though CNOOC's offer is worth $1.5 billion more than Chevron's, some shareholders could still decide that the regulatory review process and the time required to complete a deal with CNOOC would pose too great a risk, given the size of the offer.

Chevron, which could raise its bid to counter CNOOC, is racing to complete its deal and submit it to a shareholder vote as early as August.

CNOOC's all-cash offer values Unocal at $67 a share. Chevron's cash and stock offer values Unocal at $61.26 a share, based on Chevron's closing price on Wednesday of $58.27 a share. Shares of Unocal jumped 2.2 percent, to $64.85, as investors anticipated CNOOC's higher bid.

In CNOOC's letter to Unocal, it went to great lengths to say that its bid was friendly, despite being unsolicited. "This friendly, all-cash proposal is a superior offer for Unocal shareholders," wrote CNOOC's chairman and chief executive, Fu Chengyu.

Trying to assuage concerns of some in Washington, CNOOC pledged to continue Unocal's practice of selling all of the oil and gas produced in the United States back to customers in the United States. The company also said it would retain substantially all of Unocal's employees in the United States.

David Barboza contributed reporting from Shanghai for this article and Andrew Ross Sorkin from New York.



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Capital Nearly Speechless on Big China Bid - New York Times

Capital Nearly Speechless on Big China Bid - New York Times


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June 24, 2005
Capital Nearly Speechless on Big China Bid
By EDMUND L. ANDREWS
WASHINGTON, June 23 - For the Bush administration and even for many members of Congress, China has become almost too big to bash.

A day after one of China's state-controlled oil companies made an unsolicited $18.5 billion bid for Unocal, a California oil and gas company with extensive fields in Asia, administration officials and many lawmakers were almost tongue-tied about the implications.

Treasury Secretary John W. Snow, asked whether he would lead a national security review of the deal, hesitantly told members of the Senate Finance Committee that the question was "hypothetical" because the transaction has yet to happen.

Alan Greenspan, chairman of the Federal Reserve, said virtually nothing about the deal. But he used some of his bluntest language ever to warn lawmakers against imposing tariffs on China as a way to pressure it over its exchange rate policies.

For months, many lawmakers in both parties have become almost frantic about China's soaring trade surplus and its impact on American manufacturers. Anxiety is so high that Republican lawmakers from industrial states like Ohio and Pennsylvania are loath to vote for anything that sounds like a free-trade agreement.

But anxiety is at least as great about a disruption of American business ties to China.

"I think there is a reluctance to confront China," said Representative Phil English, a Republican from Pennsylvania and the leader of the Congressional steel caucus. "The problem is that many companies are depending on Chinese inputs and on imported goods to sell at retailers."

China is also a leading creditor of the United States; it acquired more than $200 billion of Treasury securities over the last year.

Moreover, China is already home to a growing number of American-owned factories, many of them exporting to the United States, and a large number of factories that are suppliers to American companies.

For the last two years, the Bush administration has struggled to balance competing economic goals. It wants to persuade China to let its currency rise in value, which would make Chinese imports more expensive in dollar terms, even as it works to fend off proposals from Congress to impose high tariffs if China refuses to change its policies.

On Thursday, Mr. Snow argued that it would be dangerous to impose "punitive" actions on China. Not only would it be a mistake to threaten China with tariffs if it refuses to let its currency float, he said, but it would also be a mistake to subject China to countervailing duties in cases where it illegally subsidizes exports.

"Acting on any of the punitive legislative proposals before Congress now would be counterproductive," Mr. Snow told lawmakers.

Mr. Greenspan, testifying at the same hearing, said it was a major mistake to think that American jobs would be increased even if China did change its currency policies.

"I am aware of no credible evidence that supports such a conclusion," Mr. Greenspan said. Tariffs on Chinese imports would protect "few, if any American jobs," he continued, and would "materially lower our standard of living."

But the political debate about China is lagging behind events on the ground. The $18 billion bid for Unocal by the China National Offshore Oil Corporation ( CNOOC), China's third-largest oil company, was merely the latest and by far the biggest move by a Chinese company to buy a formidable American company.

The move represents an evolution for China from being a major exporter, using its earnings to acquire Treasury securities, to becoming a significant foreign investor in hard assets as well.

Administration officials made it clear Thursday that a deal with Unocal would almost certainly be subjected to an interagency review over its implications for national security.

But Mr. Snow was extremely hesitant when asked about it by Senator Ron Wyden, Democrat of Oregon.

"It's hypothetical at this point, because we don't have a transaction," Mr. Snow said, adding that a foreign company taking over a company in a potentially sensitive industry would normally ask for such a review itself. Indeed, CNOOC did just that Thursday, even before it was clear whether Unocal would accept the offer over its standing deal with Chevron.

The diffidence of Mr. Snow startled Mr. Wyden, who has supported the administration on many trade issues. "I'm a free trader, but being a free trader isn't synonymous with being a chump," Mr. Wyden remarked after the hearing. "He should have said, 'You bet we're going to take a look at it.' "

Gary C. Hufbauer, a trade expert at the Institute for International Economics, said the administration wanted to keep the issues involving China as separate as possible, from its currency policy to its surging textile exports to its enforcement of American patent and copyrights.

"What the administration wants to do is avoid putting all these issues together into what some would want to call a single 'coherent' China policy,' " he said. "A 'coherent' policy would probably be one that sees China as an emerging adversary."

Lawmakers are demanding a comprehensive approach to China.

"China's competitive challenge makes Americans nervous from Wall Street to Main Street," said Senator Max Baucus, Democrat of Montana. "What is the administration's plan? They have none."

Senator Jim Bunning, Republican of Kentucky, complained that the administration had made little progress in prodding China over its trade and currency policies. "They've kind of told us to take a hike," Mr. Bunning said.

Mr. Snow responded, as he did several other times during the hearing, that "we're not satisfied, and we want them to know that."

Despite the frustration among lawmakers, most avoided any criticism of the attempt by CNOOC to buy a major American oil company.

Administration officials noted that China remains a minuscule direct investor in the United States, far smaller than the tiny European nation of Luxembourg. As a general matter, American officials have encouraged foreign companies to invest in the United States and refrained from interfering in all but a handful of cases.

But critics of China hinted they might use the bid for Unocal as a way to pressure China on other issues.

"Does anybody honestly believe that the Chinese would ever let an American company take over a Chinese company?" asked Senator Charles B. Schumer, Democrat of New York and sponsor of a bill that would impose a tariff of 27.5 percent on China's imports if it fails to change its currency policy.

Other lawmakers stressed caution. "We must be thoughtful in our actions and get it right," said Senator Charles E. Grassley, Republican of Iowa and chairman of the Finance Committee. "We can't afford to act rashly, and get it wrong."



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Unocal Deal: A Lot More Than Money Is at Issue - New York Times

Unocal Deal: A Lot More Than Money Is at Issue - New York Times


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June 24, 2005
Unocal Deal: A Lot More Than Money Is at Issue
By LESLIE WAYNE and DAVID BARBOZA
The battle for Unocal, the large independent American oil company, is shaping into as much a test of Chinese-American strategic and economic relations as it is a boardroom showdown.

Most takeover battles can be settled by price - the highest bidder wins. But judging by the sharp reaction yesterday in Washington, that may not be the case with Unocal.

Just a day after the China National Offshore Oil Corporation, or CNOOC, one of China's largest state-controlled oil companies, made an unsolicited bid of $18.5 billion for Unocal, senators and representatives, as well as lawyers, bankers and lobbyists, are taking jabs at what may become one of the thorniest strategic business challenges facing the administration.

At issue is whether CNOOC can buy Unocal, which in April agreed to a $16.4 billion merger deal with Chevron, the American energy giant.

The unexpected foreign bid for Unocal comes at a time when oil prices are hitting $60 a barrel, energy reserves are gaining more value, and the United States is concerned about its own oil and gas resources. At the same time, the administration needs to work with China on trade and currency issues, even as concerns are increasing about the growing economic power of China.

"It does raise questions about how much of the country we are willing to sell to a Communist country that we might be fighting someday," said Michael O'Hanlon, an international military specialist at the Brookings Institution. But he added, "I'd be surprised if we really fall on our sword to prevent the sale."

CNOOC's bid is also forcing Unocal shareholders to weigh the higher price that the Chinese are willing to pay against the risks that the deal faces in Washington. On top of that, there is the possible backlash that might arise from selling a potentially strategic American asset to China.

Unocal said that it had received permission from Chevron to hold discussions with CNOOC.

The question is how - if Unocal decides to switch from Chevron to CNOOC - the politics will play out in Washington, where critics are already speaking out and where the deal would be subject to approval by the Committee on Foreign Investments in the United States. The panel, a federal multiagency group, can prevent any foreign investment on the grounds of national security.

For years, the government has placed restrictions on the extent of foreign ownership in a variety of industries, from airlines to the media to military contractors. In the past, these restrictions have mostly affected developed countries like Japan and Britain.

"This is a remarkable arrival of China into the world of global big business deals and international investing," said Clyde V. Prestowitz Jr., a former trade negotiator in the Reagan administration and president of the Economic Strategy Institute in Washington. "And it does raise the issue of whether this gives influence or some kind of potential importance to a government that may not always be friendly to us."

In Washington, CNOOC is already laying the groundwork. It has hired Public Strategies, a public relations firm whose vice chairman, Mark McKinnon, led President Bush's media campaign in the 2004 election. The company has also lined up some of the nation's savviest financial advisers - among them Goldman Sachs and J. P. Morgan - as well as such well-connected legal and lobbying firms as Akin Gump Strauss Hauer & Feld and Davis Polk & Wardell.

Many in Washington said that the deal, on its merits, might gain approval from the foreign investment committee. In any case, the committee would not review the case until a formal deal is completed. In recent deals involving China, the committee's responses have been mixed.

In 2003, a negative review by the foreign investment committee caused Hutchison Whampoa, which is based in Hong Kong, to withdraw a bid for Global Crossing, the telecommunications carrier that later filed for bankruptcy. But this year, the committee permitted the $1.75 billion sale of I.B.M.'s personal computer business to Lenovo of China.

"The national security argument is a fair one," said William A. Reinsch, president of the National Foreign Trade Council and a former trade official in the Clinton administration. "When you talk about energy supplies, and the market is tight, there is a national security issue. You are going to have a lot of people pounding the table."

CNOOC is already trying to play down any concerns that the transaction could hurt the American oil and gas markets. It is stressing that 70 percent of Unocal's oil and gas reserves are in Asia and that its American reserves amount to only about 1 percent of America's oil consumption, with none of it now supplying the military.

Unocal also has a pipeline hooked up to American strategic oil reserves, as well as a rare-earth mine, the only one in the United States. CNOOC has said it will consider selling these assets, if that is necessary to close the deal.

In addition, CNOOC has promised not to take supplies from Unocal's oil and gas reserves in the United States and sell them outside the country. It also said it would retain "substantially all" of the American employees.

In Washington, two Republican congressmen, Richard W. Pombo, chairman of the House Committee on Resources, and Duncan Hunter, chairman of the House Armed Services Committee, wrote to President Bush last week, saying that "such an acquisition raises many concerns about U.S. jobs, energy production and energy security."

"We fear that American companies will find it increasingly difficult to compete against China's state-owned and/or controlled energy companies, given their mandates to supply China's ever-growing demand for energy, which will increasingly need to come from foreign sources," the letter said.

For China, which is scouring the world for oil, gas and minerals to help power its economy, the deal is important. That puts the administration in an awkward position as it tries to negotiate a variety of trade frictions and geopolitical debates.

"The deal has got the administration over a barrel," said Michael R. Wessel, a member of the United States-China Economic and Security Review Commission, a group established by Congress. Not only is the administration trying to work out trade issues with China over textiles, currency and a number of other matters, it is also increasingly relying on China to play a more aggressive role in containing North Korea.

"We want the Chinese to invest part of their dollars in our economic system," Mr. Wessel said, "yet we have to worry about the impact of this transaction on our national security. Everyone is concerned about the migration of jobs and research and development to China. Now we have oil hitting $60 a barrel. China is going to be on the center of our radar screen."

For CNOOC, an offshore oil company, Unocal offers huge gas reserves in 14 countries. It has Asia's largest storehouse of liquefied natural gas. A combined company would go from a Chinese offshore oil producer with high expenses, as it searches for oil around China, to a diversified oil and gas company with global reserves.

Oil industry analysts offered mixed views about a potential deal.

"There are a lot of people in Washington who are really torn," said Robin West, chairman of PFC Energy, an oil consultant in Washington. "They believe in open markets and don't want to exacerbate matters with China. Yet, do you want a Chinese company that doesn't play by American rules to take advantage of American rules and get an American company?"

Alexei Barrionuevo contributed reporting for this article.



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CNOOC Tries to Ease U.S. Worries on Unocal - New York Times

CNOOC Tries to Ease U.S. Worries on Unocal - New York Times


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June 24, 2005
CNOOC Tries to Ease U.S. Worries on Unocal
By THE ASSOCIATED PRESS
Filed at 6:39 a.m. ET

BEIJING (AP) -- Trying to allay U.S. national security worries about its bid for Unocal Corp., Chinese state-owned oil company CNOOC Ltd. said Friday it was willing to discuss selling some Unocal assets and putting others under American management.

The announcement came after four members of Congress called on the U.S. government on Thursday to review the security implications of allowing a Chinese state-controlled firm to take control of the ninth-largest American oil producer.

CNOOC's unsolicited $18.5 billion offer Thursday for Unocal was the most ambitious foreign acquisition attempt yet by a Chinese company. It set up a possible takeover battle with rival bidder Chevron Corp. amid efforts by Beijing to secure foreign energy supplies for its booming economy, the world's second-biggest oil consumer.

''We have proactively made assurances to Unocal to address concerns relating to energy security and ownership of Unocal assets located in the United States,'' CNOOC chairman and CEO Fu Chengyu said in a statement released in Beijing.

Fu said CNOOC was ''fully prepared'' to participate in a U.S. government security review. He offered to discuss selling some Unocal pipeline and storage assets and putting assets that aren't involved in oil and gas exploration or production ''under American management.'' He said Washington has approved similar arrangements in the past for foreign buyers of American companies.

U.S. Treasury Secretary John Snow said Thursday he expects both parties to submit to a security review. Snow chairs a federal panel that considers the possible security risks of foreign firms buying or investing in U.S. companies.

''It's not a business transaction at all,'' said C. Richard D'Amato, chairman of the U.S.-China Economic and Security Review Commission, a congressional advisory panel. ''This is not a free market deal. This is the Chinese government acquiring energy resources.''

The Chinese government, which owns 70 percent of CNOOC, has made a multibillion-dollar string of deals with countries ranging from Sudan to Venezuela to secure foreign oil and gas supplies.

''Substantially all of the oil and gas produced by Unocal in the U.S. will continue to be sold in the U.S.,'' Fu's statement said. ''The development of properties in the Gulf of Mexico will provide further supplies of oil and gas for American markets.''

However, it noted that 70 percent of Unocal's oil and gas reserves are in Asia, and didn't say what would happen to those resources.

Many oil industry experts agreed that security fears were unwarranted and warned that such responses could make it harder for U.S. oil giants to gain the international access they need to grow.

''This is not a company building military aircraft or missile technology. This is energy, at the end of the day,'' said Lawrence Goldstein, president of the nonprofit Petroleum Industry Research Foundation in New York.

El Segundo, Calif-based Unocal already had accepted an offer to be bought by Chevron for nearly $16.6 billion in cash and stock. Chevron said it will not sweeten its offer -- at least for now.

''We're satisfied with the bid we have on the table,'' Peter Robertson, Chevron vice chairman, said in an interview on CNBC. ''We think it's still the best opportunity for the shareholders.''

Unocal said its board would consider the hostile takeover bid. The company said late Thursday that Chevron had given it clearance to begin talks with CNOOC about a possible deal.

The offer is the biggest attempt yet in a string of acquisition bids by Chinese companies for American firms.

Appliance maker Haier Group and two U.S. private equity firms offered $1.28 billion for Maytag after it agreed to be bought by another U.S. firm. Maytag says it is considering the Haier consortium's offer.

Chinese computer maker Lenovo's $1.75 billion purchase of IBM's personal computer division was cleared by a U.S. federal panel in March.

Robertson told CNBC that a Chevron deal would put more oil and gas into the commercial market. ''Americans are worried about the supply of oil and gas. There is an issue here of who can put more oil and gas into the market on a commercial basis. I think if the Chinese government buys this asset, you can be sure that much of these materials will go to China,'' Robertson said.

But industry analysts say the deal poses no genuine supply threat to the U.S. market, which imports about 12 million barrels of oil per day, because Unocal's resource base in the United States is relatively small. It is Unocal's Asian assets that CNOOC is really interested in, they said.

CNOOC said the acquisition would more than double its production and estimated that 85 percent of the combined reserves of both companies are located in Asia and the Caspian Sea region.

Moreover, a deal between CNOOC and Unocal could benefit American companies, consumers and workers in the long run, analysts said.

Oil analyst Fadel Gheit at Oppenheimer & Co. in New York said it would be the ''pinnacle of hypocrisy'' for the United States to put roadblocks in CNOOC's way, considering that President George W. Bush and others in his administration have repeatedly scolded Russia for not opening its doors wide enough to U.S. oil companies.

''American companies must expand globally, but if we cut off people from coming into our country other countries will just block our companies from doing the same,'' Gheit said.

------

Associated Press business writers Brad Foss in Washington and Gary Gentile in Los Angeles contributed to this report.

------

On the Net:

http://www.transactioninfo.com/cnooc



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Secretive Panel Could Block China's Unocal Bid - New York Times

Secretive Panel Could Block China's Unocal Bid - New York Times


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June 24, 2005
Secretive Panel Could Block China's Unocal Bid
By REUTERS
Filed at 6:39 p.m. ET

WASHINGTON (Reuters) - If Unocal Corp. accepts an $18.5 billion takeover by China's CNOOC Ltd. the deal's fate may hinge on how a secretive U.S. review panel defines ``national security,'' experts said on Friday.

``The primary question for this transaction is whether they consider energy security to be a national-security issue,'' said Michael Wessel, a Democrat and a member of the U.S.-China Economic and Security Review Commission.

Wessel said the Bush administration, so far, had restricted the definition of national security.

State-owned CNOOC's unsolicited bid trumped a roughly $16.4 billion offer from Chevron Corp. and coincides with record oil prices, unease over China's $160 billion trade surplus with the United States and concerns about its growing military might.

The 12-member Committee on Foreign Investment in the United States, or CFIUS, is chaired by the Treasury secretary and brings together top White House aides, the secretaries of State, Homeland Security, Defense, Commerce and Justice and the U.S. Trade Representative.

Under a 1988 law, the president may deny a foreign acquisition of a U.S. corporation only if a CFIUS review establishes two things:

-- credible evidence that the foreign entity seeking control might threaten national security and;

-- relevant laws do not provide adequate authority to protect national security.

In 2003, a CFIUS review led to the collapse of a bid by Hong Kong-based Hutchison Whampoa) to buy then-bankrupt telecommunications company Global Crossing.

But China's Lenovo Group Ltd. was approved to buy IBM's personal computer business this year despite objections from some China critics and a CFIUS review.

Since taking shape 17 years ago, CFIUS has reviewed 1,560 cases, only 25 of which involved expanded 45-day investigations. A CFIUS review normally takes 30 days.

Unocal, the ninth largest U.S. oil and gas production company, has extensive holdings in Asia. If CNOOC succeeds, it would mark the largest overseas purchase by a Chinese firm.

Voicing concern over China's mounting clout, the chairman of the House Small Business Committee, Rep. Donald Manzullo, an Illinois Republican, said Thursday:

``We must reform the CFIUS process to consider economic security as part of national security,'' Manzullo said.

The law creating CFIUS does not define national security. CFIUS reviews typically have focused on whether proprietary U.S. technology with strategic uses is available elsewhere.

Wessel said any CFIUS review would have to look at whether any Unocal oil-drilling and oil-prospecting technologies could help China test nuclear weapons or mask such tests.

But CNOOC's bid raises a potential new concern -- that it could help China corner oil supplies, threatening U.S. security by jeopardizing its energy resources and economy.

The prospective CFIUS review would be the first to focus on a natural resource company, according to William Reinsch, a Commerce Department undersecretary under President Bill Clinton. ``In that sense, it's groundbreaking,'' he said.

Reinsch, president of the National Foreign Trade Council, a private business group, said a key issue likely would be the productive capability that China may be ``locking up for 10, 15, 20 years from now,'' not just current supplies.

Still, not all analysts perceived a security threat.

James Lewis, a technology transfer expert at the Center for Strategic and International Studies, said CFIUS should not have any concerns about a Unocal purchase.

``From a security perspective, it's as much of a threat as when the Japanese purchased (New York's) Rockefeller Center,'' he said by email.



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Unocal Bid Pours Oil on China - U.S. Political Fire - New York Times

Unocal Bid Pours Oil on China - U.S. Political Fire - New York Times


--------------------------------------------------------------------------------

June 24, 2005
Unocal Bid Pours Oil on China - U.S. Political Fire
By REUTERS
Filed at 2:52 p.m. ET

WASHINGTON (Reuters) - Deep misgivings about China's rising economic and political clout have helped fuel political resistance to a major Chinese oil company's bid to buy U.S. producer Unocal, experts said on Friday.

State-owned CNOOC Ltd.'s $18.5 billion bid for Unocal Corp. on Wednesday, topping Chevron Corp.'s roughly $16.4 billion offer, came under swift fire from U.S. lawmakers, who are calling for stringent investigations into the transaction even before a deal is reached.

The Unocal issue arises at a time of record oil prices, unease over China's $160 billion trade surplus with the United States and an appetite in Congress to punish China with tariffs unless it revalues its currency.

U.S. defense officials are embroiled in a debate over how to evaluate China's military. The Pentagon's annual report on China's military modernization has been delayed for weeks in an apparent dispute over how stark a picture to present.

Mikkal Herberg, an analyst at the National Bureau of Asian Research in Seattle, said there were solid reasons to examine the financing of the Chinese firm's bid and ask whether it was a commercial transaction or an effort to corner oil supplies.

Unocal is the ninth largest U.S. oil and gas production company.

``But this combines with all these other concerns about China -- currency, trade deficit and other things -- to make another reason for China-bashing, which I'm worried about.''

REJECTION 'HORRENDOUS'

``If CNOOC wins the bidding war, then the government steps in and ultimately turns it down, that's going to be just a horrendous episode in U.S.-China relations,'' Herberg said.

Top U.S. officials assert that U.S.-China ties have rarely been better, with cooperation on anti-terrorism and in diplomatic efforts to end North Korea's nuclear arms programs. China is host of six-party talks on North Korea, which also include the United States, South Korea, Japan and Russia.

The administration of President George W.Bush, who will meet Chinese President Hu Jintao several times this year, has repeatedly staved off protectionism aimed at China.

Zheng Bijian, a Chinese Communist Party opinion leader, toured the United States last week and met senior government officials with the message that China was seeking a ``peaceful rise'' in its international position that would not challenge U.S. interests.

Brookings Institution scholar Kenneth Lieberthal, who handled China policy in the Clinton White House, said the political calm with China Bush enjoyed from the Sept. 11 attacks through his re-election was giving way to tension.

``The top leaders of both counties continue to want the relationship to work well, but the politics of the relations below the highest level are becoming tougher,'' he said.

``We are fully engaged and yet there is a question as to how much we can trust each other's intentions, so when politics become tougher in one capital, that underlying distrust on the other side gets more horsepower behind it,'' Lieberthal said.

LONG-TERM FLASHPOINT

China's dramatic emergence has added to long-term troubles, such as the status of Taiwan, over which Beijing claims sovereignty but which Washington supplies with defensive arms.

China's intensifying quest for oil to fuel its surging economy has led Beijing to embrace energy-rich countries the United States shuns, such as Iran and Sudan. If CNOOC does succeed, it would be the biggest overseas acquisition by a Chinese firm.

``They are paying a price for access to (oil) markets which may not be in anybody's interest, like providing the Sudanese and the Libyans with advanced weaponry,'' said Richard D'Amato, chairman of the U.S.-China Commission, which advises Congress.

Lieberthal said the Unocal bid marked a potentially good way for China to secure ``non-rogue'' oil supplies, and a rejection could drive the Chinese closer to the pariahs.

Some observers see hypocrisy in U.S. officials complaining about investment barriers in China but crying foul when Chinese firms want to buy U.S. businesses.

But Gal Luft, executive director of Institute for the Analysis of Global Security, said it would be ``suicidal'' at a time of $60-a-barrel oil for the United States to let a Chinese state-run firm control oil sources by buying Unocal.

``It's not the government of Japan or France,'' he said. ``We want to think about the fact that an American company falls in the hands of the Communist government of China.''



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??? Zaobao.com社论/言论/天下事 2005-06-23



中国的“辩理交利”外交

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● 伍俊飞（伦敦）

　　日前笔者在《联合早报》撰文，指出中国外交正在走出邓小平的“韬光养晦”遗策。那么，下一步应该采取何种政策指导中国外交呢？笔者以为，强调在现有国际秩序内追求中国国家利益的“辩理交利”是不错的选择。

　　“辩理”就是通过国际规则保护自己，通过国际公关说服他国，构建和维护国家利益；“交利”就是通过多边和双边磋商营造共同利益，追求利益均沾。“辩理交利”本质上是理性地在国际现状下大胆作为。它继承邓小平外交的低调务实精神，主张在国际事务中，对非核心利益继续旁观，而对核心利益要以实事求是的态度主动而果断地进取。

利用国际规则维护利益

　　“辩理”外交着眼于国际规则和国际公关。它要求中国尊重现有国际规范，通过谈判、争论和公关，在对外关系中主动谋求利益。中国曾长期对多边国际制度持怀疑态度，因为不太了解外国法规，动议能力不强，无法主导规则制定。

　　近年来，中国已逐渐熟悉国际规则，勇于参与国际论坛，发挥主动性和创造性。中国开始深度介入多边制度的建设，活跃在上海合作组织、朝核问题六方会谈、博鳌亚洲论坛及正在形成的中国与东盟自由贸易区。对涉及核心利益的规则和理念，中国积极表达见解，发出声音，并尝试促成有利于中国的国际法创立。比如，中国已经在欧美主导的防扩散和军控外交中动议立法，以防止其蜕变成西方剥夺发展中国家自卫权的手段。

　　在双边关系中，中国最近也已显示出利用现有国际规则为国家利益服务的信心和能力。欧美挑起纺织品贸易争端后，中国没有诉诸贸易战，而是依靠世贸法规，利用双边磋商，强调世贸组织对国际法的最大贡献是限制单边贸易制裁。

　　中国官员在此过程中展示出优秀的公关才干，通过讲道理获得国际舆论支持。商务部长薄熙来在5月30日举行的记者会上表现精彩。他有理有节地批评了美国和欧盟在贸易问题上的双重标准，指出它们对自己有竞争力的产业极力宣导自由贸易，但对自己没有竞争力的产业，特别是发展中国家的优势产业，就主张贸易保护主义。

　　“辩理”有助于中国建立外交道德高地。中国副总理吴仪出使日本，冷落小泉，引发世界舆论对日本朝拜法西斯罪犯的讨论，使中国得分不少。中国还可以在东亚慰安妇、美军虐俘、美国编造理由出兵伊拉克等问题上携手西方自由左派，在国际论坛与日、美平等争论，树立声张正义的形象。

中美利益互补性强

　　“交利”外交着眼于利益共享，其重点目标是中美关系。中美经济存在较强的结构互补性。中国产业结构与技术水平相对较低，与美方存在明显的垂直产业分工。随着市场规模及对外投资的扩大，中国经济将进一步同美国经济深度融合，形成互利互助的合作关系。没有美国市场，中国制造业不可能取得长达25年的高速增长；没有价廉物美的中国产品供应市场，美国也不可能在上世纪90年代实现该世纪内持续时间最长的无通货膨胀经济增长。这种双赢关系，是中美关系历经危机而不脱轨的根本原因之一。

　　“交利”实际上已经成为中国对外关系的事实，而且不时作为一种手段被运用于外交实践。美国强压人民币升值颇有时日，中国政府迄今为止的回应可圈可点。在承认中国对美出口增长确实冲击了美国制造业的基础上，中国着力宣传现有人民币汇率机制对美国的好处。中方强调，美国制造业目前的衰退其实有利于美国经济转型；由于中国供应了大量廉价商品，美国消费者能以较低的支出享受高质量生活；中国利用其积累的外汇储备，购买了大量美国的证券，为美国政府和企业提供了充足的资金。

不为大国虚名而消耗实力

　　然而，逐步走出“韬光养晦”政策并不意味着鼓励中国来一场巨大的外交革命。新的“辩理交利”路线要保持与“韬光养晦”的连续性，不是大跃进。最重要的是，中国须尽量避免与霸权国家美国发生直接军事冲突。

　　“辩理交利”要求谨慎处理全球性大国外交。强大的经济和军事力量是构成全球性大国的必要条件，但并不充分。比如，早在19世纪末，美国的经济实力就已超过英国而居世界首位，但其国际影响远不及英国；当今的日本已是一个经济霸主，但日本不是政治大国，所以还不配“全球性大国”的称号。目前中国缺乏全球性大国所需要的软力量，如文化影响、领导技巧、规则主导能力、意识形态感召力等等，只能被称为地区性大国或成长中的全球性大国。

　　过份强调全球性大国外交，可能会导致自我限制外交运作空间。目前的全球性大国美、俄、英、法，都具有与中国不同的意识形态和政治制度，拥有近似的价值观。基于国内政治需要，中国只能追求体制创新，而不能复制西方自由民主制度，势必继续高扬自己的独特性。如此，中国依赖大国外交容易被这些国家孤立和利用。中国需要像当年的大英帝国一样拓展亚非国家，不仅仅视其为中国工业品的销售市场和主要原材料来源，更重要的是视其为中国走向全球性大国的政治和外交平台。

　　“辩理交利”反对承担不切实际的国际责任。一个全球性大国要管理重大国际事务，承担高度责任，并有相当的对外援助能力。近年来，随着经济力量的壮大，中国开始为国际共同体做出一些牺牲，并提供更多外援。不过，中国人均GDP仍排在世界100名左右。中国还需要养精蓄锐，不能贪图大国虚名，过度消耗实力。

避免与霸权国家冲突

　　“辩理交利”要求中国全力避免与霸权国家的军事冲突。中国的确很难与美国成为朋友，因为两国意识形态和价值观差异太大。两国会长时间地处于冷和平状态。中国对美外交只能面对这一现实，一方面继续在经济、政治、社会、文化等领域与美进行更深层次的合作；另一方面在军事上保有强大的常规与核威慑能力，以防不测。

　　但是，中国可以做到不与美国为敌，防止双方爆发大规模战争，避免大规模军备竞赛。中国对美发起挑战是极不明智的，因为这会驱使美国先下手为强，狙击中国崛起。中国可以效法20世纪上半叶的美国，保持与霸权国家的合作，甚至在霸权国面临重大危机时，对其给予必要支持，既帮助它渡过难关，又为自身崛起创造有利条件。

　　当然，中国也要适当利用霸权国家与其他力量的冲突，可学习一次世界大战后美国对德国的扶植。目前，支持伊斯兰力量的壮大是一个不错的选项。伊朗崛起，埃及成为安理会常任理事国都符合中国利益。

　　本世纪上半叶是中国崛起的关键阶段。中国外交既要表现出强硬的一面，又要防止四面出击，树敌太多。“辩理交利”是新一代领导人调整中国外交的较好方向。就目前而言，对日强硬，对美灵活，对欧施惠，对俄合作，与东盟融合，应该成为中国新外交政策的基本框架。

·作者是旅英中国学者

Many in U.S., Canada View China as a Threat

Many in U.S., Canada View China as a Threat
Many in U.S., Canada View China as a Threat

By WILL LESTER
The Associated Press
Saturday, June 11, 2005; 2:52 AM



WASHINGTON -- China's growing political power and influence on the world economy has many people in North America concerned, polling suggests. Substantial numbers of people in Canada and the United States worry that China's emergence is a threat to world peace and worry about China's impact on the economy in their own countries.

Two-thirds of Americans and half of Canadians say they fear that "China is a serious threat" to jobs in their own countries, according to polling done by Ipsos-Reid. Just over half of Americans, 54 percent, and nearly half of Canadians say they are concerned about the level of Chinese investment in their countries.

Tensions have been increasing between various countries and China recently over its trade surplus, surging textile imports and problems with product piracy.

"It's clear that Americans are concerned about the emergence of China as a world power," said Darrell Bricker, Ipsos' president of public affairs for North America. "Canadians, on the other hand, see it as much an opportunity as a threat."

Bricker said Canadians view increased trade with China as a way of balancing Canada's current reliance on the United States.

Majorities in both Canada (61 percent) and the United States (71 percent) said they do not believe an increased global role for China will spur democratic reforms.

As China gains economic and political clout internationally, a sizable group of people in both Canada (42 percent) and the United States (31 percent) said they agreed with the statement that "China will soon dominate the world."

While most people in both countries see China's economic growth as an opportunity, they also don't think the nation's record of human rights abuses should be rewarded by pursuing expanded trade with it.

Seven in 10 Canadians said they thought expanding Canada's trade with China would be a good thing because it would reduce dependence on U.S. goods.

The polling was conducted April 5-7 of 1,000 adults in both Canada and the United States for the Canada Institute of the Woodrow Wilson International Center. Each poll has a margin of sampling error of plus or minus 3 percentage points.

© 2005 The Associated Press

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Rumsfeld Explains U.S. Pressure on China

Rumsfeld Explains U.S. Pressure on China
Rumsfeld Explains U.S. Pressure on China

By MATT KELLEY
The Associated Press
Saturday, June 4, 2005; 11:18 PM



SINGAPORE -- Pentagon chief Donald H. Rumsfeld said Saturday that U.S. pressure for political and economic change in China is not intended to undermine the Beijing government.

He criticized China for increasing military spending despite the absence of a threat from another country and said the Asian power risks diminishing its global influence unless it opens up its political system.

Political and economic freedom are in China's best interests, the U.S. defense secretary said.

"The implication that freedom means destabilization, I believe, is incorrect," Rumsfeld said in response to a question from a participant in an Asian security conference.

Conveying a hard line from the Bush administration, Rumsfeld used his keynote speech to challenge China's military buildup and urge political change.

"Economic success depends on increasingly freer economic systems. That will put pressure on a political system that is less free," Rumsfeld said. "The task for China is to resolve that issue."

Rumsfeld said the Pentagon's annual assessment of China's military capabilities shows China now has the world's third-largest military budget, behind the U.S. and Russia. He did not say how large the U.S. believes China's military budget is.

A report last month by a U.S. think tank put China's military spending between $69 billion and $78 billion a year, estimated in 2001 U.S. dollars. That ranges between 2.3 percent and 2.8 percent of China's gross domestic product, according to the RAND Corp. That compares with the $430 billion spent by the U.S. on defense in 2004 _ 3.9 percent of the country's GDP.

Cui Tiankai, the director of the Asia bureau of China's foreign ministry, was in the audience for Rumsfeld's speech. He questioned Rumsfeld afterward.

"Do you truly believe that China is under no threat by other countries?" Cui asked. "Do you truly believe that the U.S. is threatened by the emergence of China?"

Rumsfeld said he does not think any country threatens China and that the U.S. does not view China as a threat. But he did question why China has stationed hundreds of missiles within range of Taiwan.

"I just look at the significant rollout of ballistic missiles opposite Taiwan and I have to ask the question: If everyone agrees the question of Taiwan is going to be settled in a peaceful way, why this increase in ballistic missiles opposite Taiwan?" Rumsfeld said.

China has said it will attack Taiwan if the self-governing island tries to declare formal independence. China repeatedly has urged the U.S. to stop selling weapons to Taiwan, which Beijing views as a renegade province that must be reabsorbed by the mainland.

This year, China denounced a joint U.S.-Japan statement that said the two allies shared the objective of a peaceful resolution of the Taiwan issue.

The U.S. wants the European Union to keep in place its ban on selling weapons to China. Washington argues that any European weapons sold to China could be used against Taiwan.

Cui rejected the suggestion that China is spending more than necessary on its military.

"Since the U.S. is spending a lot more money than China is doing on defense, the U.S. should understand that every country has its own security concerns and every country is entitled to spend money necessary for its own defense," Cui told The Associated Press.

Turning his attention to North Korea, Rumsfeld said China is in the best position to persuade the North Koreans to return to six-nation talks about its nuclear weapons program. Nearly a year has passed since North Korea, which has said its possesses nuclear weapons, last participated in the talks.

South Korea's defense minister, who met with Rumsfeld on Saturday, said Seoul agrees that China should try to persuade North Korea to rejoin the talks.

"I believe these efforts are very much respected," Yoon Kwang Ung told reporters.

Rumsfeld branded North Korea a worldwide threat because of its record of selling missile technology and weapons. "One has to assume that they'll sell anything, and that they would sell nuclear technologies," Rumsfeld said.

In other developments Saturday:

_Rumsfeld said Al-Jazeera, the Qatar-based pan-Arab television network, promoted terrorism by airing beheadings and other attacks. He said the station provides a platform for Muslim extremists and that the U.S. has a hard time combating terrorists' claims. "Governments have to be accurate. Extremists don't," he said. Al-Jazeera denies it holds any anti-American bias and says it reports the news objectively.

_In Beijing, the U.S. commerce secretary said Saturday that China's mounting trade surplus, surging textile exports and rampant product piracy could fuel opposition in the United States to free trade. Carlos Gutierrez was on his first visit to Beijing amid a storm of Chinese criticism over U.S. textile quotas.

The administration and many U.S. lawmakers also are pressing for an overhaul of China's currency system. U.S. manufacturers say China's practice of keeping the yuan tightly linked to the U.S. dollar has contributed to the loss of millions of U.S. jobs and America's soaring trade deficit.

© 2005 The Associated Press

China: Containment Won't Work

China: Containment Won't Work
China: Containment Won't Work

By Henry A. Kissinger
Post
Monday, June 13, 2005; A19



The relationship between the United States and China is beset by ambiguity. On the one hand, it represents perhaps the most consistent expression of a bipartisan, long-range American foreign policy. Starting with Richard Nixon, seven presidents have affirmed the importance of cooperative relations with China and the U.S. commitment to a one-China policy -- albeit with temporary detours at the beginning of the Reagan, Clinton and George W. Bush administrations. President Bush and Secretaries of State Condoleezza Rice and Colin Powell have described relations with China as the best since the opening to Beijing in 1971. The two presidents, Bush and Hu Jintao, plan to make reciprocal visits and to meet several times at multilateral forums.

Nevertheless, ambivalence has suddenly reemerged. Various officials, members of Congress and the media are attacking China's policies, from the exchange rate to military buildup, much of it in a tone implying China is on some sort of probation. To many, China's rise has become the most significant challenge to U.S. security.

Before dealing with the need of keeping the relationship from becoming hostage to reciprocal pinpricks, I must point out that the consulting company I chair advises clients with business interests around the world, including China. Also, in early May I spent a week in China, much of it as a guest of the government.

The rise of China -- and of Asia -- will, over the next decades, bring about a substantial reordering of the international system. The center of gravity of world affairs is shifting from the Atlantic, where it was lodged for the past three centuries, to the Pacific. The most rapidly developing countries are in Asia, with a growing means to vindicate their perception of the national interest.

China's emerging role is often compared to that of imperial Germany at the beginning of the 20th century, the implication being that a strategic confrontation is inevitable and that the United States had best prepare for it. That assumption is as dangerous as it is wrong. The European system of the 19th century assumed that its major powers would, in the end, vindicate their interests by force. Each nation thought that a war would be short and that, at its end, its strategic position would have improved.

Only the reckless could make such calculations in a globalized world of nuclear weapons. War between major powers would be a catastrophe for all participants; there would be no winners; the task of reconstruction would dwarf the causes of the conflict. Which leader who entered World War I so insouciantly in 1914 would not have recoiled had he been able to imagine the world at its end in 1918?

Another special factor that a century ago drove the international system to confrontation was the provocative style of German diplomacy. In 1900 a combination of Russia, France and Britain would have seemed inconceivable given the conflicts among them. Fourteen years later, a bullying German diplomacy had brought it about, challenging Britain with a naval buildup and seeking to humiliate Russia over Bosnia in 1908 and France in two crises over Morocco in 1905 and 1911.

Military imperialism is not the Chinese style. Clausewitz, the leading Western strategic theoretician, addresses the preparation and conduct of a central battle. Sun Tzu, his Chinese counterpart, focuses on the psychological weakening of the adversary. China seeks its objectives by careful study, patience and the accumulation of nuances -- only rarely does China risk a winner-take-all showdown.

It is unwise to substitute China for the Soviet Union in our thinking and to apply to it the policy of military containment of the Cold War. The Soviet Union was heir to an imperialist tradition, which, between Peter the Great and the end of World War II, projected Russia from the region around Moscow to the center of Europe. The Chinese state in its present dimensions has existed substantially for 2,000 years. The Russian empire was governed by force; the Chinese empire by cultural conformity with substantial force in the background. At the end of World War II, Russia found itself face to face with weak countries along all its borders and unwisely relied on a policy of occupation and intimidation beyond the long-term capacity of the Russian state.

The strategic equation in Asia is altogether different. U.S. policy in Asia must not mesmerize itself with the Chinese military buildup. There is no doubt that China is increasing its military forces, which were neglected during the first phase of its economic reform. But even at its highest estimate, the Chinese military budget is less than 20 percent of America's; it is barely, if at all, ahead of that of Japan and, of course, much less than the combined military budgets of Japan, India and Russia, all bordering China -- not to speak of Taiwan's military modernization supported by American decisions made in 2001. Russia and India possess nuclear weapons. In a crisis threatening its survival, Japan could quickly acquire them and might do so formally if the North Korean nuclear problem is not solved. When China affirms its cooperative intentions and denies a military challenge, it expresses less a preference than the strategic realities. The challenge China poses for the medium-term future will, in all likelihood, be political and economic, not military.

The problem of Taiwan is an exception and is often invoked as a potential trigger. This could happen if either side abandons the restraint that has characterized U.S.-Chinese relations on the subject for over a generation. But it is far from inevitable. Almost all countries -- and all major ones -- have recognized China's claim that Taiwan is part of China. So have seven American presidents of both parties -- none more emphatically than George W. Bush. Both sides have managed the occasional incongruities of this state of affairs with some skill. In 1972 Beijing accepted a visit by President Nixon, even while the United States recognized Taipei as the capital of all of China, and by another president -- Gerald Ford -- under the same ground rules in 1975. Diplomatic relations were not established until 1979. Despite substantial U.S. arms sales to Taiwan, Sino-American relations have steadily improved based on three principles: American recognition of the one-China principle and opposition to an independent Taiwan; China's understanding that the United States requires the solution to be peaceful and is prepared to vindicate that principle; restraint by all parties in not exacerbating tensions in the Taiwan Strait.

The task now is to keep the Taiwan issue in a negotiating framework. The recent visits to Beijing by the heads of two of Taiwan's three major parties may be a forerunner. Talks on reducing the buildup in the Taiwan Strait seem feasible.

With respect to the overall balance, China's large and educated population, its vast markets, its growing role in the world economy and global financial system foreshadow an increasing capacity to pose an array of incentives and risks, the currency of international influence. Short of seeking to destroy China as a functioning entity, however, this capacity is inherent in the global economic and financial processes that the United States has been preeminent in fostering.

The test of China's intentions will be whether its growing capacity will be used to seek to exclude America from Asia or whether it will be part of a cooperative effort. Paradoxically, the best strategy for achieving anti-hegemonic objectives is to maintain close relations with all the major countries of Asia, including China. In that sense, Asia's rise will be a test of U.S. competitiveness in the world now emerging, especially in the countries of Asia. The historical American aim of opposing hegemony in Asia -- incorporated as a joint aim with China in the Shanghai Communique of 1972 -- remains valid. It will have to be pursued, however, primarily by political and economic measures -- albeit backed by U.S. power.

In a U.S. confrontation with China, the vast majority of nations will seek to avoid choosing sides. At the same time, they will generally have greater incentives to participate in a multilateral system with America than to adopt an exclusionary Asian nationalism. They will not want to be seen as pieces of an American design. India, for example, perceives ever closer common interests with the United States regarding opposition to radical Islam, some aspects of nuclear proliferation and the integrity of the Association of Southeast Asian Nations. It sees no need to give these common purposes an ideological or anti-Chinese character. It finds no inconsistency between its dramatically improving relations with the United States and proclaiming a strategic partnership with China. American insistence on an ideological crusade and on a Cold War-type of containment might accelerate such gestures. And it would risk inflaming India's Muslim population.

China, in its own interest, is seeking cooperation with the United States for many reasons, including the need to close the gap between its own developed and developing regions; the imperative of adjusting its political institutions to the accelerating economic and technological revolutions; and the potentially catastrophic impact of a Cold War with the United States on the continued raising of the standard of living, on which the legitimacy of the government depends. But it does not follow from this that any damage to China caused by a Cold War would benefit America. We would have few followers anywhere in Asia. Asian countries would continue trading with China. Whatever happens, China will not disappear. The American interest in cooperative relations with China is for the pursuit of a stable international system.

Preemption is not a feasible policy toward a country of China's magnitude. It cannot be in our interest to have new generations in China grow up with a perception of a permanently and inherently hostile United States. It cannot be in China's interest to be perceived in America as being exclusively focused on its own narrow domestic or Asian interests.

The issue of nuclear weapons in North Korea is an important test case. It is often presented as an example of China's failure to fulfill all its possibilities. But anyone familiar with Chinese conduct over the past decade knows that China has come a long way in defining a parallel interest with respect to doing away with the nuclear arsenal in North Korea. Its patience in dealing with the problem is grating on some U.S. policymakers, but it partly reflects the reality that the North Korean problem is more complex for China than for the United States. America concentrates on nuclear weapons in North Korea; China is worried about the potential for chaos along its borders. These concerns are not incompatible; they may require enlarging the framework of discussions from North Korea to Northeast Asia.

Attitudes are psychologically important. China needs to be careful about policies seeming to exclude America from Asia and our sensitivities regarding human rights, which will influence the flexibility and scope of the U.S. stance toward China. America needs to understand that a hectoring tone evokes in China memories of imperialist condescension and that it is not appropriate in dealing with a country that has managed 4,000 years of uninterrupted self-government.

As a new century begins, the relations between China and the United States may well determine whether our children will live in turmoil even worse than the 20th century's or will witness a new world order compatible with universal aspirations for peace and progress.

The writer, a former secretary of state, is chairman of Kissinger Associates.

© 2005 The Washington Post Company