China's oil scramble 'does not damage US'
By Stephanie Kirchgaessner (Financial Times)
Updated: 2006-02-08 08:37

http://news.ft.com/cms/s/c6b69f52-980d-11da-816b-0000779e2340.html

The Bush administration on Tuesday said efforts by Chinese companies to buy international energy assets were not economically damaging to the US, dismissing growing concern among Washington lawmakers that China is hoarding global energy supplies.

Although a study by the department of energy warned that efforts by China to reach out to oil-rich "despotic regimes" such as Sudan posed "potential problems" to the US strategically, the report did not provide new ammunition to critics who claim that China’s energy demands threaten US national security. Instead, it described China's energy policies as "economically neutral."

The report underscores a deep divide between the approach the White House has adopted towards China on energy issues, which takes into account other diplomatic endeavours, and the panic that has enveloped congressional leaders over the issue.

The findings, which were based on consultation with the departments of defence, state, and homeland security, follow Congress's backlash last summer against an attempt by CNOOC, the Chinese oil company, to take over California-based Unocal.

CNOOC was forced to abandon its $18.5bn bid after lawmakers led by congressman Richard Pombo characterised the proposed acquisition as an oil grab that was unfairly subsidised by the Chinese government.

"Even if China's equity oil investments 'remove' assets from the global market, in the sense that they are not subsequently available for resale, these actions merely displace what the Chinese would have otherwise bought on the open market," the study said.

The report did recognise that efforts by Beijing to establish closer ties with energy-rich "problem states" such as Sudan, Uzbekistan and Burma did pose "a series of potential problems for the United States."

"As a long-term trend, China's behaviour in this respect runs counter to key strategic goals. China's tolerance for despotic regimes may undermine [US foreign policy] efforts," the report found.

It also noted one often overlooked benefit of China's dealings with countries in which US companies are either unwilling or unable to invest: that "these actions may actually enlarge the total global oil supply."

The study also addressed accusations by Mr Pombo and others that Chinese oil companies are controlled by the Chinese government, which, in turn, gives Chinese companies favourable financing that makes it impossible for US companies to compete.

The report found that the role of the Chinese government in commercial energy dealings was "highly opaque," and that it was "unclear – though probable" that the government provided direct subsidies to national energy companies for overseas investments.

Although the government "ultimately holds all authority," state oil companies "often act in their own interest, regardless of government directives."

A spokesman for Mr Pombo said the study was "as forceful as an unclassified document could be," and that the US needed to be as committed as China was to developing diverse energy resources.

Fu Chengyu, the CNOOC chairman, separately said at an energy conference in Houston on Tuesday that: "China’s goal is not to overturn the world order but instead to participate in this world order, and to reinforce it and even to profit from it."

The department of energy signalled in its report that if CNOOC's bid for Unocal had succeeded, the only serious national security issue that would likely have been raised by a subsequent regulatory review was Unocal's ownership of rare earth mining and production facilities.