Mon, Aug 08, 2005 page12

• Unocal fiasco won't deter China

  JUST A BLIP Despite the highly-publicized failure of CNOOC's bid for US oil giant Unocal, analysts say China's appetite for foreign investments will likely remain strong

  • AP
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  Chinese oil company CNOOC Ltd's (中國海洋石油) failed bid for Unocal Corp was a painful lesson for Beijing on the potential pitfalls of overseas mergers and acquisitions, but it's unlikely to spoil China's growing appetite for foreign investments -- including in the US.

  Hungry for energy and other natural resources and driven by political and commercial imperatives to seek out new markets, advanced technology and brand names, Chinese companies are bound to keep hunting for global investment opportunities, despite the political risks, analysts said.

  "They probably will pick their targets more carefully but they will continue to come out," says Jack J.T. Huang, chairman of international law firm Jones Day's Greater China practice. "Market pressure will continue to push them out."

  CNOOC, China's third-biggest oil company, indicated it would persist in its strategy of investing overseas, despite its decision Tuesday to withdraw its US$18.4 billion offer for California-based Unocal due to political opposition in Washington.

  By Thursday, reports had already surfaced that CNOOC was considering a bid for Australia's Woodside Petroleum Ltd.

  Eager to tap foreign markets, Chinese authorities are pushing top Chinese companies to go global, says Huang.

  With the economy growing at an annual rate of more than 9 percent, crude oil imports have been soaring. CNOOC and other government-controlled oil companies were among the first Chinese companies to begin actively making big investments abroad, buying up big stakes in oil and gas fields in places such as Indonesia and Iran.

  But with the global race to secure energy resources, Chinese oil and mineral companies in particular are likely to face hurdles and opposition in most parts of the world.

  "People are becoming very nationalistic over what's in their ground," says James McGregor, author of the book A Billion Customers: Lessons From the Front Lines of Doing Business in China.

  Beijing might be able to make oil deals in some developing countries, but there are few desirable Third World takeover targets.

  Russia has massive energy reserves, but oil firm Yukos' financial woes have already caused disruptions to oil trade with China, accentuating the risks of investments there.

  In Australia, where Chinese oil, mineral and steel companies have been actively courting strategic partners, a takeover attempt on Woodside would face "significant hurdles," said John Hirjee, an energy analyst at Deutsche Bank Australia in Melbourne.

  An attempt by Anglo-Dutch oil giant Royal Dutch Shell PLC to take over Woodside in 2000 was blocked by the government on national interest grounds.

  "Any bid by a foreign company on Woodside will have to go through the Foreign [Investment] Review Board which heightens the risk that the federal government may try to block it," he said.

  Even Thailand, which has sought close ties with China, warned Beijing against letting a Chinese group led by state-owned China National Petroleum Corp (中國石油天然氣) attempt to buy Thai oil and gas assets recently sold by Houston, Texas-based energy company Pogo Producing Co. Pogo instead sold the assets to Thai company PTT Exploration & Production PCL and Japan's Mitsui Oil Exploration Co, for US$820 million in cash.

  "Bangkok dealt with that diplomatically, very early on," says Jason Kindopp, an Asia analyst for the Eurasia Group.

  But despite the occasional failure, all signs suggest that Beijing remains committed to its policy, which it has dubbed the "going out strategy," of encouraging overseas investments.

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