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The rising economic clout of China

A bid on a US oil company has raised concerns over China's expanding reach.

By Staff writer of The Christian Science Monitor / June 30, 2005



WASHINGTON

In recent weeks Washington has become increasingly wary of one of the most powerful geopolitical trends in today's world - the emergence of China as an economic superpower.

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The unsolicited Chinese bid to take over a US oil company has riled Congress in particular. Many lawmakers are calling for retaliation against a nation they believe has long flouted the rules of fair international trade.

The White House, for its part, has been reluctant to publicly criticize a deal that may never be consummated. And in general, say analysts, attempts to hobble China's economic rise would be as futile as using ropes to try to restrain a rocket. They would only earn the enmity of the nation that may be most likely to emerge as the world's next superpower.

"Perhaps because China is our strategic rival we are overreacting," says Gary Saxonhouse, an expert on Asian economies at the American Enterprise Institute.

Yet some moves are already being made. On Tuesday, the House voted to add to this year's foreign-aid bill a provision that would prohibit the US Export-Import Bank from approving loans to help US firms build nuclear power plants in China.

Backers of the move argued that US government agencies should not help finance China's rise, and that the Chinese should be prevented from obtaining sensitive American nuclear technology.

Rep. Dana Rohrabacher (R) of California went so far as to call China a "Frankenstein monster" threatening US interests.

Meanwhile, key members of Congress were increasing pressure on the White House to investigate the $18.5 billion bid of the Chinese energy company CNOOC for Unocal Corp. House leaders were hoping to pass as early as Thursday a nonbinding resolution urging a national-security review of the deal.

On Tuesday, House Energy and Commerce Committee Chairman Rep. Joe Barton (R) of Texas sent President Bush a letter urging him to block the Unocal deal. Unocal's vital oil assets in the Gulf of Mexico and Alaska shouldn't be under China's control, said Mr. Barton. In addition, Unocal's advanced oil- and gas-exploration and production techniques might have military applications, according to Barton and cosigner Rep. Ralph Hall (R) of Texas.

Furthermore, China now has the third largest military budget in the world, and its buildup of troops and weapons worries the Pentagon.

"The Chinese are great economic and political rivals, not friendly competitors or allies in democracy," the letter said.

That China is now the economic engine of Asia is indisputable. Its economic rise may indeed threaten American economic preeminence in a way in which the explosive growth of Japanese firms in the 1970s and 1980s did not.

China's Gross Domestic Product (GDP) is now about half that of the United States. Projections hold that in 30 years, Chinese and US GDPs will be about the same.

Currently China consumes about six million barrels of oil a day, and the US about 20 million. In 20 years, China will also need 20 million barrels of oil per day, predicted Christopher Hill, assistant secretary of State for East Asia and the Pacific, at a recent Senate Foreign Relations hearing on China's economic rise.

But just because the US can see China's economy coming in its rearview mirror does not mean Washington should be worried, said assistant secretary of State Hill. Over the last 30 years, seven presidents have made engagement with China, and its peaceful integration into the international system, one of their most important foreign-policy goals.

"China's global emergence is a natural consequence of its economic growth and development, and need not occur at the expense of the United States," said Hill.

Considering the sensitive nature of access to petroleum, it may be understandable that Congress is worried about the Unocal deal, say some analysts. The specter of a mammoth China buying up all available resources, and denying them to the US and its allies, is indeed worrisome.

After all, Japan bought Rockefeller Center and other icons of US business at the height of its investment splurge - but it never appeared to be buying up America's natural resources.

Still, oil is a fungible commodity, and Unocal, as things go, is a small producer. China might indeed treat the firm as its own personal gas pump - but in doing so, it would also lesson the pressure its demand would otherwise put on the open market. In theory, the price effect should be a wash.

Given the scale of US business investment in China, it's hard to turn around and complain about China's attempt to buy Unocal, says Gary Saxonhouse of The American Enterprise Institute.

In addition, the US badly needs Chinese help in its effort to pressure North Korea over that nation's nascent nuclear program.

"I would be concerned if the Saudi government sold Aramco [a Saudi oil company] to the Chinese - but they're not," says Saxonhouse, who is also a professor of economics at the University of Michigan.

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