Posted on 06/30/2005 2:54:29 AM PDT by TheBigPicture
Keep Communists Out Of American Boardrooms Carlton Delfeld, 06.28.05
There are two principles that should guide America's policy towards foreign companies interested in acquiring ownership and control of U.S. companies. These principles are openness to private investment in areas not affecting our national security, and reciprocity in allowing American companies to invest in the potential buyer's home country. These principles should be applied consistently and should not be aimed at any specific country.
Given the recent controversy regarding high profile Chinese bids for American companies, these principles should be applied to determine whether these bids are acceptable.
First, we must examine the issue of private versus government investment. Last month's purchase of the computer business of IBM (nyse: IBM - news - people ) was by Lenovo, a Chinese state-controlled entity. The bidder for Maytag (nyse: MYG - news - people ) is Haier, a state-owned and state-controlled entity, whose chief executive officer is on the ruling Communist Party's Central Committee. The Chinese bidder for Unocal (nyse: UCL - news - people ) is state-run CNOOC, China National Offshore Oil Corp. (nyse: CEO - news - people ).
America's policymakers have long encouraged China to privatize its state-owned and state-controlled companies. To allow these entities to gain control of U.S. private companies while still in state hands sends the wrong message.
Also, allowing a foreign government to gain control of U.S. companies is clearly not in our national interest and is contrary to America's free enterprise tradition.
Lastly, state-controlled companies can easily access concessionary funding from their government and the transparency regarding the origins of capital flows is poor and can be easily manipulated.
In CNOOC's bid for Unocal, its parent, 100% owned by the Chinese government, supplied a $2.5 billion loan at a zero interest rate and a $3.5 billion loan at a 3.5% rate that is far below what it could arrange through private banks. This puts the rival American bidder, Chevron (nyse: CVX - news - people ) at a distinct competitive disadvantage.
Despite China's public pronouncements since the late 1980s about its interest in privatizing state-owned and state-run companies, progress has been disappointing. Roughly 70% of the shares of the 1,377 companies listed on the Shenzhen and Shanghai stock markets are owned and controlled by the state.
Given these facts, a reasonable observer could wonder whether the Chinese government is really interested in having private total, or even majority, control of many of these companies--especially those operating in areas deemed strategic to China's Communist leadership.
The second key principle is reciprocity. China has recently been more flexible in allowing foreign investment in Chinese companies, but it should be noted that the Chinese government rarely allows a foreign investor to acquire majority control. Just this week, Bank of America (nyse: BAC - news - people ) announced an interest in investing in state-owned China Construction Bank, but even if it exercised all options, its stake would be less than 20% and its ability to exercise any management control is highly questionable.
China is interested in leveraging Bank of America's brand, prestige and technical expertise, but would never consider letting it take control of the China Construction Bank. Likewise, does anyone believe that Unocal or any other American energy company could ever purchase and take control of CNOOC? It would be inconceivable.
It's important to recognize the role of private foreign investment flows to spur U.S. and global growth and productivity. If a purely private Chinese firm were making a bid for Maytag, using private capital markets to finance its bid, and if American firms could do the same in China, we should welcome the investment with open arms.
The U.S. should be hospitable to private foreign investment, and China has enjoyed more than $500 billion in private direct investment over the past 15 years, and these investment flows have played a crucial role in its high economic growth rate.
Chinese officials have at times referred to the American democracy as "moneybags democracy." Given the high degree of overlap between the Chinese government and Chinese big business, perhaps it would be apt to refer to the Chinese system as "moneybags communism."
These foreign investment principles should not be seen as directed at China, but would also apply to other countries, such as Russia, that have a high proportion of large state-controlled companies.
Because of China's growing economic clout, there is a reluctance to confront it. But on this issue, clarity and firmness will actually improve relations between China and America and avoid case by case disputes and acrimony.
Carlton Delfeld is president of Chartwell Partners and publisher and editor of The Chartwell Advisor. Click here for more analysis from Delfeld, or to subscribe to The Chartwell Advisor.
The is a danger to the US, UNICAL owns the rigth to a lot of strategic resources globally.
"Keep Communists out of American Boardrooms"
What a great slogan!
Now if we could keep them out of the Supreme court.
Great editorial from Forbes.
American lobbyists for Communist China's hostile takeover bid of UNOCAL should be required to be registered as (enemy) agents of a foreign power.
==Now if we could keep them out of the Supreme court.
Well, give recent decisions, you might have to move out of your house to make way for China's business ventures.
==Lastly, state-controlled companies can easily access concessionary funding from their government and the transparency regarding the origins of capital flows is poor and can be easily manipulated.
Excellent point.
Exactly, and over half of those reserves are in Asia near china. Gee I wonder what they have in mind? How dumb can we be?
furgeddabout the Red chiee-we ought keep the freaking
"progressive" politicians out of the American boardrooms.
be they jacki -or Rino.
"You Can Trust Your Car
To The Man Who Wears The Star
The Big Red Unocal Star!"
Spot on!
Agree, we don't need ant neo Stalinists in our country.
With the trend of "business" today like Enron, Tyco, AIG and Fannie Mae, we have plenty thieves here.
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