Jubak's Journal
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Let China buy Unocal
In fact, let that country's companies buy whatever they want here. It's crucial that we do so because of our standing as a great debtor.
By Jim Jubak
Why the furor at the bid by China's third-largest oil company CNOOC for Unocal, the ninth-largest U.S. oil company?
What's the surprise? That oil-hungry China would buy an oil company? That the Chinese, who are swimming in U.S. dollars, would use them to buy something other than U.S. Treasurys, with their 4% yields? Were the Chinese just supposed to start burning piles of greenbacks to heat their homes and run their factories?
And the outrage? Because the Chinese are buying our oil? Hello! Unocal's most-valuable fields are off Thailand, Indonesia and Myanmar. Because our national security will be in danger if the Chinese get new seismic technology from Unocal? Hello! The Chinese already have nuclear weapons and routinely conduct underground tests of their bombs; they don't need to buy Unocal to get better seismic data. Or because, horror of horrors, CNOOC (CEO, news, msgs) is getting below-market-rate loans from its government (we never, never do that to help U.S. companies) so that it can overpay for Unocal (UCL, news, msgs)? Hello! Considering our trade deficit with China, don't we want it to overpay?
I say, bring 'em on. We need more bids like CNOOC's and the bid by the Haier Group, China's largest appliance maker, for Maytag (MYG, news, msgs). Let's sell more struggling divisions of our multinationals to Chinese companies, a la the purchase of IBM's (IBM, news, msgs) chronically money-losing PC operation by China's Lenovo Group (LNVGY, news, msgs). And I hope that some of the current rumors -- including that Aluminum Corp. of China (ACH, news, msgs) is on the prowl for aluminum companies when stock prices are near the top for this commodity cycle -- turn out to be true.
The world economy needs this deal
The U.S., no, make that the world, needs more deals like this if we're to have any hope of recycling the huge dollar balances now building up in China. And those dollars have got to be recycled back into the world economy if the fragile monetary system that underpins global economic growth now is to have any chance of surviving.
Now, the global economy depends on U.S. spending. In the year's first four months, the U.S. bill for imports ran $229 billion above our receipts for exports. At that rate, the U.S. is on track for a record trade deficit of $686 billion dollars. (The old record, set in 2004, was $618 billion.)
But without that spending, the world would be looking at economic recession or worse. Europe isn't growing: The Organization for Economic Cooperation and Development pegs 2005 real economic growth at just 1.2% in the countries that use the euro. (Real growth is growth after subtracting the inflation rate.) Japan, at a projected 1.5% real growth rate for 2005, looks good only in comparison to Italy (-0.6% for 2005), Germany (1.2%) and France (1.4%).
Related news and commentary on MSN Money
Among the biggest economies in the developed world, only the U.S. is providing any real push to the global economy. And we're doing so in two ways: through our economic growth at a projected real rate of 3.6% in 2005, and through our spending on goods from China and India. Those two countries, with economies larger than Germany's measured using purchasing power parity to account for price differences in the these three economies, are projected to grow by 9% and 8%, respectively, in this year. The U.S. economy accounts for a big chunk of that growth. In April, for example, U.S. imports of goods from China climbed to $18.1 billion, a 12% increase from March.
We're China's biggest debtor
We're paying for these imports -- we're driving the global economy, if you will -- on credit. China, for example, sends us socks, golf clubs and furniture and we send back dollars that we've borrowed. We borrow from just about every country in the world, but a big share of that borrowing comes from China. It's only just, I suppose, since we're China's biggest customer.
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