A chinese oil company's fight to buy Unocal ended last week in an angry retreat, but not without leaving clear signs that other political...

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WASHINGTON, D.C. — A Chinese oil company’s fight to buy Unocal ended last week in an angry retreat, but not without leaving clear signs that other political battles loom in Washington, D.C., over how much more of America the cash-rich Chinese can acquire.

Although CNOOC’s offer for the eighth-largest U.S. oil and gas concern mobilized the support of U.S. business, it was confronted — and finally overcome — by powerful forces that saw the purchase of American oil reserves as a threat to U.S. security.

When Congress passed a law last month requiring a government study of the Chinese bid, CNOOC realized that the months-long delay meant that its cash offer, though higher, would not be competitive with a rival bid from Chevron.

The Bush administration, pressured from both the left and the right to be tougher on China, said almost nothing publicly on the issue and has appeared to just want it to go away, experts said.

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Yet the billions of dollars sitting in Chinese banks from exports to the United States virtually guarantee that there will soon be new bids, making it likely that U.S. policy-makers will confront the same uncomfortable question.

Government involved

Some business executives and Asia experts say they have already seen signs that Washington, D.C., is growing more resistant to Chinese acquisitions of U.S. companies. In the aftermath of the Unocal bid — and with growing U.S. perceptions that Chinese power is a threat — that restrictiveness can only increase.

Some cases have been visible, such as the U.S. government’s 2003 rebuff, on national-security grounds, of Global Crossing’s plan to sell its communications network to Hutchison Whampoa, a Hong Kong-based group. The U.S. government permitted the Chinese company Lenovo Group to purchase IBM’s personal-computer business, yet the sale took longer than many had expected, experts note.

One U.S. trade adviser, who asked to remain unidentified, said the U.S. government has quietly discouraged several other planned acquisitions of U.S. telecommunications companies by Chinese and Hong Kong businesses. He predicted that the CNOOC case, which increased congressional awareness about Chinese acquisitions, would increase the opposition to similar takeover efforts.

“This has got to have a major impact,” he said.

The U.S. government interagency committee that reviews such acquisitions has come under political pressure to tighten its rules. Some members of Congress have urged the committee to consider oil acquisitions a national-security issue.

Others, including the U.S.-China Economic and Security Review Commission, a congressional advisory group, want it to greatly broaden the scope of its work by considering the domestic economic impact of acquisitions.

Rep. Donald Manzullo, R-Ill., chairman of the House Small Business Committee, declared that the process should consider “economic security as part of national security.”

It’s just not fair

Some experts think the interagency committee may start considering whether it is acceptable that a foreign suitor has the benefit of zero-interest loans, as the 70 percent government-owned CNOOC did.

Some members of Congress have complained that such financing gives Chinese companies an unfair advantage over U.S. rivals.

Despite pressures to impose new restrictions, there remain powerful pressures to permit such deals. U.S. business groups came out strongly in favor of allowing CNOOC to make its offer, especially because it said it was willing to sell its U.S. reserves.

It is awkward for the United States to try to further limit such acquisitions when top administration officials, such as Secretary of State Condoleezza Rice, are regularly calling for China to play by the rules of the international system.

And there are major economic advantages for the United States in having the Chinese spend part of their $700 billion in foreign-currency reserves acquiring U.S. companies.

Because tangible assets are harder to liquidate than U.S. Treasuries, such investments foster economic stability between the two countries.

Adam Segal, an Asia specialist at the Council on Foreign Relations, said that while the messy end of the CNOOC deal would “poison the dialogue” between the two countries, the pressure for acquisitions would continue.

“You still have all these growing Chinese companies that want the global management (capability), global trademarks and other things they can’t produce themselves,” he said.