Posner's Comment on Chinese Purchases of American Companies
I agree fully with Becker and therefore can be brief: foreign nations' purchase of U.S. companies should not be discouraged even when the foreign nation is a communist country potentially hostile to the United States and seeks to acquire the producer of a vital raw material, such as oil. Hence I do not think that the purchase by the Chinese government-owned oil company CNOOC of the U.S. oil company Unocal should have been prevented.
China holds vast amounts of U.S. dollars. To the extent that these holdings exceed China's need for financial reserves, China can benefit from holding dollars only by exchanging them for valuable goods, such as goods produced in the United States or assets of U.S. companies. We should want China to be able to make such purchases, since otherwise it will be less willing to hold dollars, which is to say less willing to sell us valuable goods in exchange for pieces of paper.
Of course there are some goods we should not sell, such as weapons designs more advanced than China can obtain from any other country. But there is no way in which China can obtain a power advantage over the U.S. by spending $18.5 billion on an oil company. Suppose--this seems to be the fear of the members of Congress who opposed the proposed acquisition--that the Chinese government, having bought Unocal, ordered it to sell all its oil to China. Would that hurt the United States? Not much, and in the long run not any, because oil is a fungible commodity, and the U.S. would replace Unocal's oil with that of other producers. There would, however, be short-term costs involved in recontracting for the replacement oil. But so provocative an action by CNOOC would in any event be unlikely because China would know that we would retaliate. In this connection, the fact that almost a third of Unocal's oil reserves are in North America, far from strengthening the case for blocking the merger, weakens it; for those reserves would function as hostages against China's using its control of Unocal to impede U.S. access to oil.
The fact that China wanted to give us these hostages is actually a hopeful sign for the future of Chinese-American relations. It suggests that China envisages peaceful, constructive commercial relations with the United States. Otherwise it would not spend billions of dollars to acquire assets that ultimately are under the control of our government.