Wednesday, July 20, 2005
Let China Buy Us Out
An interesting article from The Economist. Unfortunately you need a subscription to read it, but the basic jist of it is that China should be allowed to buy the likes of Unocal, Maytag, etc., simply because they're willing to overpay. Parallels are then drawn between China's acquisitive actions and Japan's acquisition binge in the late 80's. Interesting in the light Unocal rejected China's bid.
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4 comments:
Thomas Friedman has something to say about it today in his column too:
NY Times
I'm still thinking through it. Maytag or some consumer goods company I don't have a problem. However, things like steel, oil, etc., things that would be strategic in a time of war, I would want to keep under US control HOWEVER;
In the case of oil, it is a commodity, and let's say China decided to export all the oil from the Gulf of Mexico to China and sell NONE to the US. Well, it really wouldn't matter because then China would demand less oil on the market and prices would be lowered. In other words I wouldn't care about it from an economic standpoint.
The other issue is that, fine, let's say China takes over our steel, oil, coal, etc. In the time of war, if we weren't at war with China, they would certainly sell it to us. However, even if we did get into a war with China, we'd nationalize their assets and just take them back.
My free market instincts and rationale says to let them overpay for our companies, but my defensive, military instincts are somewhat wary.
No, you're right, especially on the oil, simply because there is a set demand for oil and if it isn't Unocal that's going to sell it to us, well then Aramaco or somebody else will simply because the Chinese are already supplying themselves with the would be acquition of Unocal.
Another interesting aspects of the article was how China is not so much concerned about global domination as it is to get a foothold into the US market with brand names and to tap our marketing, business management, and intellectual skills/capital. Why create a washing machine company from scratch when you can have a company with employees that know the US market AND you have a brand name everbody trusts.
Hey, you want this badge or what???
The short answer is both markets have the potential to be profitable, it's how the companies are managed. Here, hands down the US companies have the upper hand simply because we've been doing it for so long. Chinese companies, namely the state owned enterprises and any company that is majority owned by a state owned enterprise are notoriously lax in their pursuit to cut costs and turn a profit. They always have one of the state owned banks to bail them out. This is one of the largest, if not the largest threat to the Chinese economy and that is their vast amount of bad loans on their banks books. It makes Enron look like the ideal company.
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