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Chinese Oil Company Pulls Unocal Bid

STEVE INSKEEP, host:

Our business news starts with an oil industry bidding war.

The Chinese oil company known as CNOOC said today that it has dropped its controversial attempt to buy the California oil producer Unocal. NPR's Adam Davidson has been following this story and joins us now.

And, Adam, why did the Chinese pull out?

ADAM DAVIDSON reporting:

They said that the political environment in the US was just too hostile to a Chinese company buying an American oil company right now. They said that, on the merits, it was a great business deal, but it was just the wrong political environment.

INSKEEP: Well, there certainly were members of Congress and also Chevron, a rival oil company, that were raising national security concerns about this.

DAVIDSON: Yeah, I really think this was something like a "Perfect Storm." You had people who were hostile to the bid itself, although in a way they were the smallest minority. There are people who are just angry at China for a whole host of reasons. There are evangelical Christians, who feel China is bad to Christians. There are human rights groups who say China is bad on human rights. There are US manufacturers who say China is unfairly competing with them, and all of those groups are very active in lobbying Congress. And I think everybody who had a reason to fight China was fighting them on this one.

INSKEEP: Well, now was the Chinese bid for Unocal really a security risk?

DAVIDSON: It doesn't seem like it was. Unocal, the company that CNOOC wanted to buy, is only 1 percent of US production. Most of their holdings are in Asia, near China, and their technology doesn't seem to be advanced enough to warrant a security risk. And CNOOC bent over backwards. They said they would sell all assets that might be labeled a security risk, so it seems like that was a red herring.

INSKEEP: So what happens now?

DAVIDSON: Well, Unocal and Chevron haven't commented yet, but it seems very likely that Chevron will buy Unocal; that's what Unocal wants, that's what Chevron wants. That should happen on August 10th. The bigger question is: What does this do to US-China business relations? A lot of people in China are very upset at the US Congress getting involved politically in what could have been just a business deal. As Chinese companies look to buy more and more American companies, it's going to be a question of how the next one is handled.

INSKEEP: Adam, thanks very much.

DAVIDSON: Thank you.

INSKEEP: That's NPR's Adam Davidson, reporting on the decision by CNOOC to pull out of a bid for Unocal. Transcript provided by NPR, Copyright NPR.

Adam Davidson is a contributor to Planet Money, a co-production of NPR and This American Life. He also writes the weekly "It's the Economy" column for the New York Times Magazine.