Boeing could suffer if China bid blocked

The brewing political controversy over a Chinese oil company's $18.5 billion bid to acquire the ninth-largest U.S. oil company could have serious local repercussions if it soured U.S. business relations with China.

Washington state has no oil, but it does have airplanes.

China trade experts warn that if the U.S. government blocks the proposed Chinese bid for Unocal, Boeing could suffer and Airbus gain further market share in the world's fastest-growing economy.

The Chinese "sometimes see aircraft purchases as a handy revolver to keep in their holsters," said Robert Kapp, a Washington state-based China specialist, and former president of the U.S.-China Business Council. "Sometimes they attach to airplane sales a kind of magical power to make or break any political conflict with the United States."

Washington state exports to China were valued at $3.1 billion last year. In January, Boeing announced a deal with six Chinese airlines for 60 787s, worth $7.2 billion at list prices.

On Wednesday, China's state-owned CNOOC oil and gas company moved to trump an earlier $16.5 billion bid for Unocal by Chevron.

The acquisition proposal, coming on top of growing concerns about the ballooning trade deficit with China and the loss of U.S. manufacturing jobs, created an immediate political furor.

Thursday, four members of Congress called for the deal to be reviewed by the Committee on Foreign Investment in the United States, which has authority to block foreign acquisitions of U.S. companies on national security grounds.

Earlier this year, the committee reviewed and approved the $1.25 billion purchase of IBM's personal-computer business by China's Lenovo Group.

In Beijing yesterday, CNOOC Chairman Fu Chengyu said the company anticipated such a review of its bid.

He said in a statement that CNOOC would ensure that "substantially all of the oil and gas produced by Unocal in the U.S. will continue to be sold in the U.S." and offered assurances to "address concerns relating to energy security and ownership of Unocal assets located in the United States."

Kapp said the Unocal bid is of great symbolic importance, representing "China's full integrated presence as a big-time player in the world economy."

"The torpedoing of the transaction," he said, "would be more significant symbolically than it would be in economic terms," which would amplify any Chinese retaliation.

Kapp thinks the reaction in Congress to the Unocal bid was inflamed by the recent spate of articles raising concerns about the rise of China's economic power. This month's cover story in the Atlantic Monthy even speculates on "How We Would Fight China," detailing the potential for a 21st century war between China and the United States.

Despite the populist concern, Kapp says that a dispassionate government review is unlikely to rule out the Chinese bid.

But if the ruling were to go against the Chinese, Sydney Rittenberg, a China specialist with close high-level contacts in the U.S.-China trade community, agreed that Boeing would feel the impact.

"Politics has in the past played a considerable role in airplane deals" with China, Rittenberg said. "If Washington decides to kill this deal for reasons stated as security concerns — though actually it seems to me it's essentially domestic politics — I would think that the Chinese authorities would take that very seriously when they consider deals that American companies want to do in China, including a company like Boeing."

Rittenberg said the proposed Unocal acquisition is the largest trade deal ever out of China.

"We're not talking about a small deal. And we're not talking about a deal in a nonstrategic area," he said. "We're talking about energy."

The CNOOC bid is just one more problem in China-U.S. relations. The major issue remains the dispute over the status of Taiwan, which China regards as a breakaway province.

Based on discussion with a U.S. official in Beijing, Rittenberg thinks the Taiwan issue threatens even the yet-to-be-finalized 60-jet 787 sale to China.

That deal, Rittenberg said, is "still hanging in the balance" because of the United States' talks of arms sales to Taiwan.

Boeing Vice President Tom Downey disputed that the 787 deal is in trouble and played down the potential for any U.S.-China trade war that would hit Boeing. He said company officials have heard no suggestions that pending deals are in jeopardy.

"There are, and will always be, trade issues between the U.S. and China," Downey said, citing other areas of controversy such as textiles, software and media piracy. "They do generally get resolved."

"As far as the 787 deal goes, in January we signed the general terms with the Chinese government," he added. "We're on track to finalize those agreements in the near future. We don't see any barriers to completing the sale and having the airplanes delivered on schedule."

Yesterday, Boeing delivered its latest jets for China: two 737-700s for China Eastern, modified for use at high-elevation airports.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com