Editor’s Note: As with many aspects of China’s rapid economic growth, China’s National Oil Companies (NOCs) have been viewed by foreign observers with both curiosity and fear. These apprehensions have been especially pointed as Chinese oil companies have gone international and tried to acquire foreign energy companies, a move some critics see as an aggressive play by Beijing to expand its influence abroad at the expense of global energy security. In a chapter from Energy Security: Economics, Politics, Strategy, and Implications (Brookings Institution Press, 2010) Erica Downs, an expert in China’s energy sector, examines the popular misgivings about NOCs in the West, debunking these criticisms as politically powerful, yet ultimately incorrect misperceptions of the goals and influence of NOCs.
Who’s afraid of China’s national oil companies? Quite a few people, if the reaction to the unsolicited offer made by China National Offshore Oil Corporation Ltd. (CNOOC Ltd.) for Unocal is any guide. The furor that erupted inside the Beltway in response to CNOOC Ltd.’s bid to break up the merger between Unocal and Chevron highlighted the anxiety that many U.S. policymakers, pundits, and oil companies harbor about the growing global footprint of China’s national oil companies (NOCs). The objections raised by opponents of CNOOC Ltd.’s attempted acquisition are rooted in popular perceptions of the Chinese NOCs’ international expansion. The conventional wisdom views the NOCs as arms of the Chinese government that are aggressively snapping up exploration and production assets around the world to enhance China’s energy security at the expense of that of other consumers. Moreover, it contends that the state financial support that Beijing provides to China’s NOCs to achieve this noncommercial objective violates the rules of the game for international mergers and acquisitions because it is not available to Western, publicly traded firms. Consequently, the Chinese government and oil companies are turning the global competition for oil into a game that major international oil companies (IOC) like Chevron cannot even compete in, let alone win.
This chapter examines several popular perceptions about the foreign investments of China’s NOCs. Contrary to conventional wisdom, China’s NOCs are not merely puppets of the Chinese party-state that are expanding internationally for the sole purpose of assuaging Beijing’s concerns about energy security. In addition, the NOCs are not dominating the global exploration and production market or “locking up” oil through their overseas deals and thus denying it to other consumers. State financial support, however, probably does provide China’s NOCs with a competitive advantage over other oil companies and may play a larger role in the wake of the financial crisis. Separating myth from reality in the discourse on the foreign investments of China’s NOCs is important in order understand whether and to what extent their international mergers and acquisitions impact U.S. interests.