China's Subsidized Shopping

One good buying spree deserves another, and since Americans are snatching up Chinese goods with gusto, what's wrong with China using profits from those billions in sales to, say, buy a large US oil company?

Not much, if it were strictly a private transaction. The rules of global trade rest on market principles such as open competition, and certainly the China National Offshore Oil Corp. (CNOOC) is competing freely against a lower bid from Chevron to buy California-based Unocal.

The same could be said of the European consortium Airbus that competes freely with Boeing in bidding to sell aircraft. May the best bidder win.

But with both Airbus and CNOOC (pronounced sea-nook), the playing field is less even than it appears. Both these enterprises receive heavy backing from government, and the US needs to decide how much it wants to play by Chinese or European rules of trade rather than its own.

As it is, the US has asked the World Trade Organization to declare as illegal the $15 billion or so in government aid being offered to Airbus to launch its new A350 passenger plane. That subsidy - far less than any benefits Boeing receives from government - could hurt Boeing and US workers.

CNOOC's legup in the market is that it is 70 percent owned by the Chinese government. While CNOOC operates mainly like a commercial firm, its strategy is dictated by the Communist Party. Both the party and the government want to spend $18.5 billion to buy Unocal as part of China's efforts to ensure its energy needs.

China has gone far toward a capitalist market, and is shedding much government involvement in its economy. Like parts of Japan's economy, however, its policies are rigged against domestic consumers to put more resources into its international enterprises.

But also like Japan in the 1980s, China may be making the same mistake of using its surplus capital to buy foreign assets at inflated prices. The market has a way of punishing government-managed deals.

China's global buying spree, mainly for natural resources, should be watched closely by Congress. Beijing uses such assets to silence US criticism. But its purchases are not yet a threat to the US, and in fact will help further the US interest in seeing China become even more market-oriented.

A CNOOC purchase of Unocal, while not totally fair, could end up helping both China and the US. It may just help push China further from its fading socialist ways.