The Bank of America announced the US$35-billion purchase of MBNA on June 30, making it one of the world's biggest credit card issuers. 

The bank's acquisition of the company behind branded cards for the likes of English football team Manchester United, AOL and WWF will double the number of credit card accounts it manages to 40 million. It will have US$143 billion in outstanding balances.

The deal, the latest in a string of giant mergers reshaping the financial services sector, also gives the bank a foothold in the UK, Canada, Spain and Ireland.

This month, the bank also entered China with a US$3-billion investment in China Construction Bank.

However, the acquisition has not caused a stir. When the China National Offshore Oil Corporation (CNOOC) made an US$18.5-billion bid for the American oil company Unocal a political storm was inevitable.

Politicians and media personalities have all thrown in their opinions a common practice in this global market economy.

Anxiety derives from two areas oil and CNOOC's identity. The company is believed to be owned by the government.

In an article titled "The China Challenge," New York Times columnist Paul Krugman warned "the Chinese challenge highlighted by the bids for Maytag and Unocal looks a lot more serious than the Japanese challenge ever did."

Claiming "power usually ends up in the hands of those who hold the purse strings," Krugman clearly understands the rules of the market.

However, it seems this rule cannot apply to China in its dealings with the economic powers.

Under most circumstances in not so sensitive areas China is required to follow the ebb and flow of the forces of the market economy.

Markets work best when assets flow, without the interference of governments, to the people that value them most highly. That is why the US has so strenuously persuaded other countries to abandon protectionist policies and open their markets to foreign investment.

China has never been free of foreign pressure to improve its trading policies and allow foreign companies to run their own businesses free of state intervention.

Comparing Chinese companies' bids for American corporations with those of Japanese firms 15 years ago, Krugman reminds his countrymen of the "threat" purchases by overseas companies may pose.

In Krugman's words, the Chinese are "shrewder" than the Japanese. Investment in prestige sectors such as the Rockefeller Center and film studios by Japanese backers transferred bags of money to the American sellers but "never generated much return for the buyers," according to the commentator. This de facto subsidy for the US won Krugman's heart.

But the kind of altruism Krugman thought he saw in Japanese investments in American interests is rarely found in US companies' mergers and acquisitions. The reason is simple it is contrary to the market.

While the US has historically been a leading advocate of free trade, it seldom welcomes foreign investments on its shores. In 1989 an outcry greeted Sony's purchase of Columbia Pictures a precious national resource in the hands of the Japanese!

Krugman's article concludes: "If it were up to me, I'd block the Chinese bid for Unocal."

"But it would be a lot easier to take that position if the US wasn't so dependent on China right now, not just buying our IOU's, but to help us deal with North Korea now that our military is bogged down in Iraq."

It is politics that drives Krugman to reject CNOOC's bid. To him, business is not business but a political affair when the two countries involved adhere to different political systems.

Aside from ideological bias, Krugman's knowledge of the six-party talks on solving the nuclear issue on the Korean Peninsula is incomplete.

China, chairing the talks, has been leaving no stone unturned in an effort to keep the talks going.

On March 10 Joseph E DeTrani, US special envoy to the talks, told the US-China Economic Security Review Commission that "China has played a constructive role throughout the six-party talks and we are appreciative of China's efforts to create the conditions for a constructive multilateral discussion with the Democratic People's Republic of Korea."

The politicians in Washington entertain similar ideas. A host of congressmen argued the Committee on Foreign Investments a government body that vets corporate acquisitions by foreign companies, with an eye on national security should investigate the CNOOC deal.

Representative Joe Barton said the deal "poses a clear threat to the energy and national security of the US." Representative Richard Pombo prophesied "disastrous consequences."

Oil is the cause of the current flap around the CNOOC deal.

(China Daily July 8, 2005)