Thursday, August 18, 2005

You can't have your oil and eat it too

When you have to make a choice and don't make it, that is in itself a choice. William James

Paul Begala's, Anti-War Imagery and the Iconography of Hate, at TPMCafe brought me back to the 70s, a time when American life, at least in my recollection, seemed far less self assured. With the benefit of hindsight I believe I can see why. The nation was unconvinced of the vision laid out by the dreamers of the day. While Mr. Begala may be correct in his views, I don't think the Democratic Party's fall from grace in the public mind had as much to do with Vietnam as it did with the rejection of the hard work which was part and parcel of the 70's narrative. Energy conservation efforts fizzled in the mid 80s, the nation turned away from the hard slog and is now facing the effects of that choice. Fortunately, I believe the Democratic narrative of the late 70s is far more compelling now, although it may need a new party to tell it well. While I enjoyed Begala's version, let's take a look at the Dude's version of That 70's Show.

The anti-Vietnam War, anti-corporate sentiment that carried the Democratic Party to victory in 1976 gave the nation President Jimmy Carter. As a testosterone fueled, hockey playin' teen, I thought Carter was something of a whimp. Looking back, I think I missed his wisdom and courage in the manic haze of my adolescence. Here was a guy who ran on, inter alia, the desperate need to wean the nation from it dependence on petroleum, as this excerpt from his address announcing his candidacy in 1974 attests:

We can then face together the tough long-range solutions to our economic woes. Our people are ready to make personal sacrifices when clear national economic policies are devised and understood.

We are grossly wasting our energy resources and other precious raw materials as though their supply was infinite. We must even face the prospect of changing our basic ways of living. This change will either be made on our own initiative in a planned and rational way, or forced on us with chaos and suffering by the inexorable laws of nature.

While energy independence was and is a common plank, what made Carter unique in my book is his willingness to risk losing the office telling the same story. Reading his 1980 State of the Union speech (warning: the references to Iran and Afghanistan might bring chills up your spine) you can still see the same message

The crises in Iran and Afghanistan have dramatized a very important lesson: Our excessive dependence on foreign oil is a clear and present danger to our Nation's security. The need has never been more urgent. At long last, we must have a clear, comprehensive energy policy for the United States.

As you well know, I have been working with the Congress in a concentrated and persistent way over the past 3 years to meet this need. We have made progress together. But Congress must act promptly now to complete final action on this vital energy legislation. Our Nation will then have a major conservation effort, important initiatives to develop solar power, realistic pricing based on the true value of oil, strong incentives for the production of coal and other fossil fuels in the United States, and our Nation's most massive peacetime investment in the development of synthetic fuels.

Even though Carter and the Democrats lost the White House in 1980, the spirit of conservation was awakened sufficiently to bring down US dependence on imported oil from over 45% in the mid 70s back down under 30% in the mid 1980s (oil products supplied to the US market declined from a peak of 18.8 mbd in 1978 to 15.2mbd in 1982 and an average of 15.8mbd from 1981-1987, currently 20.5mbd). However, it seems to me that the long run vision of Carter was ignored. In econo-jargon, oil dependency wasn't a cyclical issue but a structural one, the national response was cyclical.

US Oil Imports

source: US DOE, EIA click graph for bigger picture

As I watch Cindy Sheehan's protest re-awaken anti-war sentiments in the national consciousness I hope those sentiments are strong enough to face what, 25 years later, seems much more true, we either drastically reduce our dependence on imported petroleum or risk exporting our wealth away trying to fight for control of the resource. That to me is the elephant in the corner in the War Debate. In reading many of the left leaning opinion sites I often come across a sense of wonder that the left isn't going head to head with the right on the war. I believe this is because nobody is yet willing to go all the way. A coherent anti-war policy must embrace a reduction in oil import dependence.

25 years ago, in the same State of the Union speech, Carter argued:

But now the Soviet Union has taken a radical and an aggressive new step. It's using its great military power against a relatively defenseless nation. The implications of the Soviet invasion of Afghanistan could pose the most serious threat to the peace since the Second World War.

The vast majority of nations on Earth have condemned this latest Soviet attempt to extend its colonial domination of others and have demanded the immediate withdrawal of Soviet troops. The Moslem world is especially and justifiably outraged by this aggression against an Islamic people. No action of a world power has ever been so quickly and so overwhelmingly condemned. But verbal condemnation is not enough. The Soviet Union must pay a concrete price for their aggression.

The region which is now threatened by Soviet troops in Afghanistan is of great strategic importance: It contains more than two-thirds of the world's exportable oil. The Soviet effort to dominate Afghanistan has brought Soviet military forces to within 300 miles of the Indian Ocean and close to the Straits of Hormuz, a waterway through which most of the world's oil must flow. The Soviet Union is now attempting to consolidate a strategic position, therefore, that poses a grave threat to the free movement of Middle East oil.

This situation demands careful thought, steady nerves, and resolute action, not only for this year but for many years to come. It demands collective efforts to meet this new threat to security in the Persian Gulf and in Southwest Asia. It demands the participation of all those who rely on oil from the Middle East and who are concerned with global peace and stability.

25 years later, we are all still fighting the same war, only the names have been changed to confuse the young. Oh, one other thing has changed, 25 years ago this nation was still a creditor to the world, now it is its largest debtor in $ terms. While the nation has, in a sense, been living large, the foundations of wealth for future generations have been eroded. The higher oil prices go, the sooner that euphemistic "future generations" becomes "people living in the here and now." Oh, silly me, the Dude's mind wanders, there is one other small difference between 1980 and now. 25 years ago it was the evil Soviets who were trying to militarily dominate oil resources, now it is the US. The Soviets, of course, were spreading Communism in 1980 while we are currently spreading "democracy" ("capitalism" being such an old, cold war buzz phrase).

In the spirit of "you can't have your cake and eat it too" you can't coherently be anti-war without rejecting the reason for the conflict any more than a drug addict who feeds his addiction by theft can stop stealing without first kicking the habit. I've come to see the wisdom of the late 70s conservationism. Not only will a shift back to such measures significantly reduce the annual trade gap (given current trends the oil import bill for 2005 may well be over US$200B) but the government deficit would be smaller by at least the cost of the War in Iraq. I'll leave it to your good imagination to speculate as to other things which might have been had the US stayed on the path of a committed oil conservationist.

Assuming current trends in oil prices, national debt and casualty figures continue, at some point the wisdom of reducing oil dependency will be too obvious to ignore. I don't know if those signposts are $100 oil and 10,000 dead soldiers, $65 oil and roughly 2000 dead soldiers or $200 oil and 50,000 dead soldiers but I sure hope the answer is closer to choice B than choice C.

Sunday, August 14, 2005

The Plot Thickens or the President who cried Peace

Just when you thought it was safe to go back in the water, military force is now apparently an option on the table in US deliberations over Iranian Nuclear Fission ambitions. Of course, I breathed a sigh of relief when, upon carefully reading the text, I discovered; "The use of force is the last option for any president." Alas, I should have stopped reading there as President Bush finishes the sentence," and you know, we've used force in the recent past to secure our country."

There is an old expression, fool me once, shame on you, fool me twice, shame on me, which I imagine is running through the mind of German Chancellor, Gerhard Schroeder. Or, from a more cynical perspective, he might simply think this is the best tactic to help him retain his party's leadership position.

I too have been thinking about the shame on me thing. After all it was but 30 months ago, on Feb 20, 2003, that this same President, in reference to Iraq's supposed weapons program, told a group in Georgia, "
Military action is this nation's last option." Perhaps someone needs to go over the definition of "last" for these guys, as in final. Wasn't someone suggesting a few weeks back that the Iraqi insurgency was in its "last" throes. Oh well.

Alternatively, and this is where is the real fruits of mendacity are harvested, Iran might well be on their way to nuclear armaments. Getting the US population back on board the war bus will require some heavy lifting. We will see if the credibility account is still in surplus.

Memories of Ron Suskind reporting on the Bush White House in a NYTimes article, Without a Doubt, keep coming to mind these days, particularly this passage: The aide said that guys like me were ''in what we call the reality-based community,'' which he defined as people who ''believe that solutions emerge from your judicious study of discernible reality.'' I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ''That's not the way the world really works anymore,'' he continued. ''We're an empire now, and when we act, we create our own reality. And while you're studying that reality -- judiciously, as you will -- we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors . . . and you, all of you, will be left to just study what we do.'' What strikes me is the amazing naiveté of the speaker. While it is true, in a sense, that each new administration is a new lease on life for United States government, past actions still have an effect on current operations. Further, once once "creates a new reality" in this case a radical new reality, the pre-emptive use of military force by the US, the world responds, national goals and aspirations re-align. Then when the empire crowd opts to create further new realities they are doing this is a still changing world. It's the Sorcerer's Apprentice all over again as the ripple effects of previous "realities" interact with the new.

One such ripple effect, Cindy Sheehan's protest, is still ongoing down there in Crawford Texas, while the indictments of leadership party affiliates and executive branch members keep rolling in, with perhaps more to come.

It should be an interesting fall.

Wednesday, August 10, 2005

The elephant in the corner

'Cause when you worry your face will frown
And that will bring everybody down
Don't worry, be happy.

Are the rules of "polite company" worth following? Let's get a little specific, are the rules which determine what you do and don't say in polite company worth following? Protocol, schmo-tocol, how about Cindy Sheehan enacting her own little psychology experiment in Crawford Texas, live on TV doing things you just don't do in polite company.

What kind of psychology experiment you talkin' 'bout, Dude?

Like all psychology experiments, the goal is to observe the human reaction to some phenomenon, in this case, the country's or perhaps even the world's reaction to the sight of a mother whose son was killed in the Iraq War trying to see the War President.. It's like a test of hierarchy, will people be more upset at the idea of some woman pestering the President on Vacation, or the idea of a President who won't come out and meet this bereaved mother of a slain soldier who can't take one more dead kid? Will the President's men panic, and arrest the woman? Will the woman lose her nerve and leave? This is 21st Century art, a real person on the world stage, trying to wake people from their dogmatic slumbers and make them think, fantastic.

Dogmatic slumbers, that old Kantian expression I love so much. Have you ever been driving the car and suddenly realize you don't remember driving the last 10 miles? How you doing Jack? OK, and you Fred? (all without looking up from the paper) What did you do at school today? Nothing. How much of our time every day is spent on, at least partially, auto-pilot? Ken Kesey's Merry Pranksters were playing with this a generation ago, poking some guy in a suit while wearing a crazy day-glo shirt-"square," they'd say. Oddly enough, we were at war a generation ago and trying to dodge our way around a necessary readjustment of the international system of exchange as well. It that old "suspension of disbelief" at work again, en masse.

I was reading a chat session given by the author of what appears to be a new book worth reading, Larry Diamond's Squandered Victory and came across this passage: I'm always reluctant to call this administration a failure, because I think that’s a kind of wishful thinking. It’s far more plausible, and also far less pleasant, to think they may have just lied totally about their goals, and have succeeded in their imperialist ambitions as certainly as they secured a first and second term, and have helped shape our FP (foreign policy) for decades. "Far less pleasant to think," hits the nail on the head. That's the problem, you see, polite company.

I guess it isn't polite to know history, or to read the news with a critical eye. And it isn't. Protocol. I used to do financial TV out in Asia and I was well aware that my critiques needed to be tempered or I wouldn't get back on the set. Everyone knew it, but nobody really talked about it. Shiny happy people with nice little air conditioned jobs ( a big plus in SE Asia) and that included me. Psychology experiment: If, say Larry King on CNN were to stop, turn to the camera and say, this War in Iraq must end, repeat with me, This War... , what do you think would happen? Tipping points in public consciousness are amazing times, eh?

Dogmatic slumbers, dreaming dreams of virtuous governments engaged in noble causes. You can almost see it coming into view, can't you...the elephant in the corner. Larry Diamond does, "What concerns me as much as anything is the listless state of our own democracy. Why have the Congress and the news media not effectively challenged the Administration on this issue? Why has the White House press corps not asked President Bush the obvious and urgent question, “Mr. President, do we seek long-term military bases in Iraq? If so, do you believe this strategic goal is worth the loss of more American lives in Iraq? If not, why don’t you declare that we will not do so, so as to remove one of the most powerful political mobilizing grounds for the insurgency?” Why have the Congress and the media not challenged Secretary Rumsfeld: “Mr. Secretary, are we building permanent military bases in Iraq? What are our intentions there?”

Monday, August 08, 2005

It's not Democracy, it's Commerce

Brad Setser seems to agree with me on China, although we take different paths to get there.

Diligence and frugality should be practised in running factories and shops and all state-owned, co-operative and other enterprises. The principle of diligence and frugality should be observed in everything. This principle of economy is one of the basic principles of socialist economics. China is a big country, but she is still very poor. It will take several decades to make China prosperous. Even then we will still have to observe the principle of diligence and frugality. But it is in the coming few decades, during the present series of five-year plans, that we must particularly advocate diligence and frugality, that we must pay special attention to economy.

Introductory note to "Running a Co-operative Diligently and Frugally" (1955), The Socialist Upsurge in China's Countryside, Chinese ed., Vol. I. - Chairman Mao

A few months ago President Bush spoke of Democracy as one of the great forces working on men. I think he is confused. It wasn't, at least as I see things, love of Democracy that brought forth this new nation, to quote Honest Abe, but love of commerce.

This isn't to argue that the framers were wholly motivated by money, but rather to suggest that commerce was the glue that brought them in and held them together. The general path of western society over the past 5 centuries has coincided, with setbacks from time to time, with the evolution of commerce. Governments that worked well with commercial enterprise thrived and those that bucked the trend for too long, failed. The reason, in my view, is this; trade really does improve the material well being of man. It isn't just a slogan, it's true.

Don't get me wrong here. This is no homage to the great God Commerce. I too believe that man does not live by bread alone and that the cause of true satisfaction is not material comfort. But that don't mean that a man don't want some nice stuff if he can git it, if you know what I mean. That is, however misguided one might view the excesses of the drive, that it is evident in man, the species, is clear.

It is with deep respect for the channeled desire of man to improve his material comfort that I watch China. If you want to see a fire lit in the minds of men, look at commerce in China. As Jung might have warned Chairman Mao, the commercial archetype is buried deep in your people, they have thousands of years of history.

There is an idea economists speak of called the "self sustaining recovery" usually in connection with some government intervention. The sense I have of it is that some spark is added to a flammable substance and once lit, the fire burns on its own accord, a virtuous cycle. China turns away from its hermetic communal existence under Mao, on his death, right when the West decides to switch to the wide open capital account model and one generation later, WHAM-O, huge self-sustaining growth. I can't keep thoughts of the Sorcerer's Apprentice out of my head when I think of it.

It's an entirely new ball this mess gets sorted out is going to be fun to watch.

Sunday, August 07, 2005

oops...A Tale of Two Nations

I guess if you want to wax poetic on China when it is fairly apparent that its leaders are remaking its imagine in the minds of world decision makers you can't take a few days off or a bunch of people will steal all the obvious allusions. For instance here's my Zheng He allusion in the Asia Times. I guess I'll just have to pick a different approach....

Strictly from the perspective of a quantitative economist, China, in 1978, was marginally visible on the world stage. It seems kind of strange to me as I think of it now, but there really was a time when China didn't much enter into consideration, in the world of western finance, that is. Of course, once one shifts perspective outside of that particular myopia, China has always been a vast, populous and dynamic place. Let's take a look at the relative choices of Chinese and American policy makers since the IMF's 1978 liberalization of international exchange rate policies. I choose the date because, in hindsight, the 1978 decision of the Chinese to open its markets to trade and investment dovetails so nicely with the IMF policy shift.

For most of the world the first few years of the new exchange rate regime was tough sledding. As an old FX guy myself, it is hard to imagine that prior to this time FX desks at banks had been more clerical than profit center oriented (then again, from what I hear, things may be coming full circle, but that is another story). The infrastructure, if you will, of floating exchange rates had yet to be built. Indeed, the entire infrastructure of unrestricted finance was in its infancy back then. Volatility was rife for the first 3 years of the new regime as inflation, exchange and interest rates fluctuated wildly trying to find equilibrium levels.

By 1983 the US$ based prices of commodities finally seemed to find that equilibrium level, holding there until 1999 (as per US PPI raw materials index). Besides the most pressing agenda of stabilizing US$ based inflation, broad US policy directives included increasing military investments financed from abroad. China also took advantage of capital account liberalization, although far less aggressively than many other developing nations.

By the mid 80s a sense that certain financial trends had become "unsustainable" led to the first real test of the new system, by which I mean the first attempt to bring the anchor nation back into external account equilibrium. The 1985 Plaza Accord announced US$ devaluation eventually created enough pressure in the capital markets to engender the crash of 1987. It is from this point that the differences between US and Chines economic policy are, in my view, particularly relevant for understanding today's state of play.

In the US, the policy choice was to paper over as much of the pain as possible. Newly appointed Fed Chairman Greenspan led the decision to flood the credit markets with money to avoid the "cascading defaults." An economic downturn, as measured by GDP statistics was avoided for a few years and, in my view, reduced dramatically. That is, US policy makers opted to insulate the economy from market pressures. Civil unrest, while flaring up on occasion, most notably in connection with the Rodney King trial, was by and large avoided in the US.

The Chinese, however, chose a very different path-that of strict economic orthodoxy. From 1987-1989, domestic prices subsidies were removed, import and credit controls were tightened, state investment levels were cut dramatically and the RMB was devalued by roughly 25%. This led to the lowest rate of GDP growth since 1982 and was in part responsible for the Tiananmen Square confrontation between the students and the state. While US politicians made hay moaning about Chinese repression, US corporation heads started to see a great place to do business. By 1993, the inauguration of Bill Clinton set the stage for an amazing economic transformation.

Was it but 12 short years ago that the papers were filled with woe about the "jobless recovery"? It is amazing, for me at least, to recall that while the 90s ended with an economic roar in much of the West, they began with a whimper. Faith in the equity market had been dented but not broken by the crash of '87, but that faith was nothing like what was to be seen later in the decade. As Americans have been seeing now only on a larger scale, the price for keeping the equity market afloat was a series of bubbles in financial markets from Milken's Junk Bonds, via the Savings and Loans to Real Estate. To the credit of the first Bush Administration, policy makers did eventually opt to force some sort of resolution. For their troubles they were voted out of office.

Bill Clinton may have run on a platform which included being tough on China, but off the public radar his administration ran a very open trade and investment policy with the Middle Kingdom. The last devaluation of the RMB occurred early in 1994 and from then on investment poured into China. I remember Phil Knight of Nike, one of the more prominent visionaries of a corporatized China telling the world that 1 Billion Chinese means 2 Billion feet!

Of course, it wasn't just the US that was in need of an economic shot in the arm in the early 90s, Japan's corporations too decided they needed cheap labor. The Asian Crisis we recall was the fruit of those investment flows in the early to mid 90s, as European, US and Japanese corporate forms, and cash, were exported to China and the Asian Tigers.

As the Asia Crisis tore through the region, the earlier evidenced ability of China's leaders to stick with economic orthodoxy and keep their external accounts balanced over the long haul paid handsome dividends. I can remember when market players and policy makers were fearful of yet another RMB devaluation in 97-99. Yet, unlike some other Asian nations, by the time the crisis hit in 1997, China's FX reserves equaled its external debt, most of which was long term, not the short term, hot money that flowed quickly out of Korea, Thailand and Indonesia.

By the time the Asian Crisis began to spill over into the rest of the world, the US solution was already a decade old ingrained habit, flood the market with money, mitigate the effects of the resolution. The result was a brief dip in measured US growth, a significant expansion of the US trade deficit and ignition of the late 90s equity boom. A secondary result of this policy choice was the emergence of China on the world stage as a real economic player- the producer of last resort, if you will.

The attacks of 9/11 and consequent fears of economic decline were met once again with the tried and true method of flooding the market with money and letting the trade deficit widen still further. The sensibilities that informed the implementation of some mechanism to settle international imbalances were left to the growing hordes of western economic bloggers and the Asians.

Over the years between 1978 and today, Chinese and US leaders have chosen very different paths. The Chinese throughout have acted as if external account balances matter, even to the point of a willingness to brutally repress dissent while forcing their resolution, while US leaders have grown increasingly cavalier, as VP Cheney's "deficits don't matter" comment makes abundantly clear. In Washington pundit-speak, changing Social Security used to be known as the "third rail" of political issues, "touch it and you die", an allusion to the third rail on a subway track. In my view the real third rail issue in American politics is economic adjustment to market forces.

This isn't to argue that the eventual resolution of current international imbalances will only hurt the US while leaving China unscathed. Rather, I think the Chinese economy will adjust to the new reality much more quickly than will that of the US. China now has a quarter century old habit of adjustment when necessary while the US has exactly the opposite, ergo the "drug addicted economy" characterization from James Grant et alia.

A century ago, the British Empire was the economic envy of the world. Yet, with the benefit of hindsight that economy was, in fact, dying, living on its past glories and very unwilling to adjust to the changing world. It was the US that was the nimble newcomer, firmly committed to liquidating imbalances when necessary and the swing producer on the world stage. This is the way of things in the world.

Over the past 500 years, the Spanish, French, English and Americans have justifiably laid claim to being the dominant nation on the planet, thus setting the stage for the decline. The signs of the inevitable decay; deficit finance, military expansion and a cultural superiority complex which makes adjustment difficult were all evident in the first three on our list, and in my view, in America as well. Continued competition for oil resources will force economic adjustments. Those economies which react to those force nimbly will outperform those that do not. There is a Buddhist saying that goes, thought becomes word, word becomes deed, deed becomes habit and habit becomes character. The relative economic characters of the US and China have been a long time in the making. We will see which type thrives in the new environment.

Wednesday, August 03, 2005

The Return of China

I've had a fascination with Asia for decades now-a fascination that eventually led me to move, work and marry in the Orient, although I have since relocated back to the US. Of the many cultures I encountered in Asia, the one that most captivated my attention was that of China. Of course, in order to learn, I first had to unlearn my assumptions. China was not a backward country full of starving communist peasants, rather the culture is one of the oldest still surviving on the earth, binding many people together in country or scattered throughout the world, and the people within the culture are as diverse as those you find in the west.

I won't spend too much time on the history, both due to its length and my lack of expertise, except to make a few points. China has gone through many phases of organization, vacillating between periods of no central authority to strong centrally run governments. Within those phases China has at times been engaged with the outside world and at times closed to it. The current opening of China to trade, if one ignores the forced opening by the West during the latter stages of the Manchu Dynasty, is the first since the early stages of the Ming Dynasty (early 15th century). At that point in time, as the story of Zheng He attests, China was the dominant maritime, if not other respects, power on the earth-a fact which is part of the secondary school curriculum in China. That is, there is both a precedent for a dominant China on the world stage and an awareness of the fact among the population, in stark contrast to the lack of awareness of that history during the Manchu or early communist government.

a power outage interrupted today's work, I should have the rest of this post up tomorrow

Tuesday, August 02, 2005

Under pressure, US$ peg to Yuan terminated

Chinese Economics Book from the year 4798 (2101 AD) (trans. by Aburns)

Chapter 18: US internal disintegration picks up pace

In the sixth month of the year of the Rooster (4702) a collision of long extant forces came to the fore. As noted in previous chapters, the appetites of US industry had in previous decades outgrown the productive ability of its citizens to finance. Despite a clear warning from their 34th President, Eisenhower, the military industrial complex was rarely second in line for access to the nation's savings, leading to the steady erosion of goods production employment and welfare spending despite tremendous assistance from the rest of the world.

The attack on the World Trade Center in New York City accelerated the process. Although Chinese leaders clearly saw the coming demise, they recalled the saying, butcher the donkey after it has finished its job on the mill and being desirous of international harmony, and thus continued their financial support.

By the year of the Rooster, this support was taking its toll on the still emerging Chinese economy. US leaders, perhaps confused by the Japanese experience, assumed that a free floating Yuan would soon hobble China as the strong Yen had hobbled Japan. However, at the time of the Yen revaluation, Japanese corporate productive capacity far exceeded domestic consumption capacity. That is, they too had outgrown their base. China, meanwhile was just beginning to grow and had as its citizen base, the single largest block of potential consumers and savers in the world.

In the sixth month of the year of the Rooster, China tested the waters with an attempted purchase of the oil company Unocal. Despite the dire need for finance due to the failed war in Mesopotamia, US leaders rejected the bid. Finally, having demonstrated to the world that the US would not accept exported $ back in trade for true corporate ownership, and seeing that further assistance was futile the Chinese, on the 16th day of the sixth month set in motion the slow but steady removal of financial support for the US. Within days pressures with the USA credit system began to build as US interest rates and $ denominated commodity prices began to rise.

In the next chapter we will examine the aftermath of this momentous month.


History, they say, is written by the winners and who knows, the blurb above could be one version. According to this statement from CNOOC, some officials in China are concluding that the US is no longer playing by established rules: The unprecedented political opposition that followed the announcement of our proposed transaction, attempting to replace or amend the CFIUS process that has been successfully in operation for almost two decades, was regrettable and unjustified. This is especially the case in light of CNOOC's purely commercial objectives and the extensive commitments that CNOOC was prepared to make to address any legitimate concerns U.S. officials may have had regarding our acquisition. This political environment has made it very difficult for us to accurately assess our chance of success, creating a level of uncertainty that presents an unacceptable risk to our ability to secure this transaction. Accordingly we are reluctantly abandoning our higher offer to the clear disadvantage of Unocal shareholders and employees.

tomorrow: a look at China
Question: What was the RMB/US$ exchange rate in 1981?

1.75 RMB per $ (avg)

What was the RMB/US$ exchange rate in 1991?

5.3 RMB per $ (avg)