CNOOC finally demonstrated it can act on rational business decision making. It did not fall into Unocal's trap in coercing for a "China premium". Unocal is a good log, but there will not more trees down the road. CNOOC may have lost a battle, but it has learned its lesson for a relatively small price and certainly earned considerable sympathy for future deals from other Chinese corporations.
CNOOC's mistake, as stated in an earlier discussions, was its failure to submit its bid in April. It was consequently caught in the dilemma of compensating Unocal for the $0.5Bn break-up fee and fighting political interference against a deadline - it is an impossible deal if there is still uncertainty over who pays for the break-up fee. (See comment below for impact of this term)
Going forward, we expect to see more M&A activities from Chinese corporations. We also expect opposition from protectionist, xenophobes and neo-conservatives among the US politicians to persist. China has a long way to go to convince the latter two its genuine interest in fair play. Therefore, there will still be a "Chinese premium" to be paid in these games. But future activities would be better planned (e.g. sounding out to the Board earlier regarding such important decisions). The Haier/Bain/Blackstone model may serve as a good model.
The Chinese may still overpaid, as the Japanese did. It is inevitable for a new comer. The over-priced deals will be less severe thanks to better information availability and a more efficient market. But the challenge lies in the post-acquisition management, as demonstrated at many failed PMI (post merger integration), even for companies from the same country. But it may not be in the best interests for the American (or the world) that Chinese acquisition fail, as it would lead to job lost and waste of resources.
Economist has a good coverage, as usual. However, the comments in the last paragraph "multinational...doing business in China is far from easy....and often not very profitable" are not entirely accurate. "Far from easy", true. "Often not profitable", false. There has been a labyrinth of traps for foreign investors in China, but these traps are not insurmountable. Plenty of MNC today are very successful in China, to quote a few:Volkswagens, GM, J&J's Janssen and 90% of the Pharmaco's, Coca-cola, P&G, and even the most recent entrant Dell, etc. Early failures are mostly due to crucial mistakes in strategy (wrongly judged competition, sent obsolete product line managed by incompetent managers, and more often, just mis-management. e.g., Whirlpool, Glaxo's early years. Some others have significantly understated their profit by overstating costs, especially if one could play the transfer price game (Coca-cola and many Pharma JVs, plus the over-pricing of equipment for many manufacturing ventures). Today China already boast one of the most invetment friendly environment among developing countries, as "voted" by FDI.
We should trust the judgments of the businesses, as they would quickly retreat to limit loss if an investment seems to lead to nowhere. In other words, Darwinism wins and you will eventually see more of the profitable ones.
I strongly doubt if China would retaliate by limiting US investment. But when there is competition between US and EU/Japan for business, you know which side the balance will tilt. Expect an uphill battle for US insurance companies in China, and that for a few other sectors, for example. Perhaps an "American premium" in selected "demonstration" areas.
China should resort to WTO to fault US for unfair competition in this particular case, if it can find such pathway in the WTO terms. Otherwise, there is no reason to act irrationally just because US forgo a good price for its citizens. As widely discussed, China (and CNOOC) also has another card to play, to pursue opportunities more aggressively in Iran and other US "enemies" - something the world prefer not to see.