07 October 2005

Bush and Deng Strike an Oil Bargain, 1977

On the business front, the trip with [George H.W.] Bush [in 1977] was more of a success. Hugh Liedtke, the chairman of Pennzoil, met with Minister of Foreign Trade Li Qiang, and during a meeting with Deng Xiaoping at which Bush and I were present, Bush made significant headway in persuading Vice Premier Deng to allow American oil companies to work in China. At that point in 1977, Deng, who had been restored to his posts earlier in the year with the help of powerful backing in the military, was about a year away from introducing his initial plans for economic reform in China. An old oil man himself; Bush "sold" Deng on the concept of a "risk contract" in which U.S. companies would assume the significant costs of exploration for oil in places like the South China Sea and then share the proceeds from production if oil were discovered. Deng liked the idea because it would allow China to bring into the country free of charge the technology and capital needed to exploit oil resources and then still share in the profits. Deng also knew that his own oil people had oversold him on their capabilities, leaving China with semi-submersible rigs that no one knew how to use and jack-up rigs that had turned over in the Gulf of Bo Hai in northeast China. The concept of "risk contracts" became the basis for joint ventures in oil exploration between the United States and China.

Bush's meeting with Deng built on the acquaintance they had formed during his posting in China and laid the foundation for future meetings, including two more in the next three years that I would also be privileged to attend. In spite of their diminished political statures in 1977--Bush being out of power and Deng having just returned to his government posts from being temporarily purged--I believe that Bush and Deng sized each other up as future leaders. Just as former President Nixon and Henry Kissinger had forged personal ties with Deng's predecessors, Mao and Chou En-lai, Bush was developing a relationship with Deng that eventually became critical in sustaining U.S.-China ties in troubled times and advancing them in better times. When the two men ascended to the tops of their respective governments, their personal connection facilitated a blending of American and Chinese interests into a workable formula. This congeniality of leaders at the highest levels is, I believe, one of the keys to managing the Sino-American relationship.
SOURCE: China Hands: Nine Decades of Adventure, Espionage, and Diplomacy in Asia, by James Lilley with Jeffrey Lilley (PublicAffairs, 2004), pp. 203-204

Maybe not just the Sino-American relationship.

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