We cannot decide whether China is a threat or an opportunity, and until we do, every discussion of our relations seems to slide into confusion and acrimony. The latest example is the noisy controversy over the bid by CNOOC (the China National Offshore Oil Corp.) to buy the American oil company Unocal. There are some real issues here, but they’re lost amid all the political clamor. We’re being told (to cite one congressional resolution) that CNOOC’s victory might “impair the national security” by jeopardizing “critical … energy production capacity.” The alarms sound plausible but are actually over the top.

Start with the basics. On April 4, directors of Unocal (2004 revenues: $8.2 billion) accepted an offer to be bought by Chevron (revenues: $151 billion). On June 22, CNOOC (revenues: $6.7 billion) made a counteroffer. Chevron’s bid, consisting of 25% cash and 75% Chevron stock, is valued at roughly $16.5 billion; CNOOC’s offer is $18.5 billion, all cash, financed partly by low-interest-rate loans from its state-owned parent company.

Even if CNOOC wins, there’s no danger that much U.S. oil production would be siphoned off to China. Unocal’s American production is tiny (57,000 barrels a day out of the total U.S. output of about 7.3 million barrels), and CNOOC pledges to keep it here. Nor is the United States being overwhelmed by Chinese investment. True, there have recently been some big transactions: the Chinese computer maker Lenovo’s purchase of IBM’s personal-computer business, and a proposal to buy Maytag by a consortium of the Haier Group, China’s largest appliance maker, and several U.S. buyout firms. But China’s presence is modest. In 2004, Chinese firms accounted for $490 million of U.S. direct investment out of the total foreign direct investment of $1.5 trillion (that’s foreign ownership of U.S. firms, factories, and real estate). Meanwhile, U.S. multinationals have $2.1 trillion of foreign investment, including $15 billion in China.

Although President Bush could reject CNOOC’s acquisition of Unocal on national security grounds, it’s hard to see a strong justification. “There’s no national-security issue here – zero,” says energy economist Philip Verleger. “Unocal doesn’t have technology that needs to be kept secret.”

Of course, oil could divide China and America. We may someday be competing for scarce supplies. After the United States and Japan, China is the world’s third largest oil importer. Its demand could grow 60% by 2020, says the International Energy Agency. All that extra demand would probably have to be satisfied by imports. China’s oil policy differs from America’s, says Richard D’Amato, chairman of the congressionally created U.S.-China Economic and Security Review Commission. China wants to guarantee its future crude supplies through long-term contracts. American policy is for oil to go to the world market and be available to everyone. “If they continue demanding control of oil at the wellhead, it’s a train wreck (for everyone) in the next 10 to 15 years,” D’Amato says.

Maybe. But China faces huge obstacles, the largest being the opposition of oil-producing countries. “They want to be able to sell to all customers,” says Verleger. China has secured some exclusive agreements, reports energy analyst Greg Priddy. In Sudan, a Chinese oil company is producing about 150,000 barrels a day. In Iran, China signed a contract to develop a field that might yield 300,000 barrels a day. Still, these amounts are small against the world’s demand of 85 million barrels a day or China’s demand of 7 million barrels a day.

Interestingly, however, CNOOC’s bid for Unocal wouldn’t much advance China’s quest for secure energy supplies. CNOOC says it simply wants to expand its business. So it seems. Unocal’s attraction is that it has large natural-gas and oil reserves in Asia; but most of the resulting energy production wouldn’t go to China. Unocal’s natural gas in Thailand and Bangladesh is already contractually committed to local markets. Oil produced in the Caspian Sea by a consortium of 10 companies flows toward Europe by pipeline. Natural-gas reserves off Indonesia, after being converted into liquefied natural gas, might be sold to China. But regardless of whether CNOOC or Chevron wins, the gas might end up in the same place. Geography matters.

We shouldn’t see demons where they aren’t. This is mostly standard corporate combat: two suitors want the same trophy. Chevron is probably the favorite. Let them fight it out – without Washington’s interference.

How America and China construct their relations is one of today’s great projects. We have many real issues with China: the undervalued yuan; possible military conflicts, notably over Taiwan; the nuclear status of North Korea; the potential economically destabilizing effects of huge trade imbalances (China’s surpluses and America’s deficits). We must defend our interests, but if we reflexively treat the Chinese as a threat, we will answer our own question: they will become a threat.