The question before the house is this, is Canada’s relationship with China qualitatively different to its relationship with Malaysia. On the answer to that may well hang the answer to the question, is the Canadian government’s blocking of the $5.2 billion bid by Malaysia’s state oil company Petronas for Canadian gas producer Progress Energy, prologue for the same thing happening to CNOOC’s $15.2 billion bid for Canadian oil producer Nexen.
The Canadian government is walking a tightrope. It is suggesting both that Canada remains open, even welcoming, to foreign investment, and that each particular investment has to be what the country’s finance minister Jim Flaherty describes as ‘correct’. That will be particular true for Canada’s natural resources, which is pretty much the only Canadian assets foreign investors are interested in right now. That such deals are invariably big-ticket numbers only shoves them more firmly into the center of the spotlight of public scrutiny.
The Canadian government has minimized the degree to which the CNOOC bid is politicized by declining to hold a public inquiry. Instead it has given itself until mid-November to assess the bid. It has also promised to outline guidelines for state-owned companies bidding for Canadian firms.
This is all keeping investors guessing about prognosis for CNOOC’s bid. Before the Petronas decision, it was thought that CNOOC would get the nod. Now there are second thoughts. Ottawa has previous when it comes to keeping foreign companies at arms length from Canada’s natural resources. In 2010, it unexpectedly rejected a $39 billion bid by Australia’s BHP Billiton for Potash Corp, the world’s largest fertilizer maker.
On top of that, these are uneasy days for Chinese companies in North America. The U.S. House of Representatives’ Intelligence Committee issued a report earlier this month saying that telecoms groups Huawei and ZTE were a security risk and that American companies shouldn’t do business with them. Canada has expressed similar concerns.
Opponents of the CNOOC bid for Nexen are playing on such security fears. They have latched onto a description by CNOOC’s chairman Wang Yilin of the company’s deep-water drilling rigs in the South China Sea as “mobile national territory and a strategic weapon”. The disputed waters of the South China Sea are a long way from the shale sands of Canada, both geographically and politically, but such words travel badly.
The unease cuts both ways. Last Thursday, Superior Aviation Beijing’s planned $1.8 billion purchase of U.S. aircraft maker Hawker Beechcraft fell apart unexpectedly. Hawker’s chief executive rued China-bashing by U.S. presidential candidates for contributing to the collapse of the talks.
Like Washington, Ottawa faces a dilemma in framing its relations with China, which are of an order different to that of its relations with Malaysia (so our answer to our own first question is, yes). China is an important source of foreign capital as well as a growing customer for Canada’s exports. Ottawa doesn’t have much choice but to engage with its customer. It can do so with a lower intensity of geo-political competition than Washington does. But is still has to engage on the best terms it can get. We expect the CNOOC bid to go ahead, but with conditions imposed.