After months of suspense about proposed takeovers by Chinese and Malaysian state-controlled corporations, the upshot in favour of CNOOC and Petronas – announced by Prime Minister Stephen Harper late Friday afternoon after the markets closed – still leaves serious questions on the principles of Canada’s foreign-investment policy. The statement that henceforth takeovers by foreign state-owned enterprises in the oil sands will be approved only on an exceptional basis, with a view to degrees of control, is not very enlightening. In fact, it is somewhat dangerous.
It approved the two controversial Asian takeovers, because they fell under the old rules. But by erecting barriers for state-controlled investors from new takeovers in the oil sands and making it tougher for these entities to buy assets elsewhere in the country, Canada appears to have introduced a new ambiguity into its foreign investment policy.
For the time being, this new hurdle is just for the oil sands. The added uncertainty is that Mr. Harper also said the government is looking for new policies that would apply to all new investments in Canada by all foreign state-owned enterprises, and would undertake to assess the degree of control exercised by the foreign governments. The threshold for review of SOEs’ investment would be much lower than for the private sector. Mr. Harper and his colleagues appear to be on the verge of giving themselves arbitrary new powers.
Admittedly, there is an issue around the fact that private-sector corporations are not on a level playing field with companies such as CNOOC, Sinopec, Petro-China and Petronas. It is fair to say that these state-owned enterprises have a relatively low cost of capital (though Canadian investors can and do trade in shares of CNOOC and other Chinese corporations on the New York Stock Exchange). And it is hardly plausible that China would tolerate a Canadian takeover bid for CNOOC, or other state-controlled Chinese companies. The Chinese government needs to get out of regular commercial business. It should take Mr. Harper’s hint and divest itself of controlling interest in these major companies. But that is China’s own problem to deal with.
The new policy seems inconsistent with the aspiration for a greater rapprochement with East and South Asia. Canada has become increasingly aware this year that its prospects for export growth lie mainly in China and other emerging economies, while the United States continues to grow quite slowly and Europe is in recession. Above all, those exports means commodities: oil and gas and minerals.
There is no easy formula by which to articulate a principled reciprocity with China on investment and trade. The Canada-China investment protection treaty is good as far as it goes, but its most effective section has to do with permitting the expansion in each country of already established enterprises. And the Investment Canada Act already provides for taking into account “the contribution of the investment to Canada’s ability to compete in world markets” – which presumably includes competitively selling natural resources and other exported goods.
In the end, of course, the oil sands and other natural resources are the property of the Crown in right of the provinces, most conspicuously of Alberta. Oil companies operating in Canada – whether Canadian, American or Chinese – are only licensees. Greater clarity on degrees of control and other matters will be needed, far greater than Stephen Harper provided on Friday.
Mr. Harper makes a valid point that Canada wants a free market, but his position favouring impediments to certain kinds of foreign investment contradicts that. Much is made about the opaqueness of the Chinese government in terms of foreign-investment approvals. Canada seems to have taken a page out of Beijing’s playbook.