Prime Minister Stephen Harper’s decision – and it was his decision – about how to treat takeovers by state-owned companies will reverberate around the world.
Other countries – either the ones with state-owned enterprises (SOEs) or the ones with resources these SOEs wish to buy – won’t slavishly follow Mr. Harper’s lead. But some will take note of how an advanced industrial country handled this growing fact (or challenge) of world economics, as will countries with SOEs. The Canadian precedent – red-circling some industries against SOEs while toughening purchasing criteria in other industrial sectors – will be studied, if not copied.
The Canadian precedent is based on a fundamental premise: that SOEs don’t necessarily act the way shareholder-owned companies do. SOEs, such as those in China, contest that premise. They argue that, whatever the company’s controlling structure, SOEs act on market imperatives alone, up to and including listing their shares on stock markets.
It’s not easy generalizing about SOEs. It’s one thing to have an SOE from autocratic China, where the Communist Party and the military own big chunks of the economy, including interests in SOEs, and, say, Statoil of Norway, a profoundly democratic country that has wisely (unlike Alberta) husbanded its resource revenues in enterprises such as Statoil to make money for future generations.
SOEs come in many shapes and sizes, and from many different kinds of countries ranging from the authoritarian to the democratic and everything in between. That is among the reasons Mr. Harper’s policy wisely builds in flexibility for the government. Instead of hard and fast investment rules, we have rules that approximate guidelines rather than laws.
Mr. Harper ought to have clarified the “net benefit” test and how the government would deal with SOEs a long time ago. Everyone knew the “net benefit” test was vague to the point of being incomprehensible, and everyone also knew that SOEs were eyeing Canada’s natural resources.
As a result of this delay, the government had little choice but to approve the takeovers of Nexen (by China’s CNOOC) and Progress Energy (by Malaysia’s Petronas). Those deals were done before Mr. Harper clarified the rules. He could hardly have retroactively applied his new guidelines, unless he wanted to be known as the Hugo Chavez of the North.
The delay was irresponsible, a classic case of waiting until something happens rather than anticipating events and thus being forced to react on the run – a likely outgrowth of the excessive centralization of decision-making in the Harper government.
Once belatedly taken, Mr. Harper’s decisions were sound, starting from the correct premise that SOEs aren’t necessarily like shareholder-owned private firms and, critically, that in some countries (China being the obvious case) Canadian firms can’t do there what CNOOC did here – buy a big firm in the energy sector.
China wants things both ways: that its SOEs can buy elsewhere but others can’t buy in China. That the Harper government has now identified a sector of the Canadian economy essentially off-limits to SOEs can’t logically be objected to by China, which puts big swaths of its economy out of reach of foreign investment or insists that foreign companies can only buy minority interests or participate in joint ventures.
China has been pursuing a policy of locking up natural resources wherever they can be profitably bought, and Canada seemed a likely next target. If China doesn’t like the new Canadian guidelines, there are plenty of other opportunities around the world. If China chooses not to test the guidelines, Alberta’s bitumen oil will still interest other investors.
The challenges of bitumen oil are so many that the new guidelines’ impact is among the least threatening. The changing oil scene in the United States, the difficulty of getting approval for pipelines, the growing emissions of greenhouse gases, the discount price for oil to the U.S. and high production costs are among the industry’s key challenges.
Mr. Harper, whose foreign policy is too often characterized by finger-waving intransigence, struck a reasonable balance in this instance between domestic interests and international concerns.