China’s official media cheered Ottawa’s decision to allow the takeover of Nexen Inc. by a Chinese government-owned oil company as symbolic, expressing hope that it would lead other countries to end their “bias” against large Chinese investments.
However, a key adviser to the Chinese government acknowledged that Beijing would have to accept and adapt to the new reality that no more takeovers by foreign state-owned enterprises would be allowed in Canada’s oil sands.
In an editorial distributed to media outlets around the country, the Xinhua news wire said the successful $15.1-billion acquisition of Calgary-based Nexen by China National Offshore Oil Corporation (better known as CNOOC) – approved Friday by the Conservative government – represented an important breakthrough for Chinese firms that have often been treated with suspicion when they try to enter foreign markets.
“The [CNOOC-Nexen] deal attracted widespread attention, so its approval has symbolic significance,” Xinhua wrote Saturday. “It turns out to be a model for Chinese enterprises ‘going out’ [into foreign markets] and sets an important precedent for future foreign acquisitions by Chinese enterprises. For some time, the internationalization of Chinese enterprises was not going well, with the overseas mergers and acquisitions setbacks for [communications giants] Huawei and ZTE, so this appears to be a breakthrough.”
The editorial was apparently referring to a recent U.S. congressional report that found Huawei and ZTE to be national security threats because of their links to the Chinese government. In 2011, Huawei dropped a takeover bid for U.S. server technology firm 3Leaf Systems after a U.S. government panel ruled it should not be allowed to go ahead.
Some in Canada had portrayed CNOOC – which was founded in 1982 by China’s State Council, or cabinet – in the same light, worrying that the apparent willingness to overpay for Nexen (the $15.1-billion offer represented a 61 per cent premium on Nexen’s pre-bid market value) suggested CNOOC had motives other than profit in purchasing a foothold in the Alberta oil sands. In 2005, CNOOC ended an $18.5-billion bid for Unocal in the face of political opposition in the U.S.
A separate, stronger Xinhua editorial issued Sunday said that “Western powers” – a clear reference to the U.S. – needed to “drop their bias” against Chinese firms in the wake of the CNOOC-Nexen deal. “For quite a while, Chinese investors have been discredited by some Western governments and media as a group of cash-rich predators and spies. They have been wrongly reported to forage across the world for energy resources and raw materials on behalf of the Chinese government and covertly plot to sabotage the national security of those who receive their investments.”
The editorial noted that the CNOOC-Nexen deal provoked “strong domestic protests” in Canada, and was approved only after Ottawa twice extended its own deadline for passing judgment on it. “Friday's hard-earned approval for the largest overseas takeover by a China-based company has expressly revealed the predicament that has frustrated Chinese entrepreneurs’ enthusiasm for foreign investments and prompted them to question the fairness of foreign marketplaces.”
The unexpected caveat Prime Minister Stephen Harper added on Friday – that the Nexen takeover and a $5.2-billion purchase of Calgary’s Progress Energy Resources Corp. by Malaysia’s state-owned Petronas (which was approved at the same time) would be the last takeovers by foreign state-owned firms allowed in Canada’s oil sands – got scarce mention and no commentary in China’s state media.
However, Xu Xiaojie, head of the international energy program at the Chinese Academy of Social Sciences, a think-tank that advises the government, said Beijing would have little choice but to accept the new rules. He said they wouldn’t diminish Chinese investors’ interest in the oil sands.
“This is reasonable for the Canadian government and Canadian society. This is the first and maybe the last [approval] because of the size,” Mr. Xu said in a telephone interview. “In the future maybe there will be no similar deals, but other types of cooperation can be concluded. A long line of Chinese investors remains keenly interested in Canada.”
Mr. Harper’s signal that takeovers by companies controlled by foreign governments would no longer be welcome “is a brand new thing for the Chinese government and decision-makers. They have to think of this as a new challenge and a new reality,” Mr. Xu added.
In a statement posted on the CNOOC website, chief executive officer Li Fanrong said the company was “delighted that the Minister of Industry has concluded that this transaction represents a ‘net benefit’ to Canada.”