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Stephen Harper has highlighted the need to expand commercial relations with China. Canadian Prime Minister Stephen Harper arrives at a signing ceremony with China at the APEC Summit in Vladivostok, Sept. 9, 2012. (Adrian Wyld)
Stephen Harper has highlighted the need to expand commercial relations with China. Canadian Prime Minister Stephen Harper arrives at a signing ceremony with China at the APEC Summit in Vladivostok, Sept. 9, 2012. (Adrian Wyld)

Looming Nexen deal reveals fault lines in Tory camp Add to ...

As he prepares the ground for a likely approval of the takeover of Nexen Inc. by a Chinese national oil company, Prime Minister Stephen Harper is cementing his government’s transformation from anti-communist China-skeptics to business-oriented pragmatists eager to pursue an economy-first Asia policy.

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CNOOC Ltd.’s groundbreaking $15.1-billion deal for Calgary’s Nexen has revealed a continuing fault line in the Conservative caucus, pitting the more ideologically driven members who distrust the undemocratic regime in Beijing against their colleagues who want to expand trade and investment ties with the fast-growing Asian powerhouse.

The split has even surfaced in cabinet, according to several sources close to the government. Finance Minister Jim Flaherty, who has made it a personal priority to build commercial relations with China, has spoken in favour of judging the CNOOC deal on its merits rather than allowing broader political differences to derail it. Immigration Minister Jason Kenney – with his anti-communist roots and promotion for religious freedom – voiced his concerns that China is not a trustworthy economic partner.

Mr. Harper has placed himself squarely in the pragmatists’ camp. His government is now widely expected to approve CNOOC’s bid for Nexen after the Investment Canada review, an expectation that reflects the lack of opposition from the Alberta government – the owner of the oil resources – from oil industry executives, or from the broader corporate sector, which is eager to expand business ties with China.

It was nearly six years ago that Mr. Harper proudly wore the mantle of China-skeptic: defiantly proclaiming his government would not sacrifice human rights and other Canadian values to the “almighty dollar” in its dealing with the rising Asian powerhouse.

Since then, he has led his government in a re-evaluation of the China relationship, notably with his much-proclaimed view that Canada’s future prosperity depends on its ability to expand exports to Asia, and China specifically, and to attract investment from the region.

In recent public statements, Mr. Harper has highlighted the need to expand commercial relations with China, even as he acknowledged the concerns of the critics. He has been careful not to pronounce on the merits of the specific CNOOC-Nexen transaction.

In the weeks since the deal was announced, he has reiterated his view that expansion of commercial ties with Asia is an urgent priority for Canada. He stressed the importance of mutually beneficial trade, knowing that he was to meet President Hu Jintao in Vladivostok this week to sign a foreign-investment agreement that would signal China’s willingness to protect Canadian investors. And he has promised new guidelines that sources say will aim to protect strategically important Canadian companies while welcoming takeovers from market-oriented, publicly traded, state-owned enterprises.

His comments are clearly aimed at the China hawks in his party and his caucus who are steeped in values-driven politics, including Calgary’s Rob Anders, a right-wing maverick who has railed against the deal. Prominent Conservatives have also been active in the Parliamentary Friends of Tibet, which is chaired by Ontario MP David Sweet.

The proposed CNOOC-Nexen deal represents a watershed moment, forcing the Harper government and Canadians generally to confront the fact that Chinese firms – owned by a communist government that is keen to acquire global resources – are poised to play a far bigger role in this country’s energy sector, which the Prime Minister himself has identified as a strategic industry.

MPs and Senators will have a chance to air their views at a caucus meeting scheduled for Monday as Parliament resumes sitting, and Conservative insiders say there are many who share Mr. Kenney’s misgivings, though they are unwilling to voice them publicly.

Alberta MP Peter Goldring, who sat in caucus until last December, when he left over a charge of failing to submit to a breathalyzer test, says the government needs to move cautiously in its dealings with China and says other Conservatives are talking about the need to view Chinese investments with some skepticism.

“Somebody has to look at China some time on a more serious light on how they are buying up large industries and buying up resources around the world,” Mr. Goldring said.

But Mr. Harper will have plenty of support should his government approve the deal as expected. There has been no great groundswell of opposition to the transaction that was agreed by the Nexen board and offers a 61-per-cent premium to shareholders. Alberta Premier Alison Redford – whom Mr. Harper called soon after the deal was announced – has given her blessing to such investments, and oil industry executives have been supportive.

“If you were ever going to choose a company to disallow a sale, it sure as heck wouldn’t be Nexen,” said Gwyn Morgan, a former oil executive whose voice is well respected in the Harper government. “By no means is it a leader in the industry.”

Certainly, CNOOC and its advisers at Hill+Knowlton have followed a script designed to eliminate as many contentious issues as possible before going public with the deal.

The energy company, which is majority owned by Beijing but trades on the New York Stock Exchange, absorbed the painful lessons of its failed takeover bid for U.S.-based Unocal in 2005. It has made cautious Canadian investments over the past several years.

On the day before the deal was announced, CNOOC, Nexen and Hill+Knowlton executives who were gathered in Calgary placed a call to Mr. Flaherty, giving the cabinet minister a heads up that the announcement was coming the next day. Senior officials at the Prime Minister’s Office, the Privy Council Office and Industry Canada also were given a “heads up.”

To win approval, CNOOC promised to list its shares on the Toronto Stock Exchange, maintain a domestic management team, and establish Calgary as headquarters for its entire operations in North and Central America.

It has assiduously followed guidelines laid out by a government that has actively courted its investment. A rejection might satisfy a coterie of backbenchers, but it would be a severe blow to Mr. Harper’s own Asia strategy.

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