“I don’t know how anybody can look at the Chinese SOEs and believe they are normal players in a free marketplace,” Carolyn Bartholomew, a commissioner with the U.S.-China Economic and Security Review Commission, said in an interview from Washington.
“The Chinese Communist Party exercises direct control over these companies, including appointing the boards and senior executives.”
Ms. Bartholomew said the Chinese SOEs are deeply engaged in their government’s efforts dominate the African resources sector, but conduct themselves differently – and more according to western standards – when they are operating in an OECD country.
In testimony before a congressional committee earlier this year, Ms. Bartholomew presented a scathing review of China’s record of investing in resources in Africa, where its commercial interests coincide with a diplomatic effort to prevent western nations from intervening in the internal affairs of sovereign states to pursue issues of human rights, corruption, or protection of civilians in conflicts.
The commissioner said she wouldn’t presume to tell Canadians how to respond to the CNOOC bid, but is hopeful the Committee on Foreign Investment in the United States – which is part of the Treasury Department – will “ask the hard questions” in reviewing its acquisition of Nexen’s American assets.
Chinese firms continue to be major investors in Africa, but have shown they have their limits. China Minmetals Resources Ltd. was bested in a takeover tussle for Equinox Minerals in early 2011 by Toronto-based Barrick Gold Corp.
Australia still makes up most of China's outbound investment, but it is looking farther afield – to places like Brazil and Canada, and even the United States, as the Australian market offers few opportunities.
CNOOC had a political setback seven years ago when it attempted to take over California-based Unocal Corp., but backed away under a firestorm of adverse reaction. Minmetals had encounter a similar reaction with a similar result when it attempted to take over Noranda in 2004.
In Canada, CNOOC – like other Chinese energy and mining firms – has followed a cautious, incremental path, which was designed to increase its own confidence and the political comfort level of Canadians. It acquired a 17-per-cent interest in oil sands producer MEG Energy Corp. in 2004, followed that with a partnership with Nexen in the Gulf of Mexico, and last year, paid $2.1-billion (U.S.) for financially ailing OPTI Canada, whose sole asset was a minority stake in Nexen’s Long Lake oil sands project.
For CNOOC, the Nexen deal provides numerous benefits. It gives it access to substantial market intelligence on the North Sea, whose production is critical to setting international oil prices. It also makes CNOOC the first Chinese firm to gain operational control of an energy asset in the U.S., which could be “a way for Chinese oil companies to raise their profile in the U.S.,” said Erica Downs, a former CIA energy analyst who now studies China’s international resource expansion for the Brookings Institution.
But perhaps the most important element is how “it’s going to help them achieve their long-standing goal of not just being a national oil company, but an international energy company,” Ms. Downs said.
Gaining Nexen’s global scale will allow it to do that, she said, in part because it will be forced upon CNOOC. The strategies of operating in the developing world – using cheap government financing to gain leverage, using political connections and offers of infrastructure to gain access to resources – are unlikely to be viewed favourably in North America.
In fact, the way this large deal stands to transform CNOOC could be among its important elements, as Chinese firms take on an increasingly important global stature in the energy industry. It’s worth recalling that a good number of the world’s largest energy companies today – BP PLC and Total SA, as just two examples – started out as national oil companies.
“If you want to be an international energy company, you could market the argument that one of the best ways to get there is to go out and buy one and see what it’s like,” Ms. Downs said.
With files from reporter Nathan VanderKlippe in Calgary.
FOREIGN COMPANIES, BIG DEALS: WHERE THE PIECES FIT
National energy companies have taken a larger interest in international projects in recent years. Here are six big state-controlled players in the global energy game:
CNOOC LTD., CHINA
Market cap: $88-billion (U.S.)
CNOOC Ltd., the entity that wants to buy Nexen Inc. for $15.1-billion, is 65 per cent owned by Beijing’s China National Offshore Oil Corp. and is China’s largest offshore crude oil and natural gas producer. It has assets the world over, from Canada to Argentina to the Republic of Congo, and owns a one-third interest in two Texas shale gas properties run by Chesapeake Energy.