Stephen Harper's partly-pregnant takeover policy

These are stories Report on Business is following Monday, Dec. 10, 2012.

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A little pregnant
I agree with much of what Canada's prime minister is doing when it comes to takeovers by foreign state-owned companies. But his new takeover regime reminds me of the saying about being a little pregnant.

Here's what Canada's Industry Minister, Christian Paradis, said Friday as he approved the takeover of energy giant Nexen Inc. by China's CNOOC Ltd. and the deal for Progress Energy Resources Corp. by Malaysia's Petronas under the old rules:

"Under the Investment Canada Act, CNOOC has satisfied me that, under existing guidelines, their proposed transaction to acquire control of Nexen is likely to be of net benefit to Canada."

Then there's what Prime Minister Stephen Harper said at the same time in announcing new rules:

"The larger purposes of state-owned enterprises may go well beyond the commercial objectives of privately owned companies … Canadians have not spent years reducing the ownership of sectors of the economy by our own governments, only to see them bought and controlled by foreign governments instead."

Mr. Harper fenced off the oil sands from further incursion by SOEs, unless in "exceptional circumstances" and set new thresholds, among other measures.

To me, this is like being a little pregnant. The bottom line is whether or not Canada will tolerate SOEs. On the one hand, it did. But on the other, it won't.

I understand the diplomacy and trade reasons for throwing China a bone and the quest to further open new markets for Canadian business, though I wonder what we're getting in return.

But the government must now answer some basic questions on SOEs.

What Mr. Harper is saying is that foreign governments can have Nexen, this time, but not Suncor next time. (Well, they can have a little piece of Suncor. Or all of it, if it's an "exceptional circumstance" that, to date, has no definition.)

If Mr. Harper fears that SOEs have already made too many inroads and may have nefarious purposes – as in, going beyond "commercial objectives" – why let CNOOC and Petronas go ahead at all?

(Conversely, someone on the other side of the issue could easily make the argument that if SOEs such as CNOOC and Petronas were able to convince Canada that their deals are of "net benefit," why can't others?)

Indeed, The Globe and Mail's Carrie Tait reports, Natural Resources Minister Joe Oliver said today that the CNOOC-Nexen deal might not have passed muster under the new takeover regime.

And let's not be fooled by the issue of the cumulative impact to date. You either welcome SOEs, or you don't. You're either pregnant, or you're not.

I agree with a lot of what Mr. Harper said where the new rules are concerned, though these new regulations are vague and, surely, foreign investors must be puzzled.

I agree with him because I'm a child of the 60s and still have a healthy mistrust of any government.

I'm also something of an economic nationalist. So I loved his line about Canada not being for sale to foreign governments. Even though we just gave foreign governments $21-billion worth.

Despite my stated nationalism, I'm generally okay with takeovers and foreign companies operating in Canada as long as they play by our rules and the companies are not owned by their governments.

It's the government aspect that gives me a little morning sickness, and I have feared for some time that when the current economic turmoil finally ends in five or 10 years, we'll wake up to realize that deep-pocketed governments own much of the world's resources

Housing starts slip
The cooling of the housing markets in the provinces of Ontario and British Columbia are taking a bite out of construction.

Over all, housing starts in Canada dropped in November to an annual pace of 196,125, from October's 203,487, Canada Mortgage and Housing Corp. said today.

"As expected, housing starts remained below their recent trend and continued to fall for a third straight month," said the agency's deputy chief economist, Mathieu Laberge.

"This decrease was mainly attributable to declines in single-detached and multi-unit housing construction in Ontario and British Columbia, resulting in part from a decline in the pace of pre-sales relative to that in late 2010 and early 2011."

In Toronto, where condo development has been such a concern, the annual pace tumbled to 37,100 from 45,400.

"New home construction has moderated over the past few months in response to slower demand and the number of condos already under construction," said Shaun Hildebrand, the CMHC senior market analyst for Toronto.

At this point, said Emanuella Enenajor of CIBC World Markets, housing starts are at about the levels of early this year, though are still "mildly elevated" compared to the formation of households over the past 10 years, of about 185,000.

"Today's weaker-than-expected reading suggests homebuilding in Q4 is set to decelerate measurably from the pace of the prior quarter, likely exerting a drag on the economy," she said.

Economists generally expect an orderly retreat for Canada's housing market, rather than a crash.

"The modest decline is consistent with what appears to be a softly-landing housing market, at least in the vast majority of the country," said Robert Kavcic of BMO Nesbitt Burns, referring to today's report.

"With national sales down about 10 per cent since the spring high, and given that construction tends to lag demand, the surge in starts to above 250,000 in April is looking increasingly like a near-term high for Canadian residential construction."

Japan sinks
It's not so much that Japan has plunged back into recession. It's more like it was already there, and just didn't know it.

The government today revised its quarterly readings of the economy to show back-to-back contractions, meeting the technical definition of a recession.

In Japan's case, it's the fifth recession in 15 years.

The new numbers come amid a political campaign heading toward a mid-December election and raises the temperature, notably on the Bank of Japan, which has been under pressure to do more.

"To the extent that there is a positive note out of Japan's data releases today, revisions to Japan's Q3 GDP numbers left the pace of decline unchanged from the advanced GDP release at -3.5 per cent quarter-over-quarter annualized," said Derek Holt and Dov Zigler of Bank of Nova Scotia, referring to just one of the revisions.

"It's been that kind of year for Japan's economy."

Japan sinks back into recession

China's exports slip
The latest numbers from China are giving mixed signals.

Industrial production climbed 10.1 per cent in November, for a better showing than expected.

But growth in exports slowed sharply, to 2.9 per cent in November from 11.6 per cent in October. There were other data points as well over the weekend, all of which signal China's continued recovery, but a potentially weaker one.

"In sum, having now seen most of the key releases for November, our conclusion is that the rebound is continuing but that it appears to be losing some strength," said Mark Williams and Qinwei Wang of Capital Economics in London..

"Continued acceleration would require a pick-up in investment beyond infrastructure, stronger household spending, an export recovery or further stimulus. There is no sign of any of these happening so far."

China’s economy on the upswing

Bunga, bunga
Italian Prime Minister Mario Monti has thrown the troubled euro zone back into uncertainty with his decision to resign after his budget is passed.

Add to that former prime minister Silvio Berlusconi's suggestion that he wants his old job back, and you've got exactly what leaders of the 17-member euro zone have been trying to avoid.

As senior analyst Michael Hewson of CMC Markets in London noted today, the move triggers an early election and "further political uncertainty to a country not known for its political stability."

"The news that Italian Prime Minister Mario Monti is to step down once next year's budget is approved has pushed Italian bond yields higher," said analyst David Madden of IG in London.

"Mr. Monti, who has been in power for the last thirteen months, has not only pushed through the country's austerity program, but his pro-EU stance has helped bring stability to Italy's borrowing cost. The voice of anti-austerity in Italy, Silvio Berlusconi, is tipped to make to a return to politics. Traders are afraid he might regain popularity with his anti-Brussels rhetoric."

Italian bond yields climbed today amid the new uncertainty, given that Mr. Monti was seen as a steady hand on the austerity switch.

"As the campaign gets under way, markets should focus on three factors," said Adam Cole of RBC Europe, noting both Mr. Berlusconi and Luigi Bersani of the Democratic Party.

"Firstly, Berlusconi's personal and party poll ratings (currently very low in both cases). Secondly, any trend toward populism on the part of Bersani's PD (likely election winners on current polling) and finally, Monti's stance."

Bond yields jump as Monti pushed out, Italy returns to forefront of debt crisis

Just sayin'
CareerBliss has published its annual list of the 50 Happiest Companies in America, which is based on how the employees of said companies feel. Top of the list is Pfizer Inc. (Wonder if they get free Viagra?)

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