BEIJING — Iris Evans was in an upbeat mood when she walked into the Canadian embassy here last fall to pitch the Alberta oil sands to a high-powered group of Chinese investors.
Ms. Evans, the Alberta minister of employment, immigration and industry, was expecting a smooth ride. But she was quickly ambushed by a hostile question from a Chinese journalist.
"You say Chinese investment is welcome, but we feel a negative attitude from the Canadian government," the reporter told her at a press conference.
"The Canadian media makes a big story about Chinese spies in Canada, and it seems the Canadian government does not trust Chinese people much."
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Ms. Evans replied that she knew nothing about the spy issue. But the skeptical question was one example of China's doubts about Canada as an oil supplier. Beijing wants a relationship of trust with its oil suppliers – and that means it usually prefers to buy from authoritarian regimes in Africa, Latin America or the former Soviet Union, where there are no complications about democracy or minority rights.
Alberta is struggling to improve its image in China. In her speech to potential investors in Beijing, Ms. Evans touted the "vast opportunities" that Chinese businesses could reap in the Alberta energy sector. Alberta and China are "just a pipeline and the Pacific apart," the minister told the Chinese investors. "We are eager and most willing to work with you."
Yet despite China's insatiable demand for energy to power its booming economy, the Alberta oil sands are largely off the Chinese map. Beijing is obsessed with diversifying its oil sources and avoiding any dependence on a single supplier. It sees Canada as a country in the U.S. sphere of influence, a country where oil could be held hostage to political concerns. And it has little enthusiasm for multibillion-dollar oil deals in a country whose relations with China have been soured by human-rights disputes.
"China doesn't want to make a multibillion-dollar commitment to a country where the political contacts are constrained," says Wenran Jiang, a University of Alberta political scientist who is editing a book on Canada-China energy relations.
On the face of it, China would seem to be a natural customer for Alberta's oil sands. China's demand for oil is skyrocketing, and fuel shortages are already plaguing its economy. At present trends, China will overtake the United States as the world's biggest energy consumer by 2010.
China currently accounts for one-third of the world's growth in oil demand. In the transportation sector alone, its oil consumption is likely to quadruple by 2030. Its projected rise in oil demand over the next 25 years will be equal to the entire oil production capacity of Saudi Arabia.
Yet China's involvement in the Alberta oil sands has been relatively small and tentative. It has invested in several small-scale projects, but none has had much impact.
Beijing has been worried about Canada's unwelcoming attitude towards Chinese investors since 2004, when a political uproar was triggered by a Chinese company's bid to purchase the Canadian mining giant Noranda.
Most recently, the Harper government has introduced new rules to allow Canada to restrict investment by foreign state-run enterprises. Although the rules made no mention of China, it was clear that the fear of Chinese investment was the biggest reason for the new policy.
Last summer, a senior Chinese oil executive sharply criticized the Harper government, calling it unfriendly to Chinese business. Song Yiwu, vice-president of China National Petroleum Corp., announced in July that his company's subsidiary, PetroChina, was pulling out from the Enbridge pipeline project, which would have transported oil from Alberta to the West Coast for shipping to China.
Calling it an "ideological" issue, Mr. Song made it clear that PetroChina's pullout was partly due to Canada's declining relationship with China since the Conservative government took office. China, he said, preferred to invest in a friendly country such as Venezuela, which he described as more "warmhearted" than Canada.
Venezuela is just one of the many countries that China favours ahead of Canada in the oil stakes. At last count, China had invested in oil projects in nearly 30 countries around the world – primarily in reliably autocratic or anti-American states such as Angola, Iran, Sudan, Russia and Venezuela.
Two and a half years ago, the federal Liberal government was predicting that Alberta could export anywhere from 400,000 to one million barrels of oil per day to China. But almost nothing has developed since then.
Canadian oil exports to China are a drop in the bucket: only about $150-million in 2007. Statistics Canada, in a recent report, described this as "not a significant share" of Canada's oil exports.
Chinese investment in the Alberta oil sands has been tiny. Its state-controlled oil companies have invested $300-million to acquire two minority stakes in joint ventures in the oil sands – a tiny amount compared to the $90-billion in total investment in Alberta's oil sands industry.
Most recently, China National Petroleum Corp. acquired a majority stake in an exploration project in 259 square kilometres of oil sands territory in northern Alberta, although this project, too, is relatively small.
"The peak of the optimism and enthusiasm was two or three years ago," Mr. Jiang said. "Unfortunately there has been basically nothing ever since. There's a sense of frustration now. The Chinese perception is that Canada is not an easy place to do business, particularly in the Alberta oil sands."
Some of this perception is due to administrative delays on the proposed Gateway pipeline project from Alberta to the Pacific coast. Canadian companies are obliged to negotiate with aboriginal communities along the pipeline route – a problem that rarely occurs in the authoritarian states where China prefers to do business.
Another factor is the lack of zeal about China among Canadian oil producers. Most oil producers in Alberta are quite content to send their oil to the United States, their traditional market.
But the poor political relationship between Canada and China might be the biggest factor of all. "In the Chinese mindset, you can't work together on large projects unless you have a positive political framework," Mr. Jiang said.
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