Charles Burton is a senior fellow at the Macdonald-Laurier Institute, non-resident senior fellow of the European Values Center for Security Policy in Prague and a former diplomat at Canada’s embassy in Beijing.
Canada’s largest diversified mining company, Teck Resources TECK-B-T, is reportedly baffled that its biggest shareholder, China Investment Corp., was missing in action this week as Teck seeks enough shareholder votes to split the company into two entities, and stave off a hostile US$22.5-billion takeover by Swiss mining and commodities giant Glencore GLNCY.
Holding more than 10 per cent of Teck’s stock, CIC is a critical player in the current shareholder vote. Yet on Monday, with an hour left ahead of the deadline, the Chinese company’s vote had not come in, and Teck did not know why, The Globe and Mail has reported.
Teck has denied a Bloomberg report that CIC, which is China’s largest sovereign wealth fund, managing assets of more than US$1.2-trillion, was in favour of Glencore’s bid. All the while, CIC has said not a word publicly.
CIC’s behaviour can be explained by China’s view of Canada’s critical minerals strategy – introduced by the federal government late last year to protect natural resources from foreign ownership and secure supply chains for critical minerals.
While keeping Teck in Canadian hands is clearly in our national interests, China probably now prefers that its investment in Teck be transferred to the less explicitly hostile Swiss company. With CIC’s silence, we should assume that Chinese diplomats and their proxies are working hard in Bern, extracting maximum concessions for China in return for thwarting the Teck split and leaving the Canadian resource company ripe for a takeover by Glencore.
China itself has reserves of trillions of U.S. dollars, accumulated through its massive exports of manufactured goods to pretty well every country on the planet. But China also has an ever-growing need for raw materials to feed those factories.
When CIC invested $1.7-billion in Teck stock in July, 2009, it looked like another step in Beijing’s overall strategic plan to lock down global resources while they were cheap. But the picture is more complicated than that.
As a sovereign wealth fund that manages part of the People’s Republic of China’s foreign-exchange reserves, CIC is fully integrated into the Chinese Communist Party-state’s corporate, military and security apparatus, subordinate to the overall vision of the party. As General-Secretary Xi Jinping has put it, “government, military, civilian, and academic; east, west, south, north, and centre, the party leads everything.”
CIC’s leadership org chart shows the board of directors and the “supervisory board” (that is, party committee) as both being on the same plane at the top. That would seem to make them equals, but it would be naive to suppose that the supervisory board does not dictate to the board of directors. In autocratic political systems, some boards are definitely more equal than others, and the CIC’s priorities are whatever the Chinese Communist Party says they are.
Like all China institutions, CIC is programmed by the party to serve the regime’s geostrategic goals throughout the world. However, being beholden to the party-military state is much more than a master-servant relationship; it is a symbiotic, interactive bond. While the idea is to prudently husband China’s foreign investment and make money, CIC’s raison d’être is not primarily economic profitability but to serve other Chinese regime purposes as well.
Teck chief executive officer Jonathan Price has said his understanding of Teck’s relationship with CIC is “very open, collaborative,” but as relations between Canada and China have chilled in recent years, CIC has been reducing its holdings in Teck from a 17.5-per-cent equity stake of a few years ago to 10.3 per cent today. It’s very likely these selloffs were not made simply to reap vast profits.
China certainly understands that Canada’s critical minerals strategy is really about constraining Beijing’s “hiding in plain sight” determination to gain a stranglehold on international sources of elements that are critical to the high-tech future. The unstated message is that long-term geopolitics increasingly trumps short-term economics, and Chinese investment in Canadian mining companies is no longer welcomed by us.
CIC is a function of an integrated party-state-military-civilian-market regime complex whose end goal is severely at odds to the interests and values of Canada and the liberal democratic West.
If a takeover by Glencore begins to unfold, Ottawa can lawfully veto the deal as not being in Canada’s net economic or security interests, as it would jeopardize our national security, including by negatively impacting on Canada’s critical minerals strategy.
Obviously, with the Chinese Communist Party lurking in the shadows behind Teck’s fate, there really is only one choice for Canada.