Drop dogmatism on Chinese investments – by Daniel Schwanen (National Post – November 27, 2012)

The National Post is Canada’s second largest national paper.

 Daniel Schwanen is associate vice-president, international and trade policy, C.D. Howe Institute.

Canada has recourse should China flout local laws and regulations

By many standards, the proposed acquisitions of Nexen Inc. by China’s state-controlled CNOOC Ltd., and of Progress Energy Resources Corp. by Petronas, owned by the Malaysian government, are a natural fit for Canada. To take advantage of its natural resources, Canada needs foreign investment. State-owned firms are big players in the global energy sector and Canada has recently rediscovered Asia as a priority economic and diplomatic area.

Yet concerns persist about these proposed acquisitions, focusing on the impact of the investments on national security, the fairness of investments by subsidized state-owned firms and their ability to run efficient businesses, and the lack of reciprocal opportunities for Canadian firms. For many, the current guidelines on how Canada might apply its “net benefit” test for approving large domestic investments by foreign state-owned enterprises, which Canada issued in late 2007, are just not up to the task.

While the concerns are understandable, they do not justify rejecting out of hand acquisitions of Canadian businesses by foreign state-owned enterprises.

Certainly, foreign state-owned investments can involve security risks, as pointed out in a recent CSIS report. But Canada, like other Western countries, has the tools at its disposal to assess and, if necessary, manage specific threats arising from trade or investment linkages, including rejecting deals altogether. But assessing and dealing with threats does not mean automatically rejecting doing business with enterprises operating within the ambit of other states.

In the specific case of resources, which cannot be moved lock stock and barrel and which remain the ultimate property of Canadians, Canadian governments and regulators retain significant control over successful Chinese investment bids.

The idea that a Chinese state-owned company in a full-fledged international expansion phase would take on the reputational risk of making a large investment in Canada, only to flout Canadian regulations or tax laws, is on its face far-fetched. But should this scenario arise, Canada is well armed with legal and other recourses to ensure its laws and regulations are enforced.

On other fronts, Canada could clarify that its competition rules apply to foreign state-owned enterprises as they apply to others. For example, it could make clear that related entities controlled by a single foreign state will not be allowed to dominate its oil and gas or other sectors.

For the rest of this article, please go to the National Post website: http://opinion.financialpost.com/2012/11/26/drop-dogmatism-on-chinese-investments/

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