Harper Seeks China Access for Canada Finance With Oil as Lever

Prime Minister Stephen Harper begins the official part of his second visit to China in just over two years today as Canada seeks to deepen energy ties and win business for companies such as Manulife Financial Corp. (MFC)

Harper, who is leading a delegation of more than 40 Canadian executives, will meet Premier Wen Jiabao today in Beijing, hold talks with President Hu Jintao tomorrow and meet local Communist Party officials over the next four days as he seeks to assure Chinese leaders the Asian country is welcome to invest in Canadian natural resources. Harper will also push for greater access to China for Canadian banks, insurers and firms such as Bombardier Inc., a Montreal-based plane and train maker.

Harper will be “impressing upon the Chinese government and firms Canada’s openness to Chinese investment in our economy,” Andrew MacDougall, a spokesman for Harper, said in an interview. He will also seek “to expand and deepen the strategic partnership between our two countries, including by discussing opportunities to improve the investment climate for Canadian firms operating in China.”

Harper, who last month called diversifying Canada’s energy exports a “national priority,” is seeking to reduce the country’s reliance on the U.S., after President Barack Obama rejected TransCanada Corp.’s $7 billion Keystone XL pipeline to ship Canadian oil to the Gulf Coast.

Executives in Delegation

Harper’s delegation includes Patrick Daniel, head of Enbridge Inc. (ENB), the pipeline company that plans to build a link between Alberta’s oil reserves and the Pacific coast; Tim Gitzel, chief executive of Cameco Corp., the world’s largest uranium producer; Marcel Coutu, chief executive officer of Canadian Oil Sands Ltd., which holds a stake in the Syncrude oil venture along with China Petrochemical Corp.; and executives from Scotiabank and Manulife.

Harper will meet a group of Canadian executives today before seeing Wen at Beijing’s Great Hall of the People.

Canadian Foreign Affairs Minister John Baird, Natural Resource Minister Joe Oliver, Agriculture Minister Gerry Ritz and Trade Minister Ed Fast are also on the trip.

Harper’s Beijing itinerary also includes a meeting tomorrow with Vice Premier Li Keqiang and an address to the Canada-China Business Forum. The Canadian leader flies on Feb. 10 to Guangzhou, capital of Guangdong, the nation’s most populous province, where he’ll meet Communist Party Secretary Wang Yang and give the keynote address at a dinner organized by Canadian chambers of commerce in the region.

On Saturday, Harper flies inland to the municipality of Chongqing, where he will meet local Party officials, and visit the city’s port and zoo, before departing for Ottawa.

‘Market Access Issues’

“As with all partnerships and trading relationships, there are challenges,” Harper said in an interview last week with Xinhua, according to a transcript provided by the news agency. “There are several market access issues for Canadian companies that I hope can be resolved in the near future.”

John Manley, head of Canada’s Council of Chief Executives, said in a Nov. 21 speech in Beijing that China should ease restrictions in sectors such as financial services and mining.

“This lack of openness is an obvious source of frustration for Canadian investors, particularly given the recent dramatic increase in Chinese investment in Canada,” Manley said. “Canadian investors ought to be afforded the same access to China that Chinese investors are afforded.”

‘State Capitalism’

China has also faced criticism from the U.S. and the European Union for protecting state-owned enterprises and domestic industry, prompting U.S. Ambassador to China Gary Locke to accuse it last year of “embracing state capitalism more strongly each year.”

In the Xinhua interview, Harper called on China to follow through on pledges made at the Group of 20 meeting in November to allow its currency to trade more freely.

“China committed to move more rapidly toward a market- determined exchange rate system, enhance exchange rate flexibility to reflect underlying fundamentals, and refrain from competitive devaluation of its currency.” Harper said. “It is important for the credibility of China’s policy makers and the G-20 that China follows through on its commitments.”

Economic ties between China and Canada, which holds the world’s third-largest oil reserves, have been lopsided and meager on investment. Canadian direct investment in China was C$4.8 billion ($4.8 billion) in 2010, less than 1 percent of Canada’s total, and about one-third the level of investment in Canada by Chinese firms, Statistics Canada data show. With 99 percent of oil exports going to the U.S., Canada’s trade deficit with China was C$147.5 billion from 2006 to 2010, Industry Canada says.

Cooler Ties

Relations between Canada and China cooled in 2006 after Harper criticized China’s human-rights record, telling reporters that promoting trade shouldn’t require the government “to sell out important Canadian values.” A year later, new foreign investment rules, which put additional scrutiny on state-owned entities, raised questions about whether Canada was targeting China. Harper then chose to skip the 2008 Beijing Olympics.

The relationship began to improve in 2009 with trips to China by Canadian government officials including Finance Minister Jim Flaherty, Bank of Canada Governor Mark Carney and chief bank regulator Julie Dickson, to promote the country’s banks and insurers.

Minority Stakes

Canadian financial institutions have tried to expand in Asia’s largest economy, with investment mainly limited to joint ventures and minority stakes, such as Bank of Nova Scotia (BNS)’s C$719 million purchase of 20 percent of Bank of Guangzhou.

The bank bought a minority stake in Xi’an City commercial bank with International Finance Corp. in 2004, which grew to 14.8 percent in 2009. At the end of 2011, Scotiabank increased its stake further to 18.1 percent.

“It behooves them to try to get in there as the middle class is starting to get a little bit more sophisticated on its savings,” said John Aiken, a bank and insurance analyst at Barclays Capital in Toronto. “In a perfect world, I’m fairly certain that they’d love to go in, set up their own proprietary shop and grow from there but the nature of China, the regulators, they preclude them from doing such.”

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Sean B. Pasternak in Toronto at spasternak@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Chris Wellisz at cwellisz@bloomberg.net

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