Prime Minister Stephen Harper said Canada will be open to investment from China as long as the Asian country is willing to reciprocate.
Harper’s government is currently reviewing a $15.1 billion takeover of Calgary-based oil company Nexen Inc. by China’s Cnooc Ltd. His main objective when dealing with China is to “protect and further” Canadian interests, not just boost trade, he said at the Bloomberg Canada-Asia Conference in Vancouver yesterday.
“We want to see this economic relationship continue to expand, but we want to see it expand in a way where it’s a clear two-way flow and clear benefits for both sides,” Harper, 53, said in an interview with Bloomberg Television’s Erik Schatzker before departing for the Asia-Pacific Economic Cooperation summit in Vladivostok, Russia, this weekend.
Harper’s ability to bolster economic relations with China, which he calls a national priority, is being tested by growing concern in Canada that the relationship is too one-sided, with the Asian nation seeking greater access to Canada’s oil sands, the world’s third-largest pool of oil reserves. A poll by Sun News Network released Aug. 23 showed a majority of the Canadians surveyed want him to reject the Cnooc bid.
Canada needs to diversify trade to Asia because of sluggish expansion in much of the rest of the world, Harper said. Europe’s debt crisis is his biggest worry, and the U.S. must “get a grip on its fiscal situation,” he said. “We really have to find a way of better connecting ourselves with growing Asian economies.”
Harper said he knows Canadians are wary of Chinese investment, and it’s incumbent on China to show it can play by “the same rules” to reverse that impression, without elaborating.
Zhang Junsai, China’s ambassador to Canada, said he wants Canadians to have a “healthy opinion” of Chinese investment by government-owned and private companies.
“China is a market economy” and state-owned enterprises such as Petrochina Co. “are independent market players,” Zhang said at a Sept. 5 conference in Calgary hosted by Petrochina. “Their investments in Canada’s energy sector are market-driven decisions, and there is simply no such a thing like a secret agenda.”
The idea of leveraging China’s interest in Canada’s energy assets to open its markets to Canadian companies is winning support among executives. Jim Prentice, vice chairman of Canadian Imperial Bank of Commerce and a former Harper cabinet minister, said yesterday at the Bloomberg conference that Canada needs to “step up” efforts to win equal treatment.
“Reciprocity, in terms of global trade for Canada to the rest of Asia, is absolutely critical, and I think Prime Minister Harper has been very clear that it remains very high on their agenda,” Jacynthe Cote, chief executive of the aluminum division of Rio Tinto Plc, said at the conference.
Harper visited China this year to promote Canada’s energy industry and build trans-Pacific ties, telling business leaders in February during a dinner in Guangzhou that he wants to take the economic partnership to “the next level.” The two countries are negotiating a foreign-investment-protection agreement to promote capital flows.
Harper said he will meet with Chinese President Hu Jintao during the APEC summit to discuss the next steps in the relationship.
The Chinese are “acutely aware” of the fact that “trade and investment flows are disproportionately in their favor,” Harper said, citing a “three-to-one” imbalance in China’s favor. “They recognize that has to change,” he added, and “we will also be seeking things from them.”
The Nexen bid will be a litmus test for China, said Howard Balloch, a former ambassador to China and chairman of the Asian division of investment bank Canaccord Genuity Corp. The approval process “will be seen in China as an indication of how open the Canadian economy is for major energy investments,” he said.
While disagreeing that the bid is a litmus test, Harper said Canada’s government is preparing a “policy framework” to explain and provide clarity about the government’s decision regarding the Nexen deal and future transactions.
Canada will use “very broad” criteria in its review that will include the long-term interests of its economy, he said without giving details.
Canadian legislation allows the government to reject foreign takeovers on the basis of three criteria: The acquisition doesn’t give a “net benefit” to Canada, it’s made by a state-owned company that doesn’t act on a commercial basis or it creates national-security concerns.
Harper said Cnooc’s status as a state-owned enterprise makes it “somewhat different” and leads to range of different requirements in the review process. At the same time, Canadians should accept that the two countries aren’t the same.
“Obviously we are dealing with a very different economy, very different political system than ours and we have to accept that,” Harper said. “We can’t make it a prerequisite of doing business that they have to become just like us.”
Investors may have to wait until November or longer for a decision on the bid. Cnooc made a formal application for government approval on Aug. 29. The government has 45 days to review foreign takeovers once an application has been filed and can extend the deadline by 30 days if it notifies Cnooc before the initial period expires. Canadian officials can extend the review further if both Cnooc and Canadian Industry Minister Christian Paradis agree.
Nexen’s shares have lost 2.9 percent through Sept. 5 -- when they closed at $25.50 in New York trading -- since Beijing-based Cnooc’s offer was announced July 23, leaving them 8.5 percent below the $27.50 agreed price. The gap is the second-largest among proposed North American acquisitions valued at $1 billion or more, according to data compiled by Bloomberg.
Nexen’s assets include the Long Lake oil-sands operations in Alberta, offshore oil production in Nigeria and the U.K. North Sea, as well as in the Gulf of Mexico. These assets produced 207,000 barrels a day in the second quarter, which would boost Cnooc’s output by about 20 percent.
In its July 23 announcement, Cnooc promised to retain Nexen employees, keep a North American headquarters in Calgary, maintain Nexen’s planned capital spending and list its shares on the Toronto Stock Exchange as part of its efforts to gain government approval.
“We’re going to be looking for ways to make sure we can promote first and foremost Canadian interests in this relationship,” Harper said at the Bloomberg conference.