Alex Paterson

Event Recap: Panelists confront ‘the new state capitalism’ at Buying Canada event

October 19, 2012

To watch this panel, visit the event page & click ‘Watch this video’

17 October 2012 (Ottawa) – On Wednesday, October 17 2012, Canada 2020 hosted a timely panel discussion on the issues at stake when state-owned enterprises (SOEs) seek to buy into key Canadian industries. The event, Buying Canada: Strategic industries, state-owned enterprises and the national interest was held against the backdrop of the pending federal government decision on the CNOOC-Nexen deal (scheduled to be announced in November).

The event drew a capacity crowd of 300 people to the Château Laurier Hotel’s Drawing Room, and was broadcast on the web to hundreds of followers across the country and around the world. Key themes were reciprocity, international cooperation and reputation, national security, and weighing economic prosperity with long-term strategic valuation of our natural resources.

Co-founder Eugene Lang opened by exploring the foundations of what The Economist calls “the new state capitalism” and Dr. Ian Bremmer has dubbed “the new mercantilism”, namely the rise of state-owned enterprises in the global economy.

Canada’s experience with domestic SOEs (or, as we know them, Crown Corporations) is long and primarily focused on fixing market failures at home. The new era of foreign SOEs “washed up on our shores” with the Chinese National Offshore Oil Company’s (CNOOC’s) blockbuster takeover bid for Nexen (valued at $15.1 billion, or a 60% premium on the Nexen share price). If approved, this would be the largest foreign investment of any SOE, globally. How the government responds to this, the most complex foreign takeover ever considered under the Investment Canada Act, Mr. Lang said, will determine how future foreign direct investment from China and other emerging economies is dealt with.

Don Newman, the panel’s moderator and Canada 2020’s Chairman, introduced the event’s speakers:

  • Thomas D’Aquino, current Chair of Intercounsel Ltd and visiting scholar at the Norman Paterson School of International Affairs
  • Charles Burton, Associate Professor of Political Science at Brock University
  • Laura Dawson, President of Dawson Strategic and adviser on cross-boarder trade and foreign direct investment issues
  • Wenran Jiang, Associate Professor at the University of Alberta.

Tom D’Aquino position was largely one of support for SOEs buying into key Canadian industries: he opened with the statement that “our concerns about foreign direct investment should be rational”.

His main assertion – that yes, there are concerns specifically with Chinese SOEs, but refusing to engage in trade with 1.2 billion people is shortsighted – was shared by several of the other panelists. Mr. D’Aquino also felt that Canadian nervousness around SOEs, and specifically Chinese SOEs, fails to consider the fact that many of these corporations operate under fierce market conditions on the world stage, and that many countries around the world would “kill to do business with companies like CNOOC”.

A further argument was that the Chinese would understand that this was a “pilot” for Canada. If the government were to approve the deal and then find that things did not go as it had envisaged, it could then back away from future deals. There is no automatic opening of the floodgates implied by the CNOOC/Nexen decision.

In response, Don Newman was quick to observe that the AAA bond rating that companies such as CNOOC enjoy is in large because they have the backing of the Chinese government – a point that drew support from numerous audience members – Eugene Lang in particular. So these are not “regular’ corporations competing on a level playing field.

Both Laura Dawson and Wenran Jiang tended to agree with Mr. D’Aquino. Ms. Dawson pointed out that large infrastructure projects typically require large investment, often from a foreign source. She also contended that the Investment Canada Act that governs this decision is largely fit for purpose and does provide the ability to build and maintain a “rules-based relationship” with China: a desirable goal. Echoing D’Aquino’s earlier thoughts she noted that we “cannot be motivated in our economic policy by innuendo”.

Mr Jiang – one of the foremost commentators on this topic in recent months, and one of the most fierce advocates for approval of the CNOOC-Nexen deal – asked quite plainly, “What is the big deal? Why are we all freaking out?” to audience laughter and applause.

It fell to panelist Charles Burton to raise concerns – both around national security and economic competitiveness – about the deal. Professor Burton took on a measured skepticism when viewing both the CNOOC-Nexen deal, as well as the broader issue of SOE issue. He was also responsible for one of the more memorable quotes from the event: “nothing goes quite as well as you expect when the Chinese Communist Party is involved.”

Yuen Pau Woo, President of the Asia-Pacific Council, weighed in via Twitter, asking Charles Burton to explain how if trade with China is so important, why raise the issue of reciprocity (that is, the need to ensure Canada would be able to buy similar assets on a similar scale in China) as a stumbling block for investment? This led to an intense debate about the importance (and in many respects, the reality) of reciprocity between Canada and China.

The question and answer period was one of the livelier sessions Canada 2020 has seen at its events. Members of Parliament Bruce Hyer (Thunder Bay-Superior North, NDP) and Elizabeth May (Leader of the Green Party of Canada) spoke at the microphones, and drew attention to the current round of trade treaties being discussed in the House of Commons. Said Ms. May “I know we want to become the hunters instead of the hunted, but I fear we have become a sitting duck culture” – referring to Canada’s seemingly passive acceptance of those SOEs that seek to buy, wholesale, into our strategic industries. She also expressed grave concern at the provisions of, and the lack of time for parliamentary debate around, the newly negotiated China Canada FIPA (Foreign Investment Promotion and Protection Agreement).

As the event concluded, those who attended or watched online were asked to weigh in on the issue. Specifically, audience members were asked whether the federal government should approve, reject, or approve with conditions, the CNOOC-Nexen deal.

48% of respondents said the federal government should approve the deal with conditions. 32% of respondents said the government should reject the deal outright, while 20% said the deal should be approved as is.

Similarly, the audience was asked to identify what should be the most important factor the federal government considers when making their decision to approve or reject. 28% of respondents said economic prosperity should be the chief consideration, while strategic value of the asset (16%) came second. International reputation and cooperation, national security, environmental protection, and country of takeover origin rounded out the remainder of the responses.

You can watch the full video of this event here (Click ‘Watch this video’), as well as short interviews with each of the panelists.

For updates on events anytime, follow Canada 2020 on Twitter, Like us on Facebook, and connect with us LinkedIn.

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