International China expert draws lessons from Chinese SOEs staking claim in Canadian firms
OTTAWA June 25, 2013 –Canada must expect many more Chinese state-owned enterprises (SOEs) to come knocking as they seek to invest in the high growth potential of Canada's globally important energy and mineral resources. Yet last year's vetting process for the proposed investment by the China National Overseas Oil Company (CNOOC) in oilpatch firm Nexen proved itself inadequate to the task, and highlighted the need for national security agencies to be fully engaged in judging whether such investments pass the "net benefit to Canada" test for foreign investment according to a new Commentary released today by the Macdonald-Laurier Institute.
"This Commentary highlights the security-related implications of Chinese SOEs, particularly as demonstrated by the Nexen deal, and it also recommends effective risk-assessment criteria for future deals," says author Roger Robinson, an internationally-recognised expert on the national security implications for Western countries of Chinese economic and business activities.
Despite evidence to the contrary, Chinese SOEs will continue to portray themselves as independent, remote, environmentally ethical and benign operators unaffiliated with the Communist government of China; these claims are at best dubious says Robinson, author of "Standing on guard post-Nexen: Chinese state-owned enterprise and national security in Canada".
Lessons learned from the Nexen deal:
- The government should not again place the Canadian security services in a position of playing catch-up;
- The definition of an SOE needs to be scrutinized carefully;
- Despite heightened sensitivities coming out of the Nexen experience, there is still significant room for greater vigilance and security-minded diligence; and
- Every major Chinese company is controlled or influenced by the Communist Party.
The People's Republic of China is an authoritarian police state that controls nearly every facet of people's daily lives, a fact that is too easily forgotten when dealing with emissaries of the regime such as SOEs, including CNOOC.
This is where it becomes necessary to view Chinese SOEs and their "private sector" equivalents through a security-minded lens. The Canadian economic and security community should be asking a different set of questions about such Chinese entities than they would, for example, about a Norwegian sovereign wealth fund or even a Malaysian state-owned firm, like Petronas. This is not due to mere speculation or unfounded suspicion, but is based on their behaviour. Among the standard inquiries the Canadian economic and security community should undertake are:
- Is the SOE doing any business in security-sensitive countries such as Iran, Sudan, North Korea, Syria, Venezuela, North Korea, or Pakistan? What is the scope and type of that business?
- Has the SOE solicited or received stolen commercial information/competitive intelligence on Canadian or other Western firms through the cyber warfare/hacking activities of the People's Liberation Army (PLA) or other Chinese government-sponsored entities?
- Does the SOE have any business divisions or activities supplying equipment, technologies, services, or commodities to the Chinese military, any of its affiliates, or the Chinese security/intelligence services? What is the precise nature of any such supplier relationship?
- Do any subsidiaries or affiliates of the SOE have any military/intelligence ties or involvement in the proliferation of weapons of mass destruction or ballistic missiles?
- Are any senior managers or Board members of the SOE or its subsidiaries now or have they previously been affiliated with the military or the security/intelligence services of the Chinese government? What are or were the nature of such relationships or former employment?
- Have the SOE or its subsidiaries/affiliates been the subject of any corruption scandals or delisting from equity exchanges in China or abroad? If so, what are the underlying details?
- Has the SOE ever been charged, directly or indirectly, with any World Trade Organization violations or with providing any form of unfair financial or trade subsidies?
- Has the SOE or any of its subsidiaries ever been a member of a consortium of companies that has engaged in controversial, security-related projects domestically or abroad?
- Has the SOE been responsible for despoiling the environment or committing public safety violations in China or abroad?
- Has the SOE been responsible for the employment of forced labor or unsafe workplace conditions in China or abroad?
- Has the SOE employed counterfeit or contaminated goods or materials in its manufacturing processes or broader business services in China or abroad?
Moving forward, making only minor tweaks to the current process of reviewing investments by SOEs from China is insufficient given that the strategic intentions of these SOEs are substantially different than private firms from Canada or the US. With known involvement from the PLA in SOEs it is not hard to see that the long-term objectives of Beijing will be at odds with Canada's. With this in mind, Ottawa must review investment by SOEs from China with more than the standard "net benefit" test, and consider the broader strategic implications of a Chinese SOE acting as proxy for Beijing on Canadian soil.
Knowing that every SOE is controlled by the Chinese Communist party, the definition of what constitutes an SOE needs to be carefully considered and greater scrutiny from security and intelligence services need to be implemented at the outset, so as to avoid leaving Canada's security services to play catch up.
The Macdonald-Laurier Institute is the only non-partisan, independent national public policy think tank in Ottawa focusing on the full range of issues that fall under the jurisdiction of the federal government.
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