Security fears amid bid for Aecon

SOE said to function as an arm of Beijing as Canadian firm shrugs off concerns

While saying a rejection of the proposed acquisition of Aecon Group Inc. would spur a “sharp reaction” from China, the former director of the Canadian Security Intelligence Service warned that the deal would threaten Canada’s national security.

Ward Elcock said Wednesday that it would be extremely hard for the federal government to draw specific parameters around the $1.5-billion Aecon deal that would both act as a fail-safe against national security threats while also allowing the company to operate in Canada’s free market system.

“In that context it seems to me that it’s very difficult for the government to approve the Aecon acquisition without incurring significant risk to national security,” he said.

Elcock said it would “certainly not be my recommendation” to allow the deal to move ahead, and pushed back against the notion that Canada could effectively monitor the proposed Chinese buyer of Aecon through policy restrictions that effectively limit its powers.

“It will not make them anything other than an opaque entity operated entirely in accordance with the goals of the state of China,” he said.

Experts say Chinese state-owned enterprises function directly as an arm of the Communist Party of China in its broader geopolitical manoeuvring, and that those enterprises are compelled to act on behalf of the state if asked.

Aecon has rejected fears around the proposed takeover, saying Canada’s construction sector is already inundated with foreign conglomerates from Europe, the U.S., South Korea and elsewhere.

China Communications Construction Co. (CCCC) proposed to buy the Canadian construction firm late in 2017, kicking off heated debate in Ottawa over whether the deal would give the SOE access to sensitive Canadian data. Canadian construction firms also say the takeover would allow the company to use its state-backed financial heft to outbid local firms on key contracts.

The deal was subjected to a national security review in February.

Elcock also said a rejection of the deal could lead to a “sharp” response by China, potentially through soft moves like restricting Chinese residents from visiting Canada, in turn damaging its China-dependent tourism industry. Other experts warn that it would lead to a broader pullback of Chinese capital investment into Canada, or that it could sour Canada-China free trade talks.

His comments came as part of a panel discussion hosted Wednesday by Ottawa-based think-tank Macdonald-Laurier Institute.

Duanjie Chen, a senior fellow at the MLI who has closely studied past Chinese takeovers, warned that China has “created monsters” over recent decades in the form of SOEs with the explicit intention of expanding its reach into developed countries through acquisitions.

“It’s not aiming at profit but market share — particularly in developed countries,” she said.

A growing number of developed nations including Canada, Australia, the U.K. and others, have levelled allegations against China in recent years for influence peddling and political bribery.

“We could harm ourselves if we insist on opening our doors widely to a state who does not believe in the private property rights and free market system, but is using its SOEs in the disguise of commercial entities.”

China’s centrally owned enterprises have grown rapidly, with the value of its overseas assets growing from around US$79 billion in the 1990s to more than US$900 billion today. That growth is part of China’s major plan to expand its global influence, especially with its Belt and Road initiative that aims to dramatically expand its road, rail and sea ties with the rest of the world.

CCCC is central to the undertaking, according to analyst reports, and is China’s largest financial beneficiary of the plan.

Charles Burton, a former Canadian diplomat who served in China and associate professor at Brock University, pointed to the checkered history of CCCC’s operations abroad as another argument against the deal. In 2011 CCCC was barred from bidding on any World Bank-backed road or bridge projects due to various fraudulent practices.