Blocked Aecon deal could put a damper on China relations
Decision comes at critical moment as Canada tries to lessen reliance on U.S.
Canada’s decision to block the $1.51 billion takeover of Aecon Group Inc. by a Chinese stateowned enterprise will cast a chill over ongoing efforts to develop trade relations with the Asian superpower — at the same time as it eases relations at the NAFTA bargaining table, trade analysts say.
The move to halt the bid by China Communications Construction Co. Ltd. (CCCC) on national security grounds was defended Thursday by Prime Minister Justin Trudeau, who cited recommendations from security agencies as key to the decision.
Given the intelligence community ’s opposition to the deal — two former directors of the Canadian Security Intelligence Service spoke out publicly against it — the federal government’s decision isn’t surprising, said Jia Wang, deputy director of the China Institute at the University of Alberta. “But this is likely to put a damper on Chinese investment here, and we will have to come to terms with that,” she said. “What we need to do now is to figure out a strategy that will provide clarity on what investment we will welcome in this country and what we won’t because business doesn’t like uncertainty.”
The Aecon decision comes at a critical moment for Canadian trade relations as the federal government attempts to pursue alternative pacts that would lessen Canada’s reliance on the United States. At the same time, negotiators remain locked in turbulent talks with the U.S. and Mexico to revamp the North American Free Trade Agreement.
U.S. President Donald Trump has been openly critical of what he has called “unfair trade” practices from China, particularly as it relates to alleged theft of intellectual property. Under his leadership, the U.S. has blocked numerous takeover attempts of American firms by Chinese state-backed entities.
“If Canada was seen as being soft on China and working at cross purposes to the United States with regard to trade and investment with China it could negatively impact how Canada is regarded as a trading partner in the renegotiation of NAFTA,” said Charles Burton, an associate professor of political science at Brock University in St. Catharines, Ont., and a former counsellor at the Canadian Embassy in Beijing. “So I do think that might have been a factor in the government’s decision.”
That doesn’t mean the refusal was inappropriate, he added. Though Chinese state-owned companies can draw from all the resources of the Chinese state, they are also required “to fulfil all the purposes of the Chinese state,” he said. “The concern is that aside from profitability, China has other geo-strategic reasons for wanting to have access to certain projects ... because Aecon is dealing with infrastructure, making it into a function of the Chinese state would not be in Canada’s best interests.”
But the scuttled deal “can’t possibly be good” for ongoing efforts to launch formal talks for a free-trade agreement with China, he said. Canada and China have engaged in lengthy exploratory talks that most recently ended when Canada sought to add provisions regarding the environment, human rights, labour and gender issues to the deal — a non-starter for China.
The Chinese government is particularly sensitive about restrictions on Chinese state firms.
“I think they’d like to provide some incentive for countries to agree to Chinese state-owned enterprises and investment,” said Burton. “Canada is not a critically important trade partner for China so it’s conceivable something of an example will be made by the Chinese government of this. That way other countries will know if
This is likely to put a damper on Chinese investment here, and we will have to come to terms with that.
they refuse Chinese bids to acquire companies in the West there will be consequences.”
That said, Beijing does not allow foreign countries to build infrastructure in China, Burton noted. “The Chinese government would like to buy mining and oil companies but they would never extend that possibility to us. That complicates things again.”
Canada’s chances for avoiding retaliation might depend on how Canada handles the issue and whether there is room for Canada to make a goodwill gesture, said Wendy Dobson, co-director of the Rotman School of Management at the University of Toronto. “In other words, be firm about our red lines but be transparent and appear respectful,” she said in an email.
Chinese investments in Canadian companies have fallen since 2012 when the Conservative government limited acquisitions in the energy sector by Chinese stateowned enterprises. That followed CNOOC’s $15.1-billion takeover of Calgary-based oil and gas company Nexen Inc., announced in July of 2012 and approved in late 2013. The Nexen deal accounted for the bulk of China investment in Canada that year. In 2017, Chinese firms invested $7 billion in Canada, according to the University of Alberta’s China Institute.
“We need investment in this country and China is a big source of that,” said Wang. “We need to improve our understanding of state-owned enterprises and then decide where we are comfortable with their investment and where we are not.”