FEARS BUILDING UP OVER AECON DEAL
Chinese construction firm’s offer may be ‘stepping stone’ for Beijing
Critics of the pending acquisition OTTAWA of Aecon Group Inc. by a massive Chinese state-owned enterprise are urging the government to look past short-term interests of Canadian investors and consider the broader implications of Chinese capital inflows into sensitive assets.
Investment Canada is reviewing the $1.51-billion acquisition by China Communications Construction Co., which is nearly 64-percent-owned by the Chinese government and is one of the world’s largest construction firms. In December, Aecon shareholders overwhelmingly supported CCCC’s offer to buy the company for $20.37 a share, a 23-per-cent increase over its market price in October.
But critics are raising the alarm over concerns of ceding control of a company that builds and refurbishes nuclear energy plants to an increasingly aggressive foreign power.
“We can’t expect individual shareholders to take a long-term view, but we should demand (that) our government think about the broader consequences,” said Duanjie Chen, a former researcher at the University of Alberta who studies Chinese foreign direct investment. “Every foreign company they buy is a stepping stone for the Chinese government.”
The federal government’s decision on the acquisition is expected in the next few weeks. It could still be subjected to a comprehensive national-security review, which would take months to complete.
The decision comes amid growing allegations of China increasingly peddling influence abroad. In recent years, Australia, Canada, the U.K., New Zealand and others have raised flags over varying degrees of Chinese interference in political, academic and publishing circles. Australia, which has seen the most acute signs of bribery and intellectual suasion by Chinese firms among developed nations, is crafting new laws to better defend against “unprecedented and increasingly sophisticated” efforts by the Chinese to sway public opinion.
Chinese SOEs often lay the groundwork for the country’s political ambitions, said Derek Scissors, a resident scholar at the Washington-based American Enterprise Institute (AEI). And while individual Chinese companies might not pose a risk in their day-to-day operations, he says, they can always be enlisted to do work on behalf of the state. “Any Chinese company is hostage to the wishes of the party at any given time,” Scissors said.
According to CCCC’s 2016 annual report, the company considers “response to national strategy” as its most material social responsi- bility after “engineering quality.” The company did not respond to a request for comment.
Such concerns prompted the U.S. to sharpen its definition of what should be considered “strategic infrastructure” in foreign investments, and U.S. Congress is working to reform its Committee on Foreign Investment in the United States (CFIUS).
“You have to treat every Chinese company as a potential threat in this fashion — not that it is a threat, but as a potential threat — and then you have to decide what that specific threat is,” Scissors said.
Several domestic construction companies including Ledcor Group, PCL Constructors Inc. and P.W. Graham & Sons Construction have been lobbying the federal government to reject the deal, arguing it could make the domestic market less competitive. They also note that Aecon has contracts at potentially sensitive assets, such as telecommunications infrastructure, nuclear facilities and the Site C dam in B.C. Others say Aecon’s contracts typically consist of routine work, such as burying fibre optic cables or refurbishing tur- bine generators at nuclear facilities, and therefore wouldn’t give CCCC intellectual property access.
“I think they poorly understand what Aecon actually does,” said Frederic Bastien, an analyst at Raymond James based in Vancouver. “It’s starting to get a bit far-fetched.”
Navdeep Bains, minister of Innovation, Science and Economic Development, said in question period last week the acquisition would “go through a robust and rigorous process” before a decision is made.
The Aecon deal is part of a larger international expansion by CCCC in the developed world, following on the heels of the Chinese firm’s 2010 acquisition of U.S. firm Friede & Goldman and the 2015 purchase of Australian construction company John Holland.
“Acquiring Aecon is a major move of CCCC in its international strategy,” the company said in a statement at the time, adding it would “achieve a substantial breakthrough in its full entry into North America.”
The deal adds scope to an already massive construction company. CCCC is expected to be one of China’s greatest beneficiaries of the One Belt, One Road initiative, which aims to create a sprawling network of rail, road and see ties between Europe, Africa and Asia.
In the corporate mandate statement on its website, written in Chinese, CCCC says it is “determined to become a world-renowned” engineering contractor, urban complex developer and operator, specialty real estate agent, integrated infrastructure investor, and manufacturer and merchant of marine and port machinery.
According to DBS Group, CCCC snapped up US$116 billion in new construction contracts in 2016 alone, more than half of which are overseas. The company has projects in Africa, Southeast Asia, Central Asia and the Middle East.