Piracy a key issue with China
Canada’s ambassador to China has some less than diplomatic words of advice for oil and gas companies considering investments in the Asian country.
“Have technology that’s difficult to copy,” Guy SaintJacques warned in a blunt assessment of the business environment in China during an address Tuesday to about 100 people at the Calgary Chamber of Commerce.
In a speech that rarely mentioned the oil and gas industry despite the U.S. government’s approval of the Chinese takeover of Calgary’s Nexen or the overall prominence of energy issues for China and Canada, Saint-Jacques warned about intellectual property rights during his assessment of the changing political dynamic in Beijing.
Failure to protect intellectual property — or enforce copyright and trademark laws — has been a frequent complaint against China at the World Trade Organization over rampant piracy of goods, from computer software and movies to designer clothing.
The Canadian Trade Commissioner Service has a section on its website about “fraud and scams” against businesses it concedes “are a reality in China.” The U.S. government acknowledges Chinese efforts to address the problem but cautions China “continues to be a haven for counterfeiters and pirates” and U.S. companies lose more than $1 billion annually.
Saint-Jacques acknowledged the property rights issue adds to the mistrust that characterizes the West’s often-strained relationship with China. Regardless, Prime Minister Stephen Harper has made increasing trade and investment with China a key component of his foreign policy.
Two-way trade between Canada and China has grown to $65.6 billion a year and the CNOOC takeover of Nexen deal is the biggest to date by a Chinese company. Canada and China also signed a foreign investment agreement last fall that gives companies more legal protection in the foreign jurisdiction.
In a meeting with the media after his speech, Saint-Jacques suggested he should have been clearer with his remarks but acknowledged foreign companies are often exposed to unscrupulous operators copying their technologies in China.
“In most cases you have to find a good partner,” said Saint-Jacques, who was appointed ambassador last fall after three previous assignments in China. “If you find a good partner and make a business proposal where they see that they benefit in the long run of being a co-owner of the business and with progress in terms of rule of law and the protection afforded intellectual property, I think that is the way to go in the long run to protect your rights.”
To be fair, domestic Chinese firms are also frequent victims of piracy and fraud.
Saint-Jacques, who is a geologist by training, said he’s met with the major oil and gas state-owned enterprises in China and they want more involvement by Canadian companies in the oil and gas sector in China. He cited Calgary-based Husky Energy as a company with an excellent relationship with CNOOC in China.
The ambassador shoehorned his speech around a meeting with Calgary Mayor Naheed Nenshi and a session with the Canadian Association of Petroleum Producers to discuss opportunities for more interaction between the two countries in the energy sector.
“The Chinese follow the developments here,” he said. “They know the expertise our companies have developed in terms of fracking, for instance, and we will want to discuss with companies the best way to protect them.”
China — which ushers in a new political regime for the first time in a decade in March — is working to meet its rising energy demand with increased domestic production as well as acquisitions around by its state-owned companies.
Saint-Jacques is on a weeklong tour of cities in Western Canada to provide the business community an update on Beijing’s political dynamic. He met Alberta Premier Alison Redford in Edmonton and spends Thursday in Vancouver.
Getting exports to China is critical to the Alberta government’s new Oil Market Diversification Strategy, which has been in the works since last spring when an oil glut created challenges in Canada’s traditional export market in the U.S. Midwest.
The ambassador’s visit to Calgary coincided with an announcement by Nexen that the United States had finally approved its $15.1-billion takeover by CNOOC. The Obama Administration ruled the deal — that includes oil assets in the Gulf of Mexico — had no national security concerns in the U.S., two months after Ottawa gave its approval.
The federal government tightened Canada’s rules around investments by state-owned enterprises in the oil and gas sector after the takeover of Nexen and the $5-billion purchase of Progress Energy by Malaysia’s Petronas but Saint-Jacques said U.S. approval would lessen overall mistrust.
“Obviously they (Beijing) must be very pleased,” he said.
Saint-Jacques said political reform is unlikely to make major strides in the near term in China. He said he remains “cautiously pessimistic” about political liberalization but “cautiously optimistic” about economic liberalization.”
It may not be a great leap forward but for Canadian companies it’s a step in the right direction.