National Post (National Edition)
CPPIB INVESTMENT IN CHINESE FIRMS UNETHICAL
On Monday, Canada announced the creation of a new international coalition along with 57 other countries, the purpose of which was to denounce the state sponsored and arbitrary detention of foreign nationals for political ends. The initiative was clearly inspired by the case of two Canadians, Michael Kovrig and Michael Spavor, who have been held by Chinese authorities for more than two years on what are widely seen as trumped up charges meant as retaliation against the arrest of Chinese hightech executive, Meng Wanzhou, in December 2018, acting on a U.S. extradition request.
Meanwhile, in one of the last acts of the Donald Trump presidency, on Jan. 14, the U.S. Department of Commerce added two Chinese companies, state-owned China National Offshore Oil Corporation (CNOOC) and Skyrizon, to lists that limit possible engagement with these companies by U.S. firms and individuals. Commerce Secretary Wilbur Ross didn't mince words: “CNOOC acts as a bully for the People's Liberation Army to intimidate China's neighbours, and the Chinese military continues to benefit from government civil-military fusion policies for malign purposes.”
These actions were in addition to the U.S. government's decision, going back to November 2020, to blacklist major Chinese firms such as CNOOC, thereby preventing large institutional investors from keeping holdings in these firms. As of now, major U.S. institutional investors, including large pension funds, are scrambling to unwind their exposure to Chinese investments to be in accordance with the new regulations. While the new administration of President Joe Biden has walked away from Trump's proposed bans on Chinese apps such as TikTok and WeChat, he has not yet undone Trump's parting moves to make it harder for American investors and firms to deal with problematic Chinese businesses.
While Canada has excelled at symbolic and rhetorical gestures like the new initiative, it has failed to match its words with actions like those of its closest ally. If anything, Canada has become more intertwined with leading Chinese firms, that are either state owned or have close ties to the Chinese military, and many of which have committed well publicized human rights violations, including against China's Uighur minority.
CNOOC is a major investor in Canada, including in Alberta's oilsands, shale gas in British Columbia, and offshore exploration and drilling off the coast of Newfoundland and Labrador. This large investment is in a sector key to Canada's economic well-being and national security interests. Unlike in the U.S., there is no bar to investing in such Chinese firms. The Canada Pension Plan Investment Board (CPPIB), a Crown corporation and one of the world's largest institutional investment firms, had invested $57 million in CNOOC as of March 31, 2020.
Even more jaw dropping is CPPIB's more than $3-billion investment in Tencent, the Chinese IT giant that owns, among others, the popular WeChat social media app. The Crown corporation's total investments in China as of September 30, 2020, were $55.6 billion, or approximately 12 per cent of their total investments, the investor's communications director confirmed in an email. To put that in perspective, this compares to less than three per cent in India, considered a key emerging economy and large recipient of CPPIB money.
While there is no legal ban on investing in Tencent in Canada or for that matter the US, the ethics of this investment, especially for a Crown Corporation investing taxpayers' money, is highly problematic. Tencent's WeChat app has been used for Chinese state sponsored censorship, misinformation campaigns and includes surveillance and the apprehension and harassment in China of those posting what is seen as anti-government content on the app. WeChat is also accused of scrubbing posts related to the COVID-19 outbreak as early as December, well before news of the new malignant virus spread throughout the world. In April 2020, the United Nations withdrew an agreement with Tencent to furnish video conferencing and other services for the UN's 75th anniversary after facing a public backlash.
Some might argue that the CPPIB should pursue the highest returns on its investment no matter the poor optics. Such an argument makes sense for a private investor but should not extend to a government owned agency investing public moneys, especially one that purports to be concerned about human rights in China. It is perfectly reasonable to expect such investments to respect a code of ethics, which can be mandated by the government. But no such mandate has been forthcoming. It is the government, not CPPIB, which deserves the blame for this failure.
Anyone serious about punishing the Chinese Communist government for its egregious human rights violations needs to look beyond symbolic actions like the recent declaration against illegal detention, which has no teeth. Preventing Chinese firms from accessing much needed Western investment dollars and resources would hit the regime where it hurts. Say what you want about him, Trump clearly understood this, while Canada continues to be in denial.
THERE IS NO BAR TO INVESTING IN SUCH CHINESE FIRMS.