Chinese firms act for profit, not state: report
Misgivings about Canadian acquisitions
OTTAWA — China’s stateowned companies are motivated by profit, not national interest, so the Harper government shouldn’t “politicize” efforts by those firms to acquire Canadian assets, according to a study sponsored by the Canadian Council of Chief Executives.
The CCCE paper was written by a Beijing- based former Canadian diplomat now working as a senior adviser to the Calgary law firm Bennett Jones.
China’s state- owned enterprises ( SOES) are “profitdriven to their core,” wrote Margaret Cornish, whose law firm represents two of those companies — the China Petroleum & Chemical Corp. ( Sinopec) and Sino- Forest Corp. — as well as the Korea National Oil company.
Evidence, Cornish argued in her paper, shows the SOES buy and sell natural resources to the highest bidder rather than try to direct product to the Chinese market.
She cited a recent poll showing deep misgivings about Chinese investment in Canada following more than $ 10 billion in investments in Canadian oil and gas by firms such as Petrochina, Sinopec and the China National Petroleum Corp.
“In light of the degree of misperception of SOE behaviour revealed in this study, it is incumbent on the Canadian side to avoid politicization of the ( foreign investment approval) process to the extent possible,” Cornish’s paper argues.
The federal government, which was critical of China after taking office in 2006, has worked aggressively to improve relations and recently struck an agreement with China aimed at ensuring fair treatment of companies investing in both countries.
But Harper has also expressed concern about hostile foreign takeovers of major Canadian firms, and in 2010 rejected BHP Billiton’s attempt to acquire Potash Corp. of Saskatchewan.
The study notes some concerns about state control over major Chinese firms.
“Expectations that state involvement would fade as the Chinese economy matured have not materialized,” she wrote. “However, the nature of intervention has gradually been restricted to shaping the macro- economic environment combined with a final high level review and approval process of mega overseas investments.”
Cornish argues that protectionism “no longer makes sense” for China, which like Canada depends on trade for a majority of its gross domestic product.
She also said there are lots of barriers that would prevent Chinese companies from trying to advance the state’s economic or foreign policy agenda through its Canadian investments. Any attempt to sell commodities at below- market prices to China would be countered by Canadian transfer pricing rules, though a greater disincentive would be the risk to the company’s reputation.
“Such behaviour would be contrary to the corporate interest,” she wrote.
“It would require the SOE to sub- optimize its own goals and performance, putting at risk its corporate and financial integrity by undermining the good name and relationships that take decades to establish. … These SOES are contending for global position and leadership. It would entail direct reputational damage among buyers, suppliers, service providers to say nothing of attracting lawsuits, security investigations, etc.”