Chinese SOEs: Stephen Harper could lose Alberta and his credibility

Stephen Harper hasn’t depended on public servants or public policy executives in Canada’s commercial banks to govern credibly as a market conservative. Doing Canada’s part to fight a global recession didn’t require reshaping his core beliefs: that governments should be more efficient but shouldn’t then try to run businesses, and that businesses best serve all of us when they compete in robust markets.

However, the enthusiasm of Chinese state-owned enterprises (SOE) to buy oil and resource companies in small market economies has put Harper in an especially dangerous corner.

It will be mighty difficult for his government to reject or approve China’s state-owned CNOOC’s Ltd.’s bid for Nexen Inc., a private Alberta-based oil company. Harper’s fated to look reckless amongst those who see China’s good opinion—and money—as the performance-enhancing drug that will free Canada from a mediocre future with the US or just a phony amongst market conservatives—and a majority of Albertans.

Unsurprisingly, he’s turned to wordsmiths in government to justify what’s almost impossible: allowing the equity sale of a growing share of what Harper’s called Canada’s economic growth engine to a superpower state-owned enterprise. Simply, they’re assigned to try to find a convincing way to say that state capitalism can be a positive force in free markets—even better in Canada than it is now in France and China, for instance.

The political fallout of accepting the $15-billion bid by CNOOC, however, will not be limited to those who are impressed by government framework statements. A survey of Alberta opinion by the China Institute at the University of Alberta produced rather awkward news:

“However, the poll said 64 per cent of Albertans opposed Chinese investment in Alberta in the form of full ownership, with 15 per cent saying it's acceptable and 21 per cent neither agreeing nor disagreeing.

“In the same vein, 53 per cent of Albertans opposed investments in Alberta's oil and gas sector by Chinese state-owned companies, while 24 per cent supported it and 23 per cent were on the fence, according to the poll. Albertans were largely split on allowing Chinese investment in Alberta in the form of partial ownership, with 37 per cent supporting it, 36 per cent opposing it, while 27 per cent neither agreed nor disagreed.”

This shouldn’t surprise Harper. Albertans and Western Canadians generally are passionately attached to local self-government and are wary about outside big government influence, Canadian or otherwise.

Along with grass-root skepticism in his political base, Harper will also have to contend with growing opposition to SOEs amongst conservative opinion leaders. The National Post, English-speaking Canada’s Wall Street Journal for literate conservatives, has decided to raise hell. Today, on its front page, it ran a comment by Terence Corcoran entitled “Fascism by another name: state ownership makes mockery of markets.”

Corcoran nails the problem for Harper’s wordsmiths:

“If Canadians have sound economic and political reasons for rejecting Canadian SOEs, how can we embrace foreign SOEs?”

Choosing to think that Chinese state capitalists will evolve to be even more “commercially oriented” than the mediocre state capitalists who operate in Canada and elsewhere in the West, needless to say, will be born of fear, not of any realistic hope that China will de-politicize its government businesses—fear, that is, of offending China, and fear that Canada can’t prosper without their equity. 

These concerns may prevail. However, Harper’s vision of Canada as a selfreliant energy superpower should then be put in storage for another costume party, out there in the distant future.

China’s public corporations are “commercial”—just like ours

The International Energy Agency (IEA) obliged its international member states recently by baldly asserting in a report that China’s formally communist public energy corporations operate on their own. Said the report’s co-author Julie Jiang in a release, “These are far from puppet companies operating under control of the Chinese government, as many have assumed. Their investments in recent years have been driven by a strong commercial interest, not the whim of the state.”

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This statement of opinion, allegedly, will help the Government of Canada allow government-owned Chinese energy companies to buy energy assets in Canada. Ottawa needs explicit assurances that these companies will make “commercial” decisions, rather than political ones, and, handily, a renowned think-tank has said they can.

“It’s an authoritative, international, Western-oriented agency,” said Wenran Jiang of the report in an interview, who holds a research chair at the University of Alberta’s China Institute. “If they [IEA] identify these trends, then it makes the life of bureaucrats in Ottawa so much easier” in dealing with Chinese acquisitions.”

This is surprising. The finding of the IEA is a sham platitude that we use about our own commercial crown corporations, and it is beside the point.

You don’t get to be appointed the CEO of a government corporation in France, Canada, Quebec, Ontario or China without already demonstrating exceptional political skill. You must have the ability to not need to be directed by the state in making business decisions that the state will find to its liking. Great bureaucracies everywhere aren’t led by “puppets” but by politicians—whether friends of a president or not.

It’s silly to expect politicians heading ministries or their agencies to be “commercial” during office hours and to play politics strictly on weekends.

The unacknowledged and obvious problem for Canada, however, is that the prospective corporate buyer is an emerging superpower. If it takes offence when our regulators assert a Canadian interest, it can cause us significant harm.

We have already chosen to have a lopsided relationship with our powerful neighbour by choosing to be independent. However, we have been political and military allies, and we trade with each other according to the rule of law.

Canada has no reassuring track record of respectfully disagreeing with the People’s Republic of China. Their bids for Canadian assets may be too good to resist. Tangible net benefits may be compelling. Nevertheless, it should be well considered in advance: once a piece of Canada is owned by the proud state of China, can it ever again be regulated as just another commercial enterprise?

Brad Wall and “strategic” conservatism

Nobody lost an election in Canada this week. But, as in the US, change is afoot.

Stephen Harper lost his most competent minister, Jim Prentice, and his most trustworthy political ally, British Columbia’s Liberal Premier Gordon Campbell. And most importantly, he was publicly out-talked, out-campaigned, and successfully cornered by a rising political star in his own political base and partisan home—Premier Brad Wall of Saskatchewan.

Looking at the bald facts of the issue—should the Government of Canada reject a $40 some billion hostile bid for Potash Corp of Saskatchewan—you’d imagine that everyone would carefully play their fated roles. (Most people in Saskatchewan didn’t like the idea; Premier Wall would have to oppose it, and Harper also needs Saskatchewan to stay solidly Conservative in his next election.) However, Premier Wall doesn’t seem to play “damage control.” Using all means available to him (provincial alliance-building, speech-making, media interviews, and public lobbying in Ottawa), he set out to redefine how we treat foreign investment. He cut off efforts to sweeten the bid and forced Harper to mutely do what his logic and his principles could not embrace.

The impact of Wall’s short, dazzling campaign brings to light important public policy and political issues.

Brad Wall isn’t bilingual but he uses the English language wonderfully. And seemingly, he has the ambition to take a national leadership role in setting national conservative economic policy. With or without silk ties, Thomas Friedman’s one-liners, or conscious intent, he’s pushing conservatism back to a more interventionist approach. This is well within the political traditions of western Canada. As events this week reveal, Harper’s more rigid laissez-faire approach is extremely vulnerable to populist challenge.

Of course, for now, Wall may have put more wind in the sails of Michael Ignatieff than his own brand in the Conservative Party. Nevertheless, what Canada’s cosmopolitan business leaders thought was a national consensus on foreign investment has turned out to be not much more than an agreement to talk about other things, for now.

It’s refreshing to see a politician enjoying a honeymoon with the national press. However, the attacks on BHP Billiton’s bid by Wall and his allies received precious little effective scrutiny. For instance, on October 26^th, Wall volunteered in a letter to the Financial Post that “if forced into this merger, we will use our resource-taxing authority to recoup losses that occur.”

Then, what power over the people’s resource was in jeopardy? Wouldn’t the new shareholders want to maximize the value of this resource?  What is “strategic” anyway about rocks that the people own and can’t physically be smuggled out of the province without being taxed? If rocks are “strategic,” then why not finite reserves of conventional natural gas and oil? Since people are our most precious and mobile resource, should we raise the bar on foreign takeovers across the high-tech sector?

It is ironic that Wall captured the support of the other western Canadian premiers, except Gordon Campbell. For forty years, western leaders argued that the West’s development and diversification demanded both clear provincial ownership of resources and free trade in capital, as well as people. They won both arguments and the West has led Canada’s development since.