The day before state-owned CNOOC Ltd. received measured approval from the Canadian government to take over Nexen Inc., an official of the US Department of State was in Nanjing telling China why it should expect resistance while asset-shopping abroad. Canadian Premier Brian Harper is widely seen as having set an international precedent for international deals involving state-owned enterprises when, in announcing approval of the CNOOC-Nexen deal on Dec. 7, he outlined constraints to be applied to future such transactions in Canada. In Nanjing on Dec. 6, a speech by Robert D. Hormats, under-secretary of State for economic growth, energy, and the environment, explained why constraints are in order.
"When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments," Harper cautioned. Although his government is allowing CNOOC to buy Nexen for $15.1 billion and state-owned Petronas Carigali of Malaysia to acquire Progress Energy Resources Corp., Calgary, for $5.5 billion, the decisions represent "the end of a trend," he said. Except under "exceptional circumstances," foreign ownership in Canadian companies in the future will be limited to minority stakes. And future reviews of investments by state-owned enterprises, Harper said, will be based on how acquiring companies might influence targeted companies and industries and how they might themselves be influenced by governmental owners.
Highest hurdle
Because Nexen has assets in the US and UK, CNOOC's takeover awaits approvals by those countries' governments. But Canada, where state-owned companies from China and elsewhere already own minority interests in many oil sands projects, was thought to be the highest hurdle.
Good reasons exist for the acquisitiveness of state-owned enterprises to encounter limits not applicable to the private companies with which they compete. State-owned enterprises differ fundamentally from private companies and, as the Harper Doctrine asserts, should expect to be treated differently by the countries in which they invest.
Hormats, in his speech at the Hopkins-Nanjing Center, implied reasons for this to be. He described five issues the US and China need to address as their economic relationship evolves. These quotes summarize his points:
• "As China seeks to have its companies accepted abroad as investing for purely commercial purposes, it will find it hard to be convincing if those companies operate in sectors that are protected from foreign competition or roped off against foreign investment."
• "If China wants to be a world leader in an information age, it will find it difficult to do so if it restricts its people's access to information."
• "If China wants to be a leader in innovation in the decades ahead-and needs to be in order to shift away from industries that can only be competitive with low wages-it can only do that if it protects the intellectual property of its own citizens and others."
• "As China depends on an open trading system, it will encounter serious resistance to open trade if its own policies are not consistent with basic principles of the system."
• "As China seeks to ensure a stable and reliable supply of energy and raw materials, it will find it hard to do that unless its companies abroad act in a manner consistent with global norms with respect to labor practices, environmental concerns, and other aspects of good corporate governance."
Suppressing influence?
China, of course, tends to view resistance to its economic expansion, especially by the US, as evidence of entrenched desire to suppress its influence in world affairs. Indeed, some observers do treat Chinese advance as inherently menacing. Their fear is overblown. It breeds a preference for unwarranted and unfair containment, which can lead only to conflict.
The question should be not whether China grows but how it does so. Chinese growth in general is best for everyone, inside and outside China. Chinese growth specifically dependent on advantages rooted in government ownership is not. The difference is very important.