Canadians Should Not be Fickle About Chinese Investment
The previous post rebuked a Business in Vancouver denunciation of CNOOC’s takeover of Nexen. The harangue also attacked University of Alberta professor Jiang Wenran for stating the obvious: “Canada is not the only game…there are places where the speed of projects is much more efficient and the returns much more profitable than the Canadian market…In other words, we will be fooling ourselves if we think Canada is the only dinner party in town and that the Chinese would stick around with only an appetizer’s tasting after we have invited them to buy a full dinner ticket”. This is taken by the author as a “silken threat” from “Chinese economic imperialism”.
Natural Resources Minister Joe Oliver has said development of Alberta oil sands would create 140,000 jobs and more than $600 billion in economic activity over the next 25 years but Canada does not have the financial wherewithal to achieve that by itself. As a Financial Post points out, Canadian companies are not stepping up the plate due to their inability to adjust to new market conditions and formulate a vision forward.
A major problem is the lack of new pipelines to rising markets in Asia, particularly China (Northern Gateway), and the US (Keystone XL). Tight pipeline space depresses oil prices while the oil sands are under constant attack from the environmental lobby and the First Nations, not to mention oppositionists in parliament. This forces Canadian companies to sell assets to or seek joint ventures with willing foreign partners like Chinese SOEs.
The conservative Washington-based Heritage Foundation’s public dataset of Chinese outward investment The China Global Investment Tracker has followed over 400 Chinese investments of $100 million or more from 2005 through 2012. The graphs below compare Chinese Ministry of Commerce figures with those compiled by Tracker scholar Derek Scissors, both of which show revived growth in Chinese outbound FDI since the 2008 financial crisis.
According to the Tracker, the leading recipients of Chinese investment over the past 8 years have been Australia and the US followed by Canada, Brazil, Britain, and Indonesia. Last year, Canada topped the list thanks to the CNOOC takeover and North America as a whole attracted 40% of Chinese investment. Since 2005, North America has drawn the most Chinese investments followed by sub-Saharan Africa with energy leading the way in both direct investment and engineering and construction contracts. After energy is metals with finance not surprisingly stagnating over the past few years.
Although the current focus is North America and particularly Canada, Mr Scissors detects a pattern of Chinese SOEs and others moving in packs across continents. During the mid 2000s, large amounts of funds started moving to Australia but toward the end of the decade, sub-Saharan Africa received a spurt of investment before shifting to South America in 2010-2011. He predicts that if the form hold, Chinese investment should continue to stay in North America for most of 2013 but by year end could flow to other destinations such as Europe (depending how the debt-crisis plays out) and the oil producing states in West Asia.
Thus, Canadians must not be fickle about Chinese investment in Canada, allowing political opposition to hijack projects that benefit both countries. Talking to reporters last December following the announcement of new government guidelines for foreign SOE investment, Hou Hongbin, chairman of Sinpopec Daylight Energy, commented: “I think we need a little bit of time to understand fully the new rules, such as exceptional circumstances, which still puzzles me a bit”.
He added that Chinese SOEs will still consider joint ventures in the oil sands but Canada is competing with many other countries for Sinopec’s capital. “We only invest in commercially oriented projects…it all depends on commercial evaluation”, he underscored.