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CNOOC’s bid for Nexen fuels security concerns

Prime Minister Stephen Harper has said Ottawa is taking into account security issues as it determines whether the $15.1-billion CNOOC-Nexen deal – which has been approved by shareholders – represents a net benefit to the country at large.

CLARO CORTES IV/REUTERS

There are new warnings about national security risks from CNOOC Ltd.'s proposed acquisition of Calgary-based Nexen Inc., a deal that is widely expected to be approved by the federal government.

Security experts from Canada and the United States on Wednesday insisted that the top echelons in Chinese state-owned companies like CNOOC remain closely allied to leaders of the Communist Party, and operate as policy arms of the Beijing government rather than commercial companies, especially in times of crisis.

"State-owned enterprises have the same marching orders or essentially the same mandate or mission" as China's intelligence services, which is to serve the interests of the party and the state, Ray Boisvert, a former deputy director at the Canadian Security Intelligence Service , told an audience in Ottawa on Wednesday.

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He said China remains a "persistent and aggressive" perpetrator of espionage activities that could threaten Canadian interests.

Prime Minister Stephen Harper has said Ottawa is taking into account security issues as it determines whether the $15.1-billion CNOOC-Nexen deal – which has been approved by shareholders – represents a net benefit to the country at large. Alberta Premier Alison Redford has spoken in favour of such investments, while oil company executives suggest Nexen does not represent a strategically important holding that needs to be protected from foreign takeover.

Ottawa has extended its review of the deal until mid-November while it assesses the benefit to Canada and determines whether the company, which is publicly traded in Hong Kong and New York, operates as a commercial entity. At the same time, Mr. Harper has promised to release a new "framework" that will explain the government's rationale for its decision on the Nexen deal and serve as a guide to other state-owned companies.

At a panel discussion, Mr. Boisvert and Roger Robinson – a former official at the U.S. National Security Council – urged the Harper government to balance Ottawa's eagerness to expand trade and investment ties with China, with a "eyes wide open" approach to security and threats from "authoritarian capitalism."

In its annual report this year, CSIS warned that "certain state-owned enterprises" and private firms with close government ties receive clandestine intelligence support and can represent a threat to Canadian interests. CSIS didn't mention China specifically, but Mr. Boisvert said it was a clear reference to China.

He did not recommend the acquisition be blocked, but rather that Ottawa insist on measures that would mitigate the potential negative impacts of having a state-owned company operating in the oil sands from a country that is looking for control of strategic assets, including oil and gas.

The company showed its political colors during the heightened tensions between Japan and China over territorial claims in the South China Sea, Mr. Boisvert said. CNOOC chairman Wang Yilin said the company's deep-water rigs in disputed territories served as "mobile national territory and a strategic weapon."

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In assessing foreign acquisitions by Chinese state-owned enterprises from China, Ottawa should remember that the Communist Party government is the "parent company" that exercises ultimate control, Mr. Robinson said. "It is the longer-term play here that should be carefully looked at," he said.

Gordon Houlden, director of the University of Alberta's China Institue, said his fellow panelists were focused too heavily on security issues, and were missing the bigger picture: Canada needs to engage with a growing Asian economic power – an important source of foreign capital and a growing customer for this country's resource bounty.

Chinese companies typically operate at arm's length from their political masters in Beijing, he said. "They largely behave as profit-seeking entities but not always," he said. "You must engage but do so with eyes wide open."

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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