China's move on oil sands is about more than money

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This is a test. Chinese oil company Sinopec's move to buy a piece of Alberta oil sands producer Syncrude is the latest move in Beijing's step-by-step gauging of the investment waters in Canada.

China is watching to see if the deal sets off alarm bells in Canada, particularly in Prime Minister Stephen Harper's Conservative caucus.

Some Tory MPs fear a China with influence over Canada's economy and control of Canadian resources. They note the grumbling the Sinopec deal has provoked among Wildrose Alliance supporters in Alberta. A handful hope to stop the sale, with opposition help.

For China, Sinopec's $4.6-billion purchase of a 9-per-cent stake in Syncrude is not just a test of whether its money is welcome. The deal must be approved by Industry Minister Tony Clement, and Beijing will take his answer as a sign of whether its once-chilly relations with Mr. Harper's government have truly thawed.

The Chinese won't simply swallow a rejection, and they don't like controversy. "They have no tolerance for deal failure," said one lawyer with experience in Chinese acquisitions.

That's partly about saving face, said Brock University China expert Charles Burton, but China's concern for image has a strategic element. "Their soft-power diplomacy is not served by controversial investments that lead to questions about the nature and intentions of the Chinese state," Prof. Burton said.

Five years ago, China Minmetals Corp., set out to buy what was viewed as an icon of the Canadian mining industry, Noranda Inc., and its nickel subsidiary Falconbridge. The bid met with opposition from MPs of all parties, who feared the consequences of an arm of China's government controlling a key Canadian resource. Scared off by "the heat," said a Canadian involved, the Chinese withdrew.

Since then, China's return has been a textbook case of flying under the radar.

First there were smaller investments, involving amounts under the $300-million threshold requiring government approval under the Investment Canada Act. Then last July China Investment Corp. paid $1.77-billion for 17 per cent of Teck Resources, but because it was a passive non-controlling buy, it also didn't trigger foreign-investment review. The $80-million purchase of a small bank, BEA Canada Ltd., necessitated only a review by bank regulators.

The first Chinese deal subject to Investment Canada review was PetroChina's $1.9-billion purchase last year of two projects developed by Athabasca Oil Sands Corp. Mr. Clement gave it the go-ahead when it would get little notice, on Dec. 29.

Then came this week's Sinopec deal for a Syncrude stake.

China's interest in Canada worries some Conservative MPs, who fear Beijing is out to put a lock on strategic resources. "If you buy both sides of the Panama Canal, it's not just money," observed Calgary Tory MP Rob Anders.

Nonsense, says Yuen Pau Woo, president of the Asia Pacific Foundation of Canada. The evidence shows China's state-owned companies invest for commercial reasons, and vague fears of China's rise are behind the opposition. "Fear and ignorance," he said.

Features of the deal are raising eyebrows nonetheless. Vetoes held by Syncrude stakeholders could allow Sinopec to block construction of a plant to process bitumen in Alberta and build it in China instead. As well, Syncrude's partners market their share of the oil, raising fears some might be reserved for China.

Unlike Mr. Anders, other Tories who don't like the Sinopec deal don't say so in public. But when New Democrat Nathan Cullen attacked it in the Commons, a few Tory MPs expressed support. Mr. Harper may keep the anti-China sentiments of his MPs at bay, Mr. Cullen argued, but Albertans won't like the idea of Beijing deciding whether a bitumen-processing plant is built in Alberta or China.

"I imagine their constituents will be asking them to speak up," he said.

Campbell Clark writes on foreign affairs in Ottawa