Skip to main content

The Globe and Mail

IEA backs investment by Chinese national oil firms

A PetroChina worker loads cannisters of liquified petroleum gas onto a truck in Beijing.


Chinese national oil companies have picked up a key Western ally in their bid to reduce barriers to investment erected by governments who worry they may be mere extensions of Beijing's aggressive foreign policy.

The Paris-based International Energy Agency - which advises the industrialized world - has endorsed Chinese claims that the trio of state-owned oil corporations operate on a commercial basis, like other international oil companies, and at arm's length from their political masters in the Chinese capital.

The IEA's imprimatur comes as Ottawa is set to review PetroChina Co. Ltd.'s proposed $5.4-billion acquisition of a 50-per-cent stake in key natural gas assets in a new joint venture with Encana Corp.

Story continues below advertisement

Chinese companies have been forced to tread carefully when making investments and acquisitions in industrialized countries ever since China National Offshore Oil Corp. sparked a political uproar in the U.S. with its plan to take over California's Unocal Corp. in 2005. CNOOC withdrew that offer.

Many critics believe the companies are tools of an expansionist Chinese government that is deeply worried about securing the required energy supplies to fuel its growing economy. Some of them believe the firms work hand-in-glove with Beijing to invest abroad in order to gain control of resources.

Those questions are causing policy responses. The Canadian government, for example, recently added specific new hurdles for Investment Canada approval of foreign state-owned companies.

But the IEA, whose mandate is to help ensure security of supply for industrialized countries, has buttressed China's case that other governments should welcomes its firms' investments, since they are largely operating as commercial firms and are boosting worldwide oil supplies.

To satisfy Ottawa in its Encana deal, PetroChina - a publicly traded subsidiary of China National Petroleum Corp. - must provide explicit assurances that it makes commercial decisions, rather than political ones, on where to export and where to process the energy. It must also demonstrate that its corporate governance practices meet Canadian standards of transparency and disclosure.

In a report released Thursday, the IEA said the Chinese companies have gained considerable independence from the government department to which they formally report.

"These are far from puppet companies operating under control of the Chinese government, as many have assumed," the report's co-author Julie Jiang said in a release. "Their investments in recent years have been driven by a strong commercial interest, not the whim of the state."

Story continues below advertisement

While senior company executives are appointed by the Communist Party - and are senior members of it - they survive and thrive by making sophisticated business decisions that do not antagonize trading partners, it said.

The IEA report will make it easier for Ottawa to decide in PetroChina's favour and approve future Chinese energy investments, said Wenran Jiang, who holds a research chair at the University of Alberta's China Institute.

"It's an authoritative, international, Western-oriented agency," Mr. Jiang said in an interview. "If they identify these trends, then it makes the life of bureaucrats in Ottawa so much easier" in dealing with Chinese acquisitions.

The Chinese companies have been targeting Africa and Latin America more than developed countries like Canada, the United States or Australia, with South America accounting for roughly half of the $29.4-billion (U.S.) that the three companies - PetroChina, CNOOC and China Petroleum and Chemical Corp. (Sinopec) - spent on foreign acquisitions last year.

In North America, the state-owned companies have invested primarily in joint ventures with companies like Encana and Total SA in Canada and with U.S.-based Chesapeake Corp. in deals that develop new resource plays, rather than acquiring producing assets.

There are concerns, however, about the degree to which the companies are pursuing government policy. And in the United States, policy makers worry about China's influence in countries like Iran, Sudan and Venezuela - which are all hostile to Washington.

Story continues below advertisement

"The important thing to remember is that, while yes, the oil companies operate like large commercial entities, all the CEOs of these organizations are appointed by the Organization Department of the Chinese Communist Party," said Dennis Chris Shea, a commissioner with the Washington-based U.S.-China Economic and Security Review Commission, a congressionally-appointed body that monitors Chinese security issues.

"And so ultimately, they must balance commercial interests with the party and state interests, and the managers of these companies are ultimately accountable to the Chinese Communist Party."

But it is a mistake to believe that there is a monolithic, government-led strategy that results in Chinese companies single-mindedly pursuing control of foreign resources, said Erica Downs, a China expert at New York's Brookings Institute.

Ms. Downs said Beijing is certainly supporting Chinese companies investment overseas diplomatically and financially. "But when it gets down to specific investment decisions, that is ultimately going to come down to the company because they're the ones with the expertise," she said.

With files from reporter Andy Hoffman in Vancouver.

Report an error Licensing Options
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

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.