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China silent about Harper vow on future oil sands bids

A woman walks out of China National Offshore Oil Corp. headquarters building in Beijing, Dec. 10, 2012.

JASON LEE/REUTERS

Beijing has responded with silence to Prime Minister Stephen Harper's vow to block future takeovers of Canadian oil sands companies by foreign government-owned firms.

In the first official remarks since Ottawa approved the $15.1-billion takeover of Nexen Inc. by China National Offshore Oil Corp., a spokesman for China's foreign ministry said Beijing "welcomed" Canada's decision to let the purchase go ahead. "We hope the relevant acquisition will be carried out in a smooth manner, so as to bring mutual benefit and profits to both sides," Hong Lei told a regularly scheduled press conference Monday in Beijing.

But when asked whether Mr. Harper's bar on foreign state-owned enterprises could be seen as targeted at China, Mr. Hong avoided the question. "I think relevant parties should support the mutually beneficial co-operation between China and Canada," he said in response to a question from The Globe and Mail about the new rules. "Next question."

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Two things likely motivate the buttoning of the lips:

First, the Chinese government seems genuinely relieved that the Nexen takeover was allowed to go through. State media have been holding up Ottawa's approval as a victory after years of having takeovers by Chinese-owned firms – including a 2005 bid by CNOOC for U.S. energy giant Unocal – blocked by foreign governments. Chinese media have thus far downplayed the giant caveat Mr. Harper attached to CNOOC's purchase of Nexen.

Second, China would never allow a Canadian or American firm to buy a large Chinese oil firm, making it difficult for Beijing to complain about Mr. Harper's adjustment of the rules.

"I'm not surprised" at the silence, said Laban Yu, a Hong Kong-based energy analyst for the Jeffries investment bank. "Anything they say can be thrown back at them pretty quickly. If they say 'why no more takeovers?', it can easily be said 'well you don't exactly allow foreign companies into your energy market, so take this one [Nexen] and be quiet.'"

Mr. Harper has in recent months made it clear that a lack of reciprocity in market access was one of his key concerns about the Canada-China trading relationship.

Beijing may well be irritated by Mr. Harper's sudden reversal – after months of saying Canada was wide open to Chinese investment – but it has likely also noted the political backlash the CNOOC-Nexen deal has caused in Canada, and will likely tread carefully to avoid worsening the situation. "If there's going to be a response, it will probably be through back channels," Mr. Yu said. "I'll bet they just keep their mouths shut, and if they think they can change the rules behind the scenes, they might."

One Chinese media outlet broke ranks and portrayed CNOOC's takeover of Nexen as a strategic mistake, rather than the breakthrough Beijing had been hoping for.

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"While the domestic audience was cheering [the approval of the deal], very few people noticed the attitude that Canadian government expressed afterwards," read an article by researcher Li Dongchao that appeared in Monday's China Business News, a newspaper owned by the state-run Shanghai Media Group.

By offering such a massive overpayment for Nexen (the $15.1-billion offer made on July 23 represented a 61 per cent premium on Nexen's market value), CNOOC had "stirred up resource nationalism" in Canada, which will make the next Chinese energy foray into North America even more difficult, Mr. Li wrote.

"Many people think this approval of the [Nexen] purchase means CNOOC reached a wonderful victory in the fight, and that [resource-producing areas] of North America have opened their gate to Chinese companies. But, the reality is just the opposite: the gate to North America has been opened for China's national oil companies, but it will also probably be closed, or at least the threshold will be made higher."

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About the Author
Senior International Correspondent

Mark MacKinnon is currently based in London, where he is The Globe and Mail's Senior International Correspondent. In that posting he has reported on the Syrian refugee crisis, the rise of Islamic State, the war in eastern Ukraine and Scotland's independence referendum.Mark recently spent five years as the newspaper's Beijing correspondent. More

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