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Canada welcomes China's resource investments
Friday, July 15, 2005

TORONTO -- State-run Chinese companies have come to Canada's resource-rich wilderness with checkbooks in hand, hoping to grab hold of stores of oil, copper, and zinc buried here.

That hasn't fazed Canada's minister of industry, David Emerson. "It certainly has not been something that has got me on red alert," says the country's top economic official, of China's recent spate of natural resources investments. "No pun intended."

The mood is far more wary in the U.S. capital, where members of Congress are deploying legal and rhetorical barriers to stop Chinese state-controlled Cnooc Ltd.'s US$18.5 billion bid for oil company Unocal Corp., which has an existing US$16.8 billion deal with U.S.-based Chevron Corp.

As Washington stokes anti-Chinese sentiment, Canada's hospitality serves as a counterexample. The view partly reflects the role of natural resources in Canada's economy, which weigh heavily in the nation's exports.

But it also shows a clear political and economic choice to embrace China as its power expands in Asia and across the Pacific. "We don't feel you can have it both ways," says Pierre Gratton, spokesman for the Mining Association of Canada. "We can't support Canadian investment in China and say no to Chinese investment in Canada."

Canada's trade with China has about doubled since 2000 to more than C$30 billion, or about US$25 billion, last year, according to Canadian-government statistics. That's made China Canada's second-largest trading partner, though the total is still a fraction of the C$557 billion of trade between Canada and the U.S. last year.

While China's exports to Canada far outstrip imports, natural-resources goods ranging from forest products to nickel and other ores helped Canadian exports to China jump 40 percent to C$6.7 billion last year from 2003. Canada, which still sends the vast majority of its exports to the U.S., is eager to boost exports to China and other big developing nations.

Still, the prospect of China buying into Canada has caused some carping, particularly when state-owned China Minmetals Corp. was negotiating a C$6 billion bid for mining giant Noranda Inc., which is now called Falconbridge Ltd. The deal talks broke down earlier this year.

Before talks collapsed, Minmetals officials visited Noranda operations in Canadian provinces Ontario and Quebec, as well as in Chile, Peru, and Norway, Noranda spokesman Denis Couture said. He and several Noranda executives studied Mandarin, and Noranda officials were in China recently to attend mining conferences.

While Canada has largely embraced China, some politicians expressed ire at the Noranda deal, citing China's human-rights and fair-trade record, among other issues.

"The silence of the federal government over this sale has been staggering," said Charlie Angus, a member of Parliament with the New Democratic Party when Noranda disclosed China Minmetals's interest. "This deal would give the Chinese government effective control over the future of a number of important Canadian smelting operations. We're moving into completely uncharted territory in terms of foreign ownership of our resource capabilities."

Some also expressed concern about Minmetals's close ties to the Chinese government. Minmetals's Web site, for instance, describes "Mobilization Meetings" meant to maintain "the Advanced Nature of Party Members."

"We have to be very careful," says David Kilgour, an independent member of Parliament from Alberta, who has been critical of the current government's "love-love" relationship with China. Mr. Kilgour said that a Canadian company would never have the same opportunity in China as Minmetals. What's more, Minmetals "has no shareholders ... this would be the nationalization of a private company by a branch of government."

Indeed, Canadian lawmakers this month made changes to allow government scrutiny and possible blockage of any foreign takeover on the grounds of national security. Laws already in place allowed the Canadian government to review and block deals valued at more than C$250 million if deemed not in Canada's interest, and the new law includes deals below that level. The changes were aimed at aligning Canada's laws with other countries, and aren't related to China's recent interest in Canadian natural resources, said Mr. Emerson, the industry minister.

And the Chinese keep coming. In April Cnooc Ltd. paid C$150 million for a 17 percent stake in closely held MEG Energy Corp., a Calgary, Alberta, energy firm with an oil-sands project. The following month, China Petroleum & Chemical Corp., or Sinopec, agreed to pay C$150 million for a minority stake in another oil-sands project in Alberta.

The most significant move came in April when Canadian pipeline company Enbridge Inc. said it planned to partner with Beijing's PetroChina Co. Ltd. to build a new pipeline from Alberta's oil-sands regions to the Canadian West Coast. Oil would then be shipped to Asian ports -- and not to Canada's typical buyers in the U.S.

The move to add national-security issues to the takeover laws gives Canada more power to examine and pass judgment on foreign takeovers, Mr. Emerson said. For example, he said, "if state-owned companies ended up owning 80 percent of a certain strategic natural resource in Canada, that could be deemed to be a national security concern."

Until that comes to pass, Canada seems eager to embrace China as a trading alternative to the U.S. Calgary, which is Alberta's largest city, has a Chinese consulate office, and the province's premier has been back and forth to China since he was mayor of Calgary, according to former Alberta Energy Minister Murray Smith, who now heads Alberta's trade office in Washington. Canada and China also have a petroleum center in Beijing that helps bring Canadian oil technology into China's oil fields, Mr. Smith said.

Mr. Smith said he would advise Americans worried about Cnooc to "not panic. The U.S. is a strong-enough nation to deal with any change in the marketplace."

In the meantime, he said, "We're open for business. Open markets and free trade built a strong and prosperous Alberta and will continue to do so."

First published on July 15, 2005 at 12:00 am