Can Abbott afford to say no to China?

The Coalition wants new hurdles for foreign investors (read China). Canada's conservative government will happily take their money.

TORONTO – In releasing on Friday a Coalition plan to introduce new hurdles for foreign investors opposition leader Tony Abbott shows he is not backing down from his speech in Beijing last week where he said it was "rarely” in Australia's interest to allow a foreign government to acquire a business in Australia.

The fact that Abbott's comments came the same week that China announced its largest-ever foreign takeover bid – by state-owned CNOOC Ltd of Canadian energy company Nexen Inc for $15.1 billion – has brought into focus debate about the impact Coalition policies might have on Chinese foreign investment in Australia should the polls prove correct in forecasting a Coalition win in the next election (Abbott to toughen foreign investment rules, August 3).

The deal has not sparked any widespread public outcry in Canada. This, despite a poll last year showing that 76 per cent of Canadians opposed the idea of a state-owned Chinese company buying a controlling stake in a Canadian firm.

The Nexen bid shone a light on China's growing interest in Canada's energy sector. Between July 2011 and early 2012 alone, Chinese firms quietly bought-up about $C5.5 billion ($A5.22 billion) worth of Canadian energy assets, and since 2005 Chinese companies have spent some $C23 billion buying Canadian-based resources companies, according to Dealogic.

In February, a former Canadian diplomat told Reuters it would take a mega deal, such as a Chinese move on Nexen, to test the Canadian government's position on foreign purchases.

That test has come.

The Nexen deal will require approvals from Canada's government, which it is likely to grant given how deftly CNOOC has maneuvered in laying the groundwork for the deal. The Chinese have learned from BHP Billiton's mistakes in its failed bid for Potash Corp in 2010, when the miner went ahead without securing support from the provincial government in Saskatchewan, where Potash Corp is based. This time, CNOOC has the Alberta provincial government, where Canada's oil and gas sector is centred, firmly on its side.

That Canada's Conservative Prime Minister Stephen Harper has in recent years warmed to Chinese foreign investment would seemingly offer a contrasting view of conservative politics versus Tony Abbott's conservative model in Australia.

But the ideal comparison to Tony Abbott in 2012 is not Stephen Harper of 2012, but rather Stephen Harper of 2006, when he was a newly-elected rookie prime minister with little international experience and determined to stick to the hard talk on China he had delivered while in opposition.

That's the comparison that came to mind for Kim Richard Nossal, an expert in Canada-Australia relations, who was in Australia last week when Abbott's Beijing speech hit headlines. "My initial reaction was, yes, this is the kind of thing folks in opposition say, but if Abbott becomes prime minister will he pursue the line he articulated in opposition? I myself have doubts that that is going to be the case,” he said.

"That's exactly what happened to Harper,” added Nossal, who is director of the Centre for International Defence Policy at Queen's University in Kingston, Ontario. "Harper came to office promising that he wouldn't appease dictators and wouldn't sell out for the almighty dollar.”

Harper sought to match his tough talk with action during his government's early days. He gave honourary Canadian citizenship to the Dalai Lama, and in 2007 became the first Canadian prime minister to formerly meet the exiled Tibetan leader, angering Chinese officials.

His most direct snub came in 2008 when Harper declined invitations to the opening and closing ceremonies of the Beijing Olympic Games.
By 2008, Canada had fallen off the Chinese Commerce Industry's list of China's top 10 trade partners (two years earlier, Canada ranked 10th on the list).

The blowback from Canada's Chinese community over the Olympics snub was severe, and it was seen as a last-straw from Canada's business community who had long been telling Harper that China was too important to antagonise.

Under pressure, Harper made an abrupt about-face, making his first visit to Beijing in 2009, where he was dressed down by Chinese Premier Wen Jiabao for taking "too long” to visit China.

From there, the relationship was pieced back together. Chinese foreign direct investment in Canada more than doubled between 2008 and 2009.

Ties between the two countries have continued to deepen. The China Mining Association of Canada estimates that more than 20 Chinese miners and mining investment firms have offices in Canada, up from only five in 2010. While in 2011, the massive sovereign wealth fund China Investment Corp chose Toronto as the site for its first offshore office, over London, New York and Australia.

Earlier this year Harper visited Beijing where he sealed the Canada-China Foreign Investment Promotion and Protection Agreement – an agreement that had been nearly 20 years in the making.

"The relationship now, is ironically back to where it was in 2005 when Harper launched his vigorous critique of China,” said Nossal, who co-wrote two books on Canada-Australia relations, including "Relocating Middle Powers: Australia and Canada in a Changing World Order”.

"I have no idea whether anyone in the Harper government would admit to having made a mistake on China policy,” he added. "My view is that Harper came to office with very little experience in international affairs and that lack of experience showed in all sorts of ways. It didn't take long for him to discover why the simplicities his party was peddling in its election platform just didn't work in the real world of global politics.”

What does this mean for Tony Abbott?

The debate in Australia about its relationship with China is much more wide-ranging, including discussion about defence policy and other aspects of the economy such as agriculture, whereas Canada sees its relationship with China more narrowly through a resources sector investment prism, and one that takes a distant backseat to its relationship with the United States, which is by far Canada's largest trading partner (in recent years China leap-frogged Britain and Japan to becomes Canada's second-largest trading partner).

But Abbott's proposed foreign investment policy to introduce more hurdles on foreign investment deals comes at a time when China is particularly sensitive to feeling welcome as foreign investors.

In the event that Abbott wins the next election, Canada and Australia will each be run by conservative governments grappling with how best to manage the continued shift of geopolitical power towards China.

On a recent swing through Toronto, former Prime Minister Kevin Rudd offered up his own advice on how Australia and Canada should learn from one another as both countries manage growing Chinese interest in their economies.

"This is going to bring Canada and Australia much closer together than in the past,” Rudd told the Globe and Mail newspaper. "This is a good thing.”