Does China see a 'New Australia' in Canada?
The debate surrounding Chinese foreign investment in Canada, brought to the forefront by China's state-owned CNOOC Ltd's $C15.1 billion ($A14.8 billion) offer for Canadian energy giant Nexen Inc, suggests as much. The deal would mark the largest-ever overseas acquisition by a Chinese company.
China's 'New Australia' view of Canada envisions a lower-cost, resource-rich, diversified and de-politicised trading relationship. Whether it comes to fruition is hardly a given. Canada remains dominated by its US trading relationship, and Chinese foreign investment is a politically turbulent issue in Canada, as in Australia.Ch
But there is a growing realisation here that Canada has much catching up to do in forging Asian trading ties, and China sees the opportunity to transpose its relationship with Australia onto Canada.
Less than a year ago, China moved its ambassador in Australia, Zhang Junsai, to Canada. He promptly told Canadians they could learn a thing or two from Australia in how Australia has broadened its trade relationship with China.
The 'thing or two' Canada could learn from Australia are cultural familiarisation and export diversity. Very few Canadians visit China, whether as tourists for education or on business. The similar customs, language and time zone in the US make it too easy to focus on America, rather than Asia.
Zhang pointed out that there are only about 2,000 Canadians studying in China, versus some 70,000 Chinese students studying in Canada. He stressed that for Canada to diversify its trade with Asia – following the Australian model – its people familiarise themselves with the customs and languages of its Asian trading partners.
So far, Canada's oil sector has dominated export talk, which poses little by way of competition for Australia. But when Zhang, the Chinese ambassador, was telling Canadians to learn a lesson from Australia's export diversity, he was talking about Canada's fledgling liquefied natural gas sector.
Canada's Natural Resources Minister, Joe Oliver, recently told a Japanese audience that Canada hopes to build infrastructure to liquefy and export nine billion cubic feet per day of LNG to Asia through five proposed coastal plans.
For Australia, that's a prospect that hits closer to home.
If approved, the CNOOC-Nexen deal will be a game-changer, both in Canada and China. It may unleash a flurry of foreign bids for companies working in Canada's oil sands, by foreign companies who expect to see a window of opportunity between the decision and any move by the Canadian government to tighten foreign ownership rules.
Other state-owned enterprises from China, Korea, Malaysia, Kuwait and elsewhere are reportedly touring the operations of Canadian energy companies, waiting for the CNOOC-Nexen deal to land before launching any bids.
Among the potential suitors is state-owned Korea National Oil Corp, which is reportedly seeking a multi-billion dollar deal to expand in the oil sands. Such a deal would build on its purchase three years ago of Harvest Energy Trust for $C4.1 billion.
Kuwait has confirmed that its state-owned petroleum company has a preliminary deal to invest close to $C4 billion in an oil sands joint venture with Athabasca Oil Corp, though no final deal has been announced.
"If you think Nexen is something of a big deal, you ain't seen anything yet,” Wenran Jiang, a special adviser on Asian energy markets to the Alberta provincial government, which is home to the Canadian oil sands, told Toronto's Globe and Mail newspaper. "The new trend is large-scale Chinese private capital that will come into the Canadian market.”
The oil sands are squarely in China's sights. According to BP's Statistical Review of World Energy, 84 per cent of remaining global oil reserves are either state-owned or controlled, but of those that are not state-owned or controlled, 62 per cent are in Canada's oil sands.
But if the predicted rush of Chinese foreign investment follows a Nexen takeover approval, its impact on Australia could be wide-ranging. Beijing wants Canada to think beyond oil when it comes to Asian trade. And where there is overlap – such as LNG – China sees in Canada a country similar in so many ways to Australia, but with lower costs of doing business.
KPMG's Competitive Alternatives 2012 study of international business costs found that, using the United States as a baseline, Canada had a five per cent cost advantage while Australia had a 3.7 per cent cost disadvantage. Canadian labour costs and taxes are lower. That same KPMG survey ranked Canada as having the second-lowest tax costs, behind only India, among 14 major countries surveyed, while Australia ranked tenth.
But Canada's export infrastructure lags behind because exports have traditionally made the easy journey south across its border with the US. If Canada follows through on plans to develop pipelines and port infrastructure on its Pacific coast, its resources will be readily available to Asian markets in direct competition to Australian exports.
The potential to tap into those Asian markets will very attractive to investors eyeing off Canada’s energy assets.
Politics, though, could slow China's (and others') push into Canada. And Zhang, China's ambassador to Canada, has warned Canada to keep politics out of the boardrooms.
"Business is business. It should not be politicised,” Zhang said in an interview with the Globe. "If we politicise all this, then we can't do business.”
There is no doubt China is following the matter closely. Sovereign wealth giant China Investment Corp already raised eyebrows last year when it announced it would open its first offshore office in Canada, rather than Australia, the US or Britain. Last week, the CIC's top official in Canada, Felix Chee, said "millions” of eyes in China are tracking the Canadian government's review of the CNOOC bid.
How the CNOOC-Nexen deal unfolds will dictate whether Canada's nascent energy sector ties to China eventually form the basis for a robust trading relationship, and whether China's vision of Canada as a 'New Australia' comes true.