Canada seeks gains from China in exchange for oil deal

Canadian leader makes it clear he wants more reciprocal trade relations with China

Canadian Prime Minister Stephen Harper said yesterday his government will seek to correct trade imbalances with China as he manages a wave of takeover spending from the country.

Harper, speaking at the Bloomberg Canada-Asia Conference in Vancouver, said Canada needs to diversify trade to Asia because of sluggish growth in much of the rest of the world, adding that the relationship also needs to become reciprocal.

"The Chinese are acutely aware, in my own experience, of the fact the trade and investment flows are disproportionately in their favour," Harper said. "They recognise that has to change," he said, adding "we will also be seeking things from them."

Harper's ability to bolster economic relations with China, which he calls a national priority, is being tested by concern the country may gain too much influence over Canada's oil sands, the world's third-largest pool of oil reserves. A poll by Sun News Network last week showed a majority of Canadians surveyed want him to reject a US$15.1 billion takeover of Calgary-based oil company Nexen by CNOOC.

Harper said he is aware Canadians are wary of Chinese investment and said it is incumbent on China to show it can play by "the same rules" as Canadians. To provide clarity, Canada's government is preparing a "policy framework" for foreign investment to explain the government's decision regarding the Nexen bid and future transactions, he said.

Canada's system for weighing takeovers is "highly subjective and unpredictable", Toronto-based research group CD Howe Institute said in a study released in December last year. The rules may have contributed to the decline in Canada's share of global foreign-direct investment, it said.

Harper's government will use "broad" criteria in its review of the transaction, he said without giving details. "We're going to be looking for ways to make sure we can promote first and foremost Canadian interests in this relationship."

Canadian legislation allows the government to reject foreign takeovers on the basis of three criteria: The acquisition does not give a "net benefit" to Canada, it is made by a state-owned company that does not act on a commercial basis or it creates national security concerns.

Harper said CNOOC's status as a state-owned enterprise makes it "somewhat different" and leads to range of different requirements in the review process.

Investors may have to wait until November or longer for a decision on the bid. CNOOC made a formal application for government approval on August 29. Ottawa has 45 days to review foreign takeovers once an application has been filed and can extend the deadline by 30 days if it notifies CNOOC before the initial period expires. Canadian officials can extend the review further if both sides agree.

This article appeared in the South China Morning Post print edition as: Canada seeks gains from China in oil deal