The Problems with Nexen

By The Hon. David Kilgour on October 19, 2012

The proposed buy-out of Nexen Inc., Canada's sixth largest oil company, for $15.1 billion by the government-owned China National Offshore Oil Corp (CNOOC) obliges the Harper government to decide whether or not to approve the purchase under the undefined "net benefit" and "national security" tests in the Investment Canada Act. Here are some concerns.

The Economist makes important points about the functioning of China's model of state capitalism (21 Jan. 12), including:

The Chinese party-state is the largest shareholder in the country's 150 largest companies and directs thousands of others.A culture of corruption permeates China's economy today, with Transparency International ranking it far down its list at 75th place on its perceived corruption index for 2011.

The magazine quotes a central bank of China estimate that, between the mid- 1990s and 2008, 16,000-18,000 Chinese officials and executives of state-owned companies "made off with a total of $123 billion" and concludes, "By turning companies into organs of the government, state capitalism simultaneously concentrates power and corrupts it."

"The Party," published in 2010 by Richard McGregor, former China bureau chief for the Financial Times, documents the Communist party's continuing grip on the government, courts, media and military. Among the book's conclusions:

Top leaders adhere to Marxism in their public statements, even as they depend on a ruthless private sector to create jobs. The Party preaches equality, while presiding over incomes as unequal as anywhere in Asia.It has eradicated or emasculated political rivals; eliminated the autonomy of the courts and press; restricted religion and civil society; denigrated rival versions of nationhood; centralized political power; established extensive networks of security police; and dispatched dissidents to labor camps.

The takeover of Nexen by CNOOC would constitute its nationalization by the party-state in Beijing. CNOOC is controlled by its parent, China National Offshore Oil, which is wholly owned by the government of China. It is a selfserving error for advocates of the buy-out to term it a commercial transaction. A similar offer was made by CNOOC for Unocal oil of California in 2005, but was halted in the face of strong opposition in Congress and by American public opinion.

China Minmetals began a run the same year at Noranda, then Canada's largest mining enterprise, but abandoned it when Canadians became aware that Minmetals was a branch of the mines department of the Beijing government.

The board chair of CNOOC, Wang Yilin, is also the secretary of CNOOC 's party committee. Charles Burton, the academic and former Canadian diplomat in Beijing, explains, "CNOOC's party committee has a party discipline inspection group whose head, Zhang Jianwei, is also a senior member of the CNOOC board. Mr.

Zhang's job is to make sure that all the leaders of Nexen comply with the secret directives of the party leadership in Beijing. Woe betide those who don't follow the party's will for CNOOC. CNOOC is a function of the Chinese party-state, and it is difficult to believe this will all go the way CNOOC, its Canadian lawyers, PR agencies and 'pro-China' Canadian supporters say it will - at least, not by what we know of how the Chinese Communist Party operates domestically. What the party claims are its practices and what it actually does under the cloak of secrecy are rarely the same. Nasty and deceitful and dishonest things go on, and Beijing sees this as justified by the greater good of 'the sacred mission' of China's comprehensive rise to power under the leadership of the Communist political and business elite."

The conduct of Chinese state-owned enterprises (SOEs) globally is outrageous. When the China National Petroleum Corp took a stake in Sudan's oil fields in 1996, Beijing backed the al-Bashir regime in Khartoum, selling it arms and providing diplomatic cover at the UN Security Council. Bashir and his agents were committing systematic atrocities in south Sudan and Darfur. Many Africans accuse Chinese resource companies of underbidding local firms and not hiring local residents. In Zambia, Chinese mining companies banned union activity and in two instances were charged with attempted murder after opening fire on local employees protesting work conditions.

In Canada, the SOE Sinopec flew 150 Chinese workers into Alberta in 2007 to build a storage tank on an oil project. Two were killed and two were injured when the tank roof collapsed. When the Alberta government laid charges against Sinopec for failing to protect its workers, Sinopec's construction company denied that it had a presence in Canada. Major national corporations are effectively above the law in China and routinely ignore safety, environmental, and employment legislation with impunity. They will demonstrate no more respect for the rule of law in Canada than they do in China and will act always as agents of the party-state that controls them.

Beijing would not for a moment allow a foreign company or government to buy control of one of its natural resource companies. Prime Minister Harper should block the proposed takeover and make it clear that any state-owned enterprise,regardless of national origin, will be limited to a minority share-holding in any Canadian business.



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