The federal government has two powerful tools for denying a foreign takeover – a national security review and the net benefit test.
Unfortunately, Ottawa invoked the wrong reason for blocking China Communications Construction Co.’s $1.5-billion bid to buy Toronto-based Aecon Group Inc.
There are many legitimate reasons to be to be wary of China’s vast network of state-owned enterprises, such as CCCC.
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But the most worrisome is not the risk that China would use Aecon as a sort of Trojan Horse to spy on Canadian roads, bridges and energy projects, and steal our technology secrets.
As Aecon chief executive John Beck pointed out earlier this year: “We’re a construction company. We install things, we cut and weld things, we have no intellectual property, we have no secret information.”
The horse, Trojan or otherwise, left the barn a long time ago. Over the past few decades, Canada has sold China nuclear reactors, hydroelectric know-how and high-speed trains. Last year, Bombardier Inc. came close to selling its C-Series commercial aircraft business to the Chinese.
There isn’t much for China to steal that it doesn’t already possess.
There may well be scenarios in which CCCC might have tried to do nefarious things with critical infrastructure in Canada. Aecon is involved in a range of projects, including the Site C hydroelectric project in B.C. and the refurbishment of Ontario’s nuclear reactors.
But it all seems a bit far-fetched.
In many ways, invoking national security is the easy out for the Trudeau government, which apparently fears a blowback from allowing the deal to go ahead.
It isn’t that Ottawa is using national security as pretext for blatant protectionism – as the Trump administration is doing to block imports of steel, aluminum and now cars.
Rejecting the takeover is easier than trying to deal with the real issues that confound the Canada-China relationship, including the Communist regime’s use of state-owned enterprises to achieve geopolitical goals, its relatively closed domestic market and the competitive threat posed by its aggressive trade practices.
“The problem with CCCC is the nationality of the people and the percentage of government ownership,” said former Canadian diplomat Ron MacIntosh, a senior fellow at the University of Alberta’s China Institute.
Canadians worry more about Chinese companies, particularly state-owned ones, because China is not a democratic country, and we’re wary of their business practices, lack of transparency and their access to unseen subsidies, Mr. MacIntosh explained.
“That’s why you have this skepticism, and it does tend to get politicized,” he said.
Aecon may be just a construction company, as its CEO says. CCCC is not.
But experts say it’s unfair to liken Ottawa’s rejection of the Aecon takeover to the Trump administration’s use of special national security tariffs to block imports.
The United States is using so-called Section 232 investigations to go after foreign cars and steel because it’s a readily available tool, not because it’s legitimately concerned about national security threats, argued Eric Miller, a Washington-based trade consultant and former Industry Canada official.
Canada’s position is more nuanced – and valid, he said.
“The government apparently felt that having critical infrastructure owned by a state-owned company from a country, which many as regard as a rival, is not necessarily a good thing for Canada.” Mr. Miller said. “It played on a number of different levels.”
The challenge for Ottawa is finding a way to engage with China, without pretending the world’s second largest economy and Canada’s No. 2 trading partner doesn’t exist. Blocking the Aecon takeover is a stop-gap that doesn’t address the China problem. CCCC is the world’s second largest construction company. It has subsidiaries around the world, including in the United States and Australia – apparently without raising national-security problems.
Imposing tariffs on trade rivals under the guise of national security clearly isn’t the answer either.
Canada, the United States and many other countries share common concerns about the way China is engaging with the rest of the world economically.
The obvious place to address those problems is through the World Trade Organization and other multilateral groups, where countries can use their collective leverage.
The Aecon takeover highlights the need for clear global rules governing China’s powerful state-owned companies.
Invoking a nebulous national security threat is unlikely to get us closer to that goal.