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June 11, 2013

Two new Investment Canada Act related reports have recently been published by The Conference Board of Canada (Green Machine: Financing Growth in the New Saskatchewan) and the University of Calgary’s School of Public Policy (China’s State-Owned Enterprises: How Much Do We Know? From CNOOC to its Siblings).

Abstracts:

Green Machine: Financing Growth in the New Saskatchewan (June 10, 2013)

“Saskatchewan is a resource-rich economy.  The province is moving from a period of slow growth and stagnant population to one of rapid growth and expanding population.  These developments are being driven by an improved resources outlook, specifically for oil and gas, potash, and uranium.  This report is one of a series of Saskatchewan Institute reports that consider key issues facing Saskatchewan as it enters a new era of sustained growth.  The report begins with a review of anticipated capital demands over the next 20 years.  It then turns to the nature of finance, analyzing the current funding structure and how this is likely to change.  This leads to an analysis of the financing issues facing Saskatchewan.  The report concludes with a discussion of key findings and implications.  Research included a review of literature and secondary source data, as well as interviews with 20 experts on Saskatchewan’s financial sector and its capital needs.”

China’s State-Owned Enterprises: How Much Do We Know? From CNOOC to its Siblings (June 6, 2013)

“China’s state-owned enterprises (SOEs) are sometimes compared to Canadian Crown corporations, such as VIA Rail or the CBC.  But that comparison is not only profoundly inaccurate, it can also be a dangerous assumption to make when crafting Canadian economic policy.  China’s SOEs have been actively buying up interests in major Canadian resource firms.  But that phenomenon has much more serious implications for Canada than if these were, say, state-owned European firms, such as Norway’s Statoil.  China’s SOEs do not operate by the normal rules of commerce.  They are, in fact, a very powerful tool of the Chinese government’s industrial policy, which is aimed at a ruthless expansion of its global economic empire.

The spectacular growth of China’s SOEs over the last two decades, at a rate unrivalled by virtually any other sector on earth, has been driven by the will of the Chinese government, which provides cheap or free inputs — such as access to capital and real estate — in order to create globally dominant corporate powers.  There is also the Chinese competitive advantage that comes with not just lower wages for workers but also behaviour that would be considered irresponsible in a Western context.  Placing a lower priority on human rights, the environment, social justice and corporate rectitude give China and its SOEs an edge that have helped them in their goal of leapfrogging competing world economic powers, including Canada.  Without these explicit and implicit subsidies, China’s SOEs have actually proven to be far less economically competitive than their private-sector rivals.

Chinese SOEs are not publicly accountable the way that Crown corporations in Canada are.  Chinese SOEs are run by appointees of the Communist party, whose first duty is to the state, the majority or even sole shareholder of SOEs.  Unlike Canada’s Crown corporations, which are designed to fill in market-failure gaps or provide public service, China’s SOEs are permitted to chase profits in sectors that do not even fall within their primary mandate. And unlike Canada, China jealously guards the sectors in which its SOEs exert absolute or strong control, disallowing any private-sector competitors — domestic or foreign — free entry.

When Canada’s federal government last December granted approval to the takeover of Nexen Inc. it made it clear that this would be the ‘end of a trend’ of Chinese SOEs controlling acquisition of major Canadian energy firms. Such takeovers would be allowed only in exceptional circumstances from now on.  That is how it should be. Canada’s business sector should contribute to market-driven economic growth, through efficient management and upright corporate behaviour.  It should not be allowed to become an instrument in China’s distorted and often disreputable drive toward global hegemony.”

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