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"I believe that to meet the challenges of our times, human beings will have to develop a greater sense of universal responsibility. It is the foundation for world peace."

Nexen Deal Reveals Clash of Cultures

October 1, 2012

Stephen Ewart is a Calgary Herald columnist

Calgary, September 30, 2012 - As the rhetoric intensifies over the purchase of Calgary oil and gas producer Nexen by a Chinese state oil company and issues from free trade to human rights are raised as bargaining chips to approve the deal it speaks to a clash of cultures in the changing geopolitical reality globally.

Anxiety, or at least trepidation, over the historic transaction is producing a conversation that is playing out from Calgary to Ottawa and is being closely scrutinized in world capitals from Washington and London to, especially, Beijing.

The dialogue over the risks and rewards of the $15.1-billion offer by CNOOC first announced in July has increased as government reviews of the purchase began this month in Canada, the United States and Britain.

From politicians deep into election mode to influential publications, including The Economist to Washington Post, there is plenty of commentary about the largest foreign takeover by a Chinese state company since its integration back into the global economy.

The most provocative statement came from China's Ambassador to Canada, Zhang Junsai, who, in an interview with The Globe and Mail, responded to the backlash with an undiplomatic: "business is business ... it should not be politicized."

Fear and distrust of the Chinese - or the oil industry - has united the political right and left, while polls suggest the majority of Canadians oppose the deal.

Meanwhile, Bank of Canada Governor Mark Carney has called on Canadian companies to "reorient" their focus to China.

At business events during the past week, top energy industry executives, including Murray Edwards and Nancy Southern, expressed support for extending the trade relationship with China but also reflected a sense of caution.

There is concern Canada's natural resources - and/or its main companies - may need some form of protection given the emergence of huge state-owned enterprises.

Questions abound about what the changing dynamics mean for democratic countries with market-based economies.

"I'm not troubled by the de-bate," said Gordon Houlden, director of The China Institute at the University of Alberta. "I would be worried about a knee-jerk reaction that we must shut the Chinese out of Canada at a time when they are moving toward being the No. 1 economy in the world and what would be the long-term impact of not having that engagement."

The circumstances of the Nexen deal - primarily that most of the assets are outside Canada - and the priority that Prime Minister Stephen Harper has put on enhancing business ties with Beijing in the past two years suggest it's likely a done deal.

The next big takeover - or the next one that involves a flagship company - looms as a tipping point.

Several energy executives have called on Ottawa to put appropriate and transparent ground rules in place. It seems overdue, given more than $18 billion has been invested in Canada by Chinese oil and gas companies, mostly through minority stakes in projects. CNOOC alone has invested $2.8 billion.

One industry executive said this week the Chinese, and to a lesser extent other SEOs, have upset the status quo. The companies largely knew the players in the North American market and which firms could be potential buyers but now - with companies ultimately backed by governments that can literally print money - it creates a new set of risks and uncertainty.

There are laws in Canada unfair competition, labour and environmental practices all companies must adhere to and there is a market frame-work that governs publicly traded companies. CNOOC is traded on the New York Stock Exchange and has promised to list on the Toronto Stock Exchange. Regardless, the fear of being overwhelmed by the Chinese goes deep in history. It has, at times, crossed into xenophobia.

It was highly evident at the end of the 19th and start of the 20th century and the concept of "the yellow peril" took root in Western society. The communist revolution under Mao Zedong added Cold War suspicions to the mix while the suppression of Tibetan independence and the brutal put-down of pro-democracy activists at Tiananmen Square in 1989 has left an indelible impression on the West.

"The Chinese come with a lot of baggage," Houlden says.

Even the "otherness" of China is an element.

I got an example of that last week in a place not typically given to such insights. In a restaurant on the campus of the University of Notre Dame, an alum at the next table awaiting the football game with rival Michigan told the story of how seats were always available because the Chinese graduate student association never took their allotment. The 30-something Midwesterner, still incredulous at the sacrilege of the thought, described how a faculty adviser admonished him that while Americans were watching football on Saturdays during the fall, his students were hard at work in the library.

"And that is why the Chinese are going to rule the world!" he triumphantly concluded.

"No, that is why the Chinese will NEVER rule the world, can't adapt to other people's culture," his friend retorts from across the table.

Laughs, and toasts, en-sued.

In a recent business forum in Ottawa, Andres Desmarais, president of Montreal-based Power Corp. which has operated in China for 25 years, captured the essence of that scenario far more eloquently: "if you don't spend time together, and invest together, it's difficult to understand each other and bridge the cultural differences."

It's the lack of understanding - exacerbated by a lack of transparency by the Beijing government - that creates so much interest in China and its ambitions.

There are several state-owned oil and gas companies in the Canadian oilpatch - none Canadian, of course - but the activities of Statoil and Pet-ronas don't attract the same scrutiny as CNOOC or Sinopec. Of course, nobody cares about geopolitical ambitions of Norway or Malaysia. China is a different story.

The launch of the country's first aircraft carrier this week amid tensions with Japan over the Diaoyu/Senkaku islands shows it's not above gunboat diplomacy.

Those moves reverberate in Washington. Nexen's proper-ties in the U.S. Gulf of Mexico, which have attractive tax exemptions, could presumably be carved out of the deal by U.S. authorities in the 75-day review given the politicized environment in the U.S. CNOOC abandoned its bid for California-based Unocal in an $18 billion offer in 2005 when the bid got bogged down in politics during the Bush ad-ministration.

The foreign investment test in the U.S. relates to national security. In Canada, there needs to be an ill-defined "net benefit" to the country. The debate has seen Harper questioned by NDP Leader Tom Mulcair and his own MPs.

Calgary Conservative Jason Kenney has said the Nexen deal should advance "our interests, such as trade and commerce, and our values, such as the importance of human rights."

The oilsands hold the third-largest crude oil reserves in the world, a strategic resource for Canada and a potential fuel source for China; a country with 1.3 billion people, a slowing but still vibrant economy and a significant shortfall in energy supplies going forward.

Jim Prentice, the former deputy prime minister and now vice-chairman for CIBC, evoked the Chinese general Sun Tzu and the Art of War to put into context the challenges and opportunities in a speech to the University of Calgary's School of Public Policy this week because the centuries-old lessons are appropriate given "the stakes and the scenario demand a thoughtful and strategic response."

He was adamant discounted Canadian oil needs more than one market.

"The development of Pacific corridors for oil and liquefied natural gas as one of the most important - and certainly one of the most challenging - initiatives that our country has encountered in decades," Prentice said.

Ultimately, the CNOOC-Nexen deal may show Canadians they need to work in the world the way it is, even if they hope to change it, not simply the way they want it to be.

Stephen Ewart is a Calgary Herald columnist

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