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Chinese Investors Fear Chill in Canada

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Reprinted from The Wall St. Journal on October 22, 2012


Chinese Investors Fear Chill in Canada


Canada’s rejection of Petroliam Nasional Bhd.’s bid of roughly 5.18 billion Canadian dollars (US$5.21 billion) for a natural-gas producer has sown worry among big Chinese investors that Ottawa might be rolling up the welcome mat it long has had out for Asian companies.
Opposition in Canada to a bid by Malaysia’s Petronas for one of its gas companies could signal tough times for Asian companies seeking acquisitions in North America. The WSJ’s Simon Hall tells us why the Petronas deal could set a bad precedent.
The rejection of the Malaysian company’s offer for Progress Energy Resources Corp. PRQ.T -10.62% also has ratcheted up uncertainty over a much larger pending deal, the US$15.1 billion agreement by Cnooc Ltd. 0883.HK +0.49% of China to acquire Nexen Inc., NXY.T -4.97% one of Canada’s largest independent energy producers, with operations or assets in Canada, the U.S. Gulf of Mexico and the North Sea. That deal, on which Canada could rule as early as mid-November, widely has been seen as Beijing’s most ambitious recent effort to test its reception in the booming North American oil patch.
“With the Petronas objection, all eyes are on the Cnooc-Nexen deal now,” said a mergers-and-acquisitions banker advising Chinese companies.
But even before the Canadian government rejected the much smaller Petronas deal, some big Chinese investors—such as sovereign-wealth fund China Investment Corp.—had started to become wary about the Canadian government’s view of its investment rules. While China has invested heavily in the U.S. and Canada in recent years, especially amid the global economic slump, many investors have long seen Canada as more accommodating, especially in the energy patch.
In countries such as Mongolia, Australia and the U.S., governments have increased their scrutiny of Chinese investment. Canada has stood out as especially welcoming. With small capital markets of its own, Canada has relied on foreign investors to develop its vast energy reserves. While that has largely come from the U.S. in recent decades, Asian companies increasingly have been drawn to Canada’s energy patch—and have been received warmly.
But some Chinese investors are starting to question whether that is changing. After the Cnooc-Nexen deal was announced, Canadian Prime Minister Stephen Harper said it posed special considerations because of its size and Cnooc’s role as a state-owned company.

7 Responses to “Chinese Investors Fear Chill in Canada”

  1. Joe Brooks says:

    From American Jobs Alliance:

    ‎”Canadian companies should not work with Chinese telecommunications giant Huawei, a former security adviser at Nortel warns.

    Brian Shields, who was the senior systems security adviser at failed Canadian telecommunications company Nortel, says working with Huawei is too big a risk. Shields alleges Huawei spent years hacking into Nortel’s system and stealing information so it could compete with Nortel on world markets.

    “These kind of things are not done by just average hackers. I believe these are nation-state [kinds] of activity,” he told the CBC’s Greg Weston, blaming China for the hacking.”

  2. Joe Brooks says:

    Same source:

    “Last time here, I wrote about warnings from the House Intelligence Committee of Congress about buying telecom equipment made by Chinese companies Huawei Technologies and ZTE Corp. But a reader comment reminds me that I may not have gone far enough. The demise of a major North America telecom equipment company, Nortel, may have been caused by its contract manufacturer, Huawei.

    Many Canadians believe that Huawei stole the core technologies and business strategies from Nortel and used that knowledge to drive Nortel out of world markets and into bankruptcy. “How can you survive when you have a competitor basically right there knowing all your moves, what you’re doing, what you see as the future products?” Nortel’s former senior systems security adviser Brian Shields told CBC News.

    Nortel, formerly known as Northern Telecom, was the Canadian equivalent of Western Electric and the most important Canadian technology company for more than 100 years. At its peak in the 1980s, Nortel became the dominant North American supplier of business telephone systems and was very successful as a provider of switching systems to telecom operating companies like AT&T. But a spectacular fall followed those glory years. The company filed for bankruptcy in 2009 and completely shut down the following year.

    Nortel’s demise began with corporate management buying into the business school ideology that manufacturing doesn’t matter. So it closed its factories in Canada, the United States and Mexico, and handed production over to Huawei. But Nortel went even further than outsourcing production; it handed off considerable engineering responsibility as well, much of the work apparently being taken on by Huawei.

    Apparently Nortel’s leaders hadn’t read the history of American television companies. In 1960, for example, RCA occupied a position in this country similar to the importance of Nortel in Canada. RCA created broadcast television and, subsequently, color television. It was the largest and most prestigious of the 29 American TV companies making televisions in here. But, like most of the other American TV companies, it began outsourcing manufacturing to Japanese companies that were completely unknown to North American consumers. One of those Japanese companies was an unknown outfit named Sony. Contract manufacturing provided the cash flow and engineering experience for the Japanese companies to move up the food chain to become dominant brand names. RCA doesn’t exist anymore, nor do any of the other 28 American manufacturers from 1960. (I wrote about the demise of American television manufacturing in more detail in my 1996 book Optimizing Quality in Electronics Assembly. Now the Japanese electronics companies are being killed by Chinese competitors that are following the same development playbook written by the Japanese 50 years ago.)”

    • Mo says:

      Joe when it to comes RCA and some other large US manufacturers in the 1960s, anti-trust laws contributed greatly to them transferring technology to overseas companies. Anti-Trust laws which were designed to prevent monopoly and unfair competition have actually allowed foreign competitors to thrive because it has prevented American companies from increasing their economies of scale. Some of the examples of how anti-trust laws have hurt American companies like RCA is listed below from Thomas DiLorenzo’s article, Anti-Trust, Anti-Truth:

      In 1962 the government forbade the Brown Shoe Company, which had 1 percent of the shoe market, from acquiring Kinney Shoes, which also had a 1 percent market share. A company with 2 percent of the shoe market, according to the government, constituted a monopoly.

      In 1969 IBM, the Microsoft of the day, had a 65 percent market share in the computer market and was sued by the government for allegedly monopolizing the industry. IBM was mired in a court battle for thirteen years before the government finally gave up on the case. In the meantime, the company was eclipsed by Intel and other competitors while Microsoft had just produced, in 1981, its first copy of MS-DOS.

      The government’s assault on IBM undoubtedly weakened the company and weakened the level of competition in the industry as well. This has happened time and again as a result of Quixotic antitrust prosecutions.

      In 1962 the government forced the Schwinn Bicycle Company to divorce itself from its network of dealers; foreign competition eventually drove Schwinn into bankruptcy.

      General Motors was never prosecuted, but because of the company’s fear of antitrust it was official company policy from 1937 until 1956 to never let its market share top 45 percent, for any reason. This fear of antitrust prosecution contributed to the industry’s dramatic losses in market share to the Japanese and German automakers during the 1970s and ’80s.

      RCA was prohibited by antitrust regulators from charging royalties to American licensees, so the company licensed its products to Japanese companies. The entire Japanese electronics industry is based on this.

      Antitrust regulation killed Pan American World Airways by forbidding it from acquiring domestic routes. Lacking “feeder” traffic for its international flights, the company went bankrupt.


      Anti-Trust, Anti-Truth

      • Joe Brooks says:

        Hey Mo.

        Well, I lived thru this time period while working for a cutting edge technical business; I witnessed the “free trade” destruction of many US technical manufacturing firms. It was “free trade” and deregulation. Reagan, too late, realizing that Japanese dumping of product was harming the future of the US put large tariffs on many electronic components and Japan specifically.

        I can find nothing about a RCA antitrust suit in the 80s, there was a 1930 effort, a suit involving GE, that actually was beneficial because it brought about GE’s and Westinghouse’s efforts in the radio and TV building business. The restrictions that were imposed were short, 30 months.

        “Antitrust concerns led FCC to force the breakup of the NBC radio networks, a breakup affirmed by the United States Supreme Court. On 12 October 1943, the “NBC Blue” radio network was sold to candy magnate Edward J. Noble for $8,000,000, and renamed “The Blue Network, Inc”. It would become the American Broadcasting Company (ABC) in 1946. The “NBC Red” network retained the NBC name, and RCA retained ownership.”

        The 1943 effort clearly created more competition.

        With the retirement of the elder Sarnoff, the Wikipedia article suggests poor management [moving production to Mexico] and the further destructive influence of GE contributed to RCA’s demise.

        The Brown Shoe case I have no direct knowledge of. What I can find on it seems ill advised and this was dropped.

        IBM and Antitrust suit. I was there in the 70s and 80s. We had a better platform/software than IBM. So did many others. After a long battle, the IBM standard PC was adopted as the industry standard in 1983 and it took years of modification for it to work properly. The Feds dropped the case in 1982. The computer industry suffered for 15 years as the unbundling issues were finally resolved. Keeping a system running for even a few days was a major accomplishment, due to the unbundling of vendor developed software, designed with their hardware.

        The company I worked for ceased development in 1983 of their pc/servers and software, that actually worked, and followed the industry standard to everyone’s loss.

        You realize this created Microsoft, Apple, and a whole host of other small software vendors. Was it worth it? The Antitrust suit basically failed, clearly. The IBM standard platform won, we have the giants of software and hardware intact and serious competition was wiped out.

        Most PC/server OS’s were near worthless [yes, I mean all of the big players] until 1995. DOS was fairly stable, but practically it may as well have been machine language for most users. The old 60s Xenix, Unix were far more stable than the 80s/90s stuff except COBOL [old] and a few more.

        Anyone over 45 will recall ”can’t work, the system is down”.

        We had systems in 1978 that would run and work for weeks on end, without intervention by a service call or tech.

        Again, Wikipedia lists the issues that hurt IBM, the antitrust suit was not the cause of most of their issues.

        Mo, Schwinn, Huffy were wiped out by “free trade”, undeniable. I live 50 miles from the old Huffy plant and worked on their systems. In the 90s I discussed the “free trade” fiasco with Huffy’s plant manager, He said NAFTA killed them. Obvious.

        Mo, I cannot find any reference to a Pan Am antitrust suit. This was not Pan Am specific and they were trashed long before this, anyway. I remember this, there was price fixing going on.

        “U.S. District Judge Marvin Shoob certified that passengers who flew between Jan. 1, 1988, and the present on American, Continental, Delta, Midway, Northwest, Pan American, TWA, United and USAir are entitled to sue them as a group in an antitrust lawsuit pending in his court here.”

        I do find that they bought domestic lines:

        “In order to acquire domestic routes, Pan Am, under president Seawell, set its eyes on National Airlines. Pan Am wound up in a bidding war with Frank Lorenzo, which greatly raised the price of National’s stock. Nevertheless, Pan Am was granted permission to buy National in 1980 in what was described as the “Coup of the Decade.” The acquisition of National Airlines for $437 million further burdened Pan Am’s balance sheet, which was already under strain as a result of financing the large number of Boeing 747s that were ordered in the mid-1960s. This acquisition did little to improve Pan Am’s competitive position in relation to nimbler, lower-cost competitors in a deregulated industry as National’s North-South route structure provided insufficient feed at Pan Am’s transatlantic and transpacific gateways in New York and Los Angeles respectively.”

        And this, which the government allowed thru idiot “international free market” ideals. We should not be dependent on others for basic needs:

        “Pan Am had invested in a large fleet of new Boeing 747s in the expectation that demand for air travel would continue to rise. This was not the case as the simultaneous introduction of a large number of these high-capacity aircraft by Pan Am and its principal competitors coincided with an economic slowdown. Reduced demand for air travel following the 1973 oil crisis made the airline industry’s overcapacity problem worse, leaving Pan Am with its high overheads and fixed costs as a result of a large decentralized infrastructure in a vulnerable position. In addition, high jet fuel prices and the large number of older, less fuel-efficient narrowbodied airplanes in its fleet significantly increased the airline’s operating costs. Federal route awards to other airlines, such as the Transpacific Route Case, further reduced the number of passengers Pan Am carried, as well as its profit margins.[9][52] “

        Mo, I have read a lot Woods thoughts and von Mises revisionist history, most of what I see there, especially regarding Jefferson, is simply wrong and pretty easily disproven. At any rate, here is the real source of most of our issues, from Rothbard himself:

        From a 1986 Mises Institute Rothbard article:

        “So, by imposing protective tariffs and quotas to save, bail out, and keep in place less efficient U.S. textile or auto or microchip firms, the protectionists are not only injuring the American consumer. They are also harming efficient U.S. firms and industries, which are prevented from employing resources now locked into incompetent firms, and who could otherwise be able to expand and sell their efficient products at home and abroad. But what of the poor American TV firms, whose sales will suffer so long as Sony is willing to virtually give their sets away?

        Well, surely, the sensible policy for RCA, Zenith, etc. would be to hold back production and sales until Sony drives itself into bankruptcy. But suppose that the worst happens, and RCA, Zenith, etc. are themselves driven into bankruptcy by the Sony price war? Well, in that case, we the consumers will still be better off, since the plants of the bankrupt firms, which would still be in existence, would be picked up for a song at auction, and the American buyers at auction would be able to enter the TV business and outcompete [How? When most other countries protect their economies and people?] Sony because they now enjoy far lower capital costs.”

        The above psycho babble from 1986 has worked out great, huh? The result? All of those companies have been destroyed by “free trade” or operate in Red China, Mexico, India etc. America could not produce a TV, Radio, Cell phone, PC, automobile PCM etc. if our lives depended on it and the “interdependent” US companies he referred to are gone, as well. We are becoming a third world country, totally dependent on Communist China, India, Mexico, etc..

        • Joe Brooks says:

          Mo, here is why the monopolies were broken up, this specific effort was trashed by Clinton and Congress:

          “Concentration of media ownership (also known as media consolidation) also refers to the view that the majority of the major media outlets are owned by a proportionately small number of conglomerates and corporations. In that sense, the term “media consolidation” is used especially by those who view such consolidation as sociologically detrimental, dangerous, or problematic. This term may refer to states of oligopoly or monopoly in a given media industry, or to the sociological significance of the proportionately low number of “mass media”, or “mainstream media” media conglomerates.

          When media ownership is concentrated in one or more of the ways mentioned above, a number of undesirable consequences follow, including the following:

          Commercially driven, ultra-powerful mass market media is primarily loyal to sponsors, i.e. advertisers and government rather than to the public interest.

          If only a few companies representing the interests of a minority elite control the public airwaves of 300 million US citizens, then calling them “public airwaves” is only lip service.

          Healthy, market-based competition is absent, leading to slower innovation and increased prices.

          The Communications Act of 1934 refined and expanded on the authority of the FCC to regulate public airwaves in the United States, combining and reorganizing provisions from the Federal Radio Act of 1927 and the Mann-Elkins Act of 1910. It empowered the FCC, among other things, to administer broadcasting licenses, impose penalties and regulate standards and equipment used on the airwaves. The Act also mandated that the FCC would act in the interest of the “public convenience, interest, or necessity.”[28]

          The Telecommunications Act of 1996 set the modern tone of deregulation, a relaxing of percentage constrictions that solidified the previous history of privatizing the utility and commodifying the spectrum.

          The legislation, touted as a step that would foster competition, actually resulted in the subsequent mergers of several large companies, a trend which still continues.[30] Over 4,000 radio stations were bought out, and minority ownership of TV stations dropped to its lowest point since the federal government began tracking such data in 1990.[31]”

        • Mo says:

          Joe what’s interesting is that the US gov’t is not even following free trade because it appears to have an industrial policy but it’s to build up the industrial base of other countries that go along with US foreign policy. After WW2 the US gov’t encouraged US companies to share technology with countries like Japan which in exchange went along with US foreign policy. There is nothing free market or free trade about subsidizing other countries in their acquisition of technology.

          When it comes to Rothbard and his opposition to protectionist measures like tariffs, he would be correct if this was occurring between countries with sound money. Under a sound monetary system that was backed by a comodity like gold, trade competitors would have a much harder time subsidizing actions like exporters selling products below cost. The only way a trade competitor could find more gold to pay for subsidizing their exporters would be if the country mined more gold or raised taxes.

          The reason a trade competitor engages in actions like selling products below cost under a fiat monetary system in the first place is because they want to acquire FX like dollars so that they can put out of business their competition and acquire their capital. Under a sound monetary system, it would be much harder to engage in this practice on a massive scale because a trade competitor couldn’t just easily print money to subsidize their exporters for selling products below cost.

          The reason sound money would have prevented offshoring and the horrendous terms of trade resulting from wasteful money printing that pushes up prices and causes the US to export capital to pay for this spending is because it would have forced the US to not import much more than it exports. If the US never left the Bretton Woods gold standard for instance, it would have forced action like higher interest rates to encourage more savings to reduce imports and higher tariffs on countries that were devaluing their currency with the intent of exporting their unemployment if gold started to drain. If the gold standard was still around today, it would have been a boom for manufacturing because if the US couldn’t mine as much gold as it needed to import more goods than it exported, it would have caused the US to manufacture what it needed.

          I think it’s more appropriate to call today’s free trade agreements special interest trade agreements because all these agreements do is favor some industries at the expense of others with tax breaks and lines of credit created out of thin air from the printing press. Free trade, comparative advantage and sound money all go to together. You can’t have free trade and comparative advantage properly if there is fiat money in the equation. How can you have a free market for an item like fiat currencies that can be created at will by central banks?

          For further reading about US subsidizing or giving away technology to Japan:

          Stopping the High Tech Giveaway

          How Japanese Cartels Destroyed US Electronics Industry

  3. Bruce Bishop says:


    I have noticed, in recent decades, a general hostility toward commerce in general and toward manufacturing in particular, by the “progressive” left. Liberal journalists and academics have kept up a steady drumbeat of anti-business rhetoric, while leftist politicians have pushed through more and more costly regulations. This growing mountain of regulations made it harder and harder for companies to operate at a profit, and thus, easy to move their operations offshore.

    Like the electric car, which simply transfers the pollution to “somewhere — over the rainbow,” the leftists are fine with massive amounts of industrial pollution so long as it happens somewhere else — like China. Whatever happened to “Spaceship Earth?”

    Your information on “anti-trust” harassment by our government adds another dimension to this story. Thank you for sharing it.

    It is my belief that the “progressive” left DROVE manufacturing out of this country with taxes and regulations (and harassment), through the doors they opened with NAFTA and the WTO.


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