The first instinct Western governments appear to have as SOEs begin to buy up companies, land, and resources is to put restrictions on these investments. The Government of Canada wisely approved CNOOC’s acquisition of Nexen because it conformed to existing rules. But the government quickly shut the door on future SOE takeovers of Canadian-owned companies in the oil sands. In the U.S., where paranoia about China is reaching new heights, the CFIUS process has become a serious barrier to entry for Chinese investment. Australia has a national interest test for foreign takeovers and has recently begun putting restrictions on the sale of agricultural land to foreign companies. So far, fear of SOE investment hasn’t really spread to Europe and Britain—perhaps because their economies have been faltering and view foreign investment as a lifeline.
These types of government restrictions are legitimate, and as I’ve argued elsewhere, give our Canadian companies leverage to negotiate investment capital without giving up control. That said, from a policy standpoint, some planning and priority-setting is required in the future. We need a sense of what raw materials are key to our continued prosperity. We can’t just rely on the market for this. Northern development in particular, with all its environmental risks, will require careful planning. Foreign capital can do this, but we need to do a better job of directing this capital on projects of relevance for both the investor and investee. That’s what an industrial strategy is all about.
Kevin Lynch, Canada’s former Clerk of the Privy Council and now Vice Chairman of BMO, has said that our concern about foreign capital should have less to do with nationality and more to do with its behaviour. When foreign companies invest, governments need to do a better job of explaining to the public that they continue to own the resources. Ownership is only about those who have the right to extract these resources. Policy-makers must manage this subtle distinction if we’re going to be full beneficiaries of the developing world’s investment capital. We need to focus on our interests by being proactive about our priority setting, not restrictive in who we want to invest in this country.