On May 23rd, the Canadian government blocked the acquisition of Aecon Group Inc. – a Toronto-based construction company – by an SOE (state-owned enterprise), China Communication Construction Company (CCCC). Prime Minister Justin Trudeau’s federal cabinet cited national security concerns to turn down the acquisition by CCCC. This $1.5 billion acquisition was likely to give China’s state owned CCCC control over one of Canada’s largest construction company that has distinguished itself with projects such as the CN Tower and Vancouver’s Sky Train project. The Aecon deal would have been one of its kind investment by China’s SOE – giving CCCC ability to bid for large infrastructure projects in Canada. China’s state-owned firms have been making strategic investments in infrastructures such as seaports, airports, solar farms, and stadiums across Europe.
Aecon was a recent bidder to build and operate the $4.8 billion Gordie Howe International Bridge Project connecting Windsor in Canada to Detroit in the US. Experts both in the US and Canada expressed concern about an SEO (State-owned enterprise) bidding for an international bridge project. Though the Aecon decided to withdraw from the group bidding to construct the Gordie Howe project – but this wasn’t enough for Ottawa.
After a 4 month long national security review of the deal, Prime Minister Trudeau’s cabinet decided to ‘block’ the deal. But why would the Canadian government block the acquisition of a company that in engaged in infrastructure projects?
Declaring the decision, Prime Minister Trudeau cited the example of Australia to illustrate the compromising of critical infrastructure. PM Trudeau was referring to China’s state-owned State Grid Corporate and Hong Kong-listed Cheung Kong Infrastructure’s control over Australia’s electricity grid system – both companies already own a significant share in Australia’s privatised electricity distribution. Australia recently blocked the deal to let both State Grid Corporate and Cheung Kong Infrastructure control over New South Wales based electricity distributor Ausgrid. This move has marked an impasse in Australia-China relations.
Ward Elcock – former director of the Canadian Security Intelligence Service – expressed concern about CCCC buying Aecon. Elcock stated that once CCCC has controlling stake in Aecon, Canadian government can’t control what projects they are engaged in. United State’s intelligence community has been unequivocal in its concern about China’s SOEs acting as an extended arm of Chinese Communist Party. Recently, Pentagon ordered the removal of Huawei and ZTE devices from retail stores on US military bases. Though it remains unclear who actually owns the controlling share in Shenzhen-based Huawei Technologies, the US intelligence community firmly believes that Huawei Technologies serves the interests of CCP. Huawei has been banned from bidding on US government contracts since 2014. In 2016, the US Commerce Department issued a subpoena to Huawei for exporting US technology to Iran, and hence violating the terms of sanctions on Iran.
But Canada’s decision to block this Aecon deal hasn’t exactly followed suit of US’ concerns. Ottawa approved the acquisition of Canadian companies ITF Technologies and NORSAT by China’s enterprises – both companies develop sensitive radar and satellite technologies. The decision to block the Aecon deal could be the result of two converging reasons more recently– growing US antipathy under Trump administration towards China’s trading practices and discord in China-Canada relations over progressive values in business practices.
Lu Shaye, the Canadian Ambassador to China, commented about the decision in the Globe and Mail, “Some people also attack CCCC’s participation in construction on islands and reefs in the South China Sea. But this just proves that CCCC boasts advanced technology in the infrastructure field.” CCCC has been involved in building a Mischief Reef – an island in the South China sea – construction of which has been condemned by the UN as a violation of its convention on Law of Sea. World Bank barred CCCC and its subsidiaries from their infrastructure projects in 2011 – citing fraudulent practices in a Philippines project.
What does this mean for China’s enterprises expanding across Asia-Pacific and North America? There is growing antipathy towards China’s state-owned and private entities expanding in both Asia-Pacific and North America – some of it plays into settling geopolitics scores. But a measured accountability is necessary to ensure this doesn’t end up in a battle between the values of East vs. the West. Multilateral agencies such as the World Trade Organization should be part of the accountability process.
The citing of national security concern isn’t a norm for Canada’s policymakers. But it has been invoked in case of a country that has become infamous for using a nebulous set of institutional authority to forward its intelligence interests. Peter Mattis’ statement about China’s intelligence apparatus is revealing, “A sketchy consulting outfit with a few faked LinkedIn profiles and that does not own the domain it claims is as much a sign of the ministry as an MSS (Ministry of State Security – China’s equivalent of CIA) officer under diplomatic cover in a tailored suit with idiomatic English.”
The blocking of Aecon deal and the US’ caution to China’s technology firms is setting a trend that other OECD countries are likely to follow. This puts countries on a collision course where the authority of multilateral trading blocks is undermined weakening the current global order.
- How China Is Buying Its Way Into Europe https://www.bloomberg.com/graphics/2018-china-business-in-europe/
- Aecon withdraws from group bidding to build Gordie Howe bridge between Canada, U.S. https://www.thestar.com/business/2018/05/04/aecon-withdraws-from-group-bidding-to-build-gordie-howe-bridge-between-canada-us.html
- Chinese investment in Australia’s power grid explained http://www.abc.net.au/news/2016-08-21/chinese-investment-in-the-australian-power-grid/7766086
- The Pentagon bans Huawei and ZTE phones from retail stores on military bases https://www.theverge.com/2018/5/2/17310870/pentagon-ban-huawei-zte-phones-retail-stores-military-bases
- Huawei pulls back the curtain on ownership details https://www.ft.com/content/469bde20-9eaf-11e3-8663-00144feab7de
- Why America Is So Scared of China’s Biggest Tech Company https://www.bloomberg.com/news/features/2018-03-22/why-america-is-so-scared-of-china-s-biggest-tech-company
- Liberals reverse course on Chinese takeover of Montreal high-tech firm https://www.theglobeandmail.com/news/politics/liberals-reverse-course-on-chinese-deal/article34441975/
- China is not a threat to Canada https://www.theglobeandmail.com/opinion/article-china-is-not-a-threat-to-canada-and-doesnt-deserve-unfair-treatment/
- A Chinese company reportedly involved in South China Sea dredging won a big project in the Philippines https://qz.com/820447/a-chinese-company-reportedly-involved-in-south-china-sea-dredging-won-a-big-project-in-the-philippines/
- World Bank Applies 2009 Debarment to China Communications Construction Company Limited for Fraud in Philippines Roads Project http://www.worldbank.org/en/news/press-release/2011/07/29/world-bank-applies-2009-debarment-to-china-communications-construction-company-limited-for-fraud-in-philippines-roads-project