Saturday, 8 December 2012

Canada's Contentious Oil Sale to China

Ever since notorious fugitive Lai Changxing was promised to return to China from Canada where he lived for over 10 years, relations between the two countries have gotten close.

Really close.

Soon afterwards Canada was finally granted the coveted Approved Destination Status (ADS) in 2009 where mainland tourists are allowed to travel in groups to approved countries for leisure. Previously it was only supposed to be for business-related or education reasons.

And now Canadian Prime Minister Stephen Harper has approved the $15.1 billion takeover of Nexen by CNOOC. It is the largest takeover ever by a Chinese company, according to data from Bloomberg.

The state-owned company now has a stake in Canada's largest oil sands' project.

As the sale was a contentious issue, the decision was delayed from July until yesterday and no doubt there are many who feel Harper has sold out the country's natural resources to another country, the Chinese no less, who accounted for half of the world's oil consumption growth last year.

Whatever happened to energy security issues?

However, we have to appreciate Harper's perspective on this; he was definitely between a rock and a hard place.

Approving the sale has led to critics accusing him of selling out, while not approving it would have been perceived as a slight by the Chinese who would be annoyed after its good will in recent years; nowadays it's all about the economy, not human rights. And Harper is keen to make sure the Canadian economy still looks good on his watch.

It seems like he wasn't too keen on giving the deal the green light as well as another selling Progress Energy Resources to Petroliam Nasional for $5.2 billion, Harper said Canada would not approve state-owned companies taking interests in any more oil-sands projects, except in "exceptional circumstances."

In any event, we wonder if China really needs all that oil these days.

I read a story yesterday in The Atlantic about General Electric investing $800 million to re-establish its factory compound in Appliance Park in Louisville Kentucky. The company realized that outsourcing to places like China was not economically feasible anymore, not to mention the high chances of having intellectual property stolen as well as the issue of quality control.

GE found that it could manufacture household appliances like refrigerators and dishwashers with fewer components and would look better and have fewer glitches because there was communication between the designers and the factory line workers. Not only that, they could even make it cheaper and delivery time would be shorter because there would be no need to ship the product over.

Another muscle company, Apple is also thinking the same. Of course not every single product will be manufactured in the United States, nor will every component be domestically made. But a good chunk will be produced back in America which will definitely boost employment and probably even kick start innovation in a bigger way.

This means less business for China as the world's factory which translates into less energy used.

So does China still really need all that oil?

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