China's Aecon purchase not a win-win for Canada

Canadian Prime Minister Justin Trudeau, left, and Chinese Premier Li Keqiang speak during a signing ceremony at the Great Hall of the People in Beijing Monday, Dec. 4, 2017. (Fred Dufour/Pool Photo via AP)Fred Dufour / AP

The acquisition of Aecon by the Chinese firm CCCC International Holding Ltd. (CCCI) has triggered a nationwide debate in Canada.

Aecon is a jewel among Canadian construction and engineering firms. CCCI, on the other hand, is an investment arm of the notorious China Communication Construction Co. (CCCC) – a state-owned enterprise (SOE) that built the artificial islands in the South China Sea and is on the radar screen of the U.S. Senate.

CCCC has also engaged in fraudulent business practices across multiple countries. Indeed, it was debarred in 2009 from any World Bank project for eight years.

The debate around the pending CCCI-Aecon deal has centred on the net benefit to Canada and its impact on our national security. China’s ambassador to Canada calls it “a common commercial transaction.” Yet a closer look at this deal shows that it is not a win-win deal for Canada.

Canadians need to ensure that any foreign acquisition of our domestic businesses is a beneficial one. Foreign acquirers must uphold three basic principles for free trade: property and contract rights, competitive neutrality, and reciprocity. Chinese SOEs violate these principles by following Beijing’s anti-free-market principles and practices.

In fact, CCCI’s acquisition of Aecon is motivated by Beijing’s aspirations for global dominance and backed by its financial power. This deal cannot be disguised as “merely a case of acquisition between two construction companies.” Instead, it’s a case of boosting China’s state capital to “become stronger, do better, and grow bigger,” in the words of President Xi Jinping.

Every acquisition of a reputable western company is a concrete step taken by China to grow its global SOE empire. It’s worth noting that Aecon has a solid track record of Western technology and management advancements. Its competitive edge and business reputation would be used to help conceal and obscure the infamous history of CCCI’s parent company.

Other CCCI acquisitions include Australian firm John Holland (2015) and Houston-based Fried & Goldman (2010). If Aecon’s acquisition is approved, it could then allow CCCI to acquire bigger and more influential foreign companies.

Canadians need to ask what are the potential consequences of any acquisition by Chinese SOEs? Allowing Chinese SOEs “unfettered” entry into our country would itself be helping the growth of the China model, featuring one-party rule, SOE dominance, and an eclectic approach to free markets.

If we reject the China model, and we certainly should, then allowing Aecon to be folded into a Chinese SOE would represent a loss to Canada.

The lessons from Australia should be heeded. Canberra allowed its doors to open wide for foreign direct investment from Chinese SOEs. That allowed it to dodge the global financial crisis thanks to attendant commodity boom unleashed by Beijing’s stimulus spending. But what happened since then? Not only did the commodity bubble burst, but Australians have awakened to Chinese meddling in numerous domains.

As Australia’s domestic intelligence chief Duncan Lewis warned, foreign interference in Australia represents “a threat to our sovereignty, the integrity of our national institutions, and the exercise of our citizens’ rights.”

Let’s hope that our government examines the CCCI-Aecon deal “very carefully.” It needs to do so not only in light of the Investment Canada Act but also by taking lessons from Australia’s experiences with China.

Protecting the integrity of our economic and political systems is too important to be over-weighed by whatever financial premium offered by a Chinese SOE to a few Canadian shareholders.