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U.S. Congress urged to crack down on Chinese investment since Canada opens door

15 Nov 17
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A U.S. congressional watchdog is calling for more rigorous oversight of investments or takeovers by Chinese companies and a ban on Beijing’s state-owned or state-controlled entities from purchasing U.S. assets — a radically different approach to China compared to one Ottawa is carrying.

The yearly report to Congress from the U.S.-China Economic and Security Review Commission arrives shortly before Prime Minister Justin Trudeau is anticipated to start free-trade talks with China that could finally see Canada relax controls over Chinese investment in this country.

The federal government has already signalled a greater openness than the previous, Conservative authorities to start Canada’s market to Chinese investment, allowing a high-tech takeover which was prohibited under former prime minister Stephen Harper to move and approving another one with no formal national security inspection.

By comparison, the U.S. report says Washington has to be cautious as China expands investments in new technologies and businesses around the world such as robotics, artificial intelligence, data communications, biotechnology and agriculture.

“These investments lead to the transport of precious U.S. assets, intellectual property and technology to China, demonstrating potential risks to crucial U.S. national and economic security interests,” the report states.

Chinese investment in the USA has improved dramatically over the past half-decade, it notes. On a cumulative basis, the amount invested in key sectors climbed to $46.2-billion (U.S.) in 2016 from $4.6-billion in 2010.

Meanwhile, the Chinese foreign direct investment in Canada totalled $5.2-billion (Canadian) in 2016, down from $10.2-billion in 2010, according to the University of Alberta’s China Institute.

The congressional commission claims China’s authoritarian Communist Party exercises tremendous influence on all Chinese corporations — whether they’re privately run.

“Some private Chinese firms working in strategic sectors are personal only in name, with the Chinese authorities using a range of measures, including financial support and other incentives in addition to coercion, to affect private business decisions and achieve state objectives,” the report states.

Some Chinese firms even attempt to obscure their dealings in the USA through the use of U.S.-based shell companies or attempt to push down the value of U.S. assets through sophisticated cyberespionage campaigns and acquire the companies, the report states.

National security agencies in both Canada and the United States have warned that firms owned or partially owned by the Chinese authorities aren’t merely profit-seeking operations; they’re also prone to passing on information or technology to Beijing and making business decisions which may conflict with Canadian interests but serve the agenda of the Communist Party of China. The commission warns that China is closing its market to foreigners — even as it leverages the willingness of america and other market-based economies.

“As new legislation come into effect choking off the ability of foreign companies to gain access and move vital business intelligence across China’s borders, malicious Chinese celebrities participate in cyber-enabled theft of foreign intellectual property,” the report states.

“Large and lucrative parts of China’s market, including many high-tech businesses and financial industries, are closed to foreign companies.”

The commission says Congress must upgrade its foreign-investment review legislation to prohibit Chinese state-owned or state-controlled companies from purchasing U.S. companies. It’s calling for a mandatory review of any trade that would give a Chinese company controlling interest in a U.S. asset. Additionally, it recommends prohibiting any investment or acquisition which would “confer control concerning critical infrastructure or technologies.”

The commission also says any proposed purchase of a media property by a Chinese thing ought to be assessed to ensure it won’t be used to influence U.S. public opinion and encourage Chinese Communist Party propaganda.

Canada has similar laws, but it’s far weaker than that which the U.S. commission is suggesting. The Investment Canada Act requires a net benefit test for any foreign takeover valued at $1-billion or more. This entails a normal security evaluation, but the cupboard can order a much broader national security review that would analyze the possible effect on Canada’s defence and security interests and investigate the transfer of proprietary technologies outside Canada.

China’s ambassador to Canada, Lu Shaye, has made it clear that Beijing doesn’t want Canada to conduct national security reviews of Chinese takeovers, calling it a kind of protectionism.

Considering that the Trudeau Liberals came to power, they’ve allowed several Chinese takeovers of Canadian firms without safety reviews.

In March, the cabinet reversed a decision by the former government to obstruct the sale of Montreal-based ITF Technologies into O-Net Communications of Hong Kong. Canada’s spy agency had recommended against the purchase because it would give China access to “advanced military laser technolog”

In June, despite safety issues raised in Washington, the authorities allowed the sale of Vancouver-based Norsat International Inc. to Chinese telecom giant Hytera Communications. Ottawa did not request its safety officials to conduct an official national security review — although Norsat sells satellite communications gear to the U.S. military, and Hytera has business deals with China’s security agencies.

Ottawa also approved the sale of a large retirement home series in British Columbia to Anbang, among the biggest Chinese companies pursuing high-profile international acquisitions and investments. The government later said the deal goes through despite the fact Anbang CEO Wu Xiaohui was arrested by police without explanation.

Last month, CCCC International Holding Ltd., a state-owned company, bought Aecon Group Inc., a Canadian construction company that has created landmarks like the CN Tower and has done work on military bases, universities and the Darlington Nuclear Generating Station, for $1.5-billion.

Ottawa has yet to say whether it plans to run another national security review of this deal along with the normal review required by the Investment Canada Act.

CCCC International has been prohibited from bidding on World Bank construction jobs because of its function in a bid-rigging scheme from the Philippines. Additionally, it helped China maintain its sovereignty in the disputed South China Sea by building islands.

Courtesy: The Globe And Mail

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