China Buys Canadian Energy: Lessons for the United States

August 8, 2012

China National Offshore Oil Corporation (CNOOC) this week offered to buy Canada's Nexen, Inc., for $15 billion. Nexen's board is recommending the bid to shareholders. If completed, this would be the single largest acquisition that Chinese companies have made in the outward investment splurge that started in 2005. It raises a series of issues for American policymakers to consider, say Derek Scissors, a senior research fellow in Asia economic policy, and Dean Cheng, a research fellow in Chinese political and security affairs, at the Heritage Foundation.

  • The most basic point is that the two sides freely agreeing to make this deal is a good thing; it is how market economies should work.
  • Beyond that, it underscores that the People's Republic of China has the means to diversify its access to key resources.
  • China cannot simply be cut off from accessing international oil or the technology associated with it.
  • In addition, China's high valuation of Canadian energy is at odds with the recent American decision to inhibit the development of the U.S.-Canada energy relationship by stalling the Keystone XL pipeline.

Scissors and Cheng recommend:

  • Neither the Obama administration nor Congress should publicly oppose CNOOC's acquisition of Nexen or privately pressure Canada to block the deal.
  • The United States should monitor Chinese oil activity in the South China Sea, press for clarification of Chinese claims there and advocate for an effective, binding code of conduct among the parties to the territorial dispute -- before Chinese state-owned enterprises make a more concerted push into the area.
  • Pursuant to its authority to regulate commerce with other nations, Congress should recognize the State Department finding that Keystone XL would pose no significant environmental threat and authorize the pipeline.

America and the world benefit from commercial energy investment in free-market economies. Chinese investment in Canada is part of that and should be welcomed.

Source: Derek Scissors and Dean Cheng, "China Buys Canadian Energy: Lessons for the U.S.," Heritage Foundation, July 26, 2012.

 

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