Military-Linked Chinese Company Blacklisted by US Has Major Operations in Canada

December 16, 2020 Updated: December 16, 2020

News Analysis

The U.S. Department of Defence on Dec. 3 blacklisted a Chinese state-owned oil company that has a heavy presence across Canada for being associated with the communist regime’s military. The Pentagon encourages parties to consider the U.S. position in their dealings with such companies, a spokesperson told The Epoch Times.

China National Offshore Oil Corporation (CNOOC) is China’s largest offshore producer of oil and gas and was established as the state-owned offshore petroleum company of China in 1982.

Canadian authorities have not made a public statement in response to the U.S. move against CNOOC. However, they have indicated that safeguards are in place to prevent any sizable takeover by a foreign state-owned enterprise (SOE) from ever happening again.

CNOOC has established a solid foothold in Canada that goes far beyond the oilsands. It has a shale gas operation in northeast B.C., a power station and wind farm in Alberta, and two offshore exploration licenses in Atlantic Canada.

The Trump administration has been cracking down on Chinese companies to stem the flow of U.S. investment dollars to China that support the Chinese military. Three major stock indexes have indicated that they will remove blacklisted Chinese firms from their offerings to comply with the U.S. order starting in November 2021.

“Through the national strategy of Military-Civil Fusion, the PRC [People’s Republic of China] increases the size of the country’s military-industrial complex by compelling civilian Chinese companies to support its military and intelligence activities,” according to U.S. President Donald Trump’s Nov. 12 executive order.  

Per the National Defense Authorization Act for Fiscal Year 1999, the U.S. Department of Defence is required to produce a list of communist Chinese military companies operating in the United States.

“We encourage U.S. government entities, companies, investors, academic institutions, and likeminded partners to use this list as a tool for conducting due diligence with regard to partnerships with these entities, particularly as the list grows,” spokesperson Martin Meiners with the Pentagon’s Public Affairs Operations office told The Epoch Times in an email.

Two other Chinese SOEs—China Petroleum & Chemical Corporation (Sinopec) and China National Petroleum Corporation (CNPC)—have also made significant purchases in Canada’s energy sector, and CNOOC made a big splash in late 2012 when it bought Calgary-based Nexen for $15.1billion.

Canada’s Department of National Defence (DND) told The Epoch Times that commenting on Canada’s U.S. decision falls under the jurisdiction of Global Affairs.

Global Affairs spokesperson Michel Cimpaye advised The Epoch Times that consultations are ongoing and that either Public Safety or Innovation, Science and Economic Development will respond. Neither responded by the time of publication.

Global Affairs had previously taken a view that differed from that of the DND on matters relating to the military, as seen by the recent revelation about China’s People’s Liberation Army (PLA) training in Canada. 

Documents obtained by Rebel News under an Access to Information Act request showed that Global Affairs urged the DND not to cancel engagements with the PLA, saying that Beijing would likely see it as a retaliatory move related to the case involving Huawei executive Meng Wanzhou.

The Canadian Security Intelligence Service (CSIS) would not publicly comment on any impending actions against CNOOC or any other entity that might pose a threat to national security. It referred to provisions in the Investment Canada Act, which reviews and mitigates risks from foreign investments.

Prevention Going Forward

Canada encourages foreign investment. With a low population density and large land mass, significant amounts of capital are needed to build infrastructure and develop industries. 

The Investment Canada Act aims to ensure that significant foreign acquisitions are likely to be of net economic benefit to Canada and will not threaten national security.

Foreign SOEs are known to have objectives beyond producing the best return for shareholders. They are subject to the whims of a foreign government that may run counter to Canada’s national interests.

“Given the inherent risks posed by foreign SOE acquisitions in the Canadian oilsands, the Minister of Industry will find the acquisition of control of a Canadian oilsands business by a foreign SOE to be net benefit to Canada on an exceptional basis only,” according to a 2012 statement on the feds website.

A foreign investment triggers a government review if it’s a takeover by an SOE that exceeds $428 million in asset value. For a private company takeover, that threshold is much higher, going up to between $1.075 billion and $1.613 billion depending on the investor.

Over the years, CNOOC has not lived up to promises made to the feds when it bought Nexen, such as retaining Nexen’s management team and employees. It has since replaced senior Canadian staff with Chinese nationals and laid off workers.

CNOOC’s share price has a one-year return of -39 percent compared to its peers’ average of -22.5 percent. Over the last five years, the stock’s annual return is -12.5 percent. 

CNOOC’s Canadian stock, which trades under the ticker CNU, has fallen like a rock since the U.S. Department of Defence announcement, dropping from about $160 to below $120 starting in late November.

Some other Chinese companies in the U.S. 2020 crackdown include China Telecom, China Mobile, and Hikvision, which makes surveillance equipment that can be used to monitor populations such as Uyghur Muslims in the Xinjiang region.

Follow Rahul on Twitter: @RV_ETBiz