SNIPPITS AND SNAPPITS: CHAIRMAN HARPER'S WEAKNESS

Tuesday, 13 November 2012

CHAIRMAN HARPER'S WEAKNESS

Recklessly blind to ruthless aims of China's state-owned firms, PM treats them as any free market investors.

November 13, 2012

Harper's deal-making superman act masks a giveaway of Canadian autonomy to the Chinese government.

The Conservative Party (CP) of Canada will likely ratify a promotion and investment treaty (FIPPA) with the Communist Party (CP) of China any day now. It will do so largely to accelerate the production of bitumen.

Yet China Inc has outplayed and outgunned the Canadian government and its political class. Harper’s Conservatives have not only failed to do their due diligence but betrayed their own basic principles (most claim to support free markets and democracy). They've also sold out ordinary Canadians for the dubious prospects of bitumen expansion.

Prime Minister Stephen Harper says it's just another trade deal with an emerging economy, and that prosperity hides behind the great dragon's capital investments. But as every Beijing propagandist knows, the best lies are always the biggest ones.

For starters China is not an emerging economy. Nor is it a trading partner like the United States. It is a global economic warrior ruled by one party for 60 years and that totalitarian party is now on an aggressive shopping spree. This is a warrior that avoids the strong and strikes at the weak. And Canada, a nation without firm investment policy or strategy, makes a convenient target.

China's true economic warriors are largely 100 State-Owned Enterprises (SOEs) that practice "authoritarian capitalism." These complex organizations perform for China Inc and dutifully obey the dictates of the Party. They don't care about human rights and aren't shy about dealing with unethical rulers or failing states either. They offer little if any transparency. They don't like unions. They control half of China's GDP and grow in strength every day. Period.

According to Canada's Department of Foreign Affairs this ugly global dragon has increased investment in Canada by 177 per cent between 2007 and 2010. If this expansion continues, (and FIPPA just opens wide the doors) then Chinese capital controlled by the Communist Party could surpass U.S. investment in Canada by as early as 2017.

Chinese capital doesn't play by ordinary markets and certainly won't behave like U.S. dollars. Wherever the Chinese SOEs invest, they largely employ Chinese workers. These companies don't tolerate dissent. They say one thing to the public and do another behind closed doors. Nor do they invest in the local community. They work first and foremost for China Inc.

SUBMITTING TO THE DRAGON

Now such a dramatic change in capital investment would obviously deliver some dragon-size economic, cultural, political and environmental impacts for Canada. But not according to Harper's gang. Its willingness to ratify such a significant agreement without provincial, aboriginal or parliamentary consultation makes Harper's government look a lot like the Communist Party.

China's politburo doesn't allow public debate on their trade agreements.

So let's be clear about the potential scale of Harper's economic treason (and that's what it is) as well as his government's profligate stupidity.

The FIPPA treaty abets and supports investments from a one party state that actively manipulates its currency to provide unfair advantages for its exports. In fact most economists argue that the Chinese yuan (pegged to the U.S. dollar) is undervalued by as much as 20 per cent. Yet Harper approves.

The FIPPA treaty abets and supports a regime that does not entertain democratic rights or the rule of law. In China the state relentlessly silences dissent, picks economic winners and enriches the compliant status quo. And it has operated this way for centuries.

In a blunt 2010 essay the U.S. academic Francis Fukuyama noted that the lawless Chinese state largely directs most of its illegal activities against ordinary people. "Most of the unjust and illegal 'takings' that the Chinese government engages in are against relatively powerless peasants and non-elites, and are done in the name of rapid economic development." But that's the dirty regime Harper's government supports with sticky bitumen handshakes.

Fukuyama also recognized that dealing with an authoritarian dragon comes with uncertain perils. (Note: Why don't we hear University of Alberta's China Institute raising any such alarm bells? Given the institute's pro-trade mantra with SOEs, you'd think they were working for Beijing.)

Fukuyama, a conservative, makes a good point: "We should admit to ourselves that we have very little historical experience with how a rule of law might evolve in a country like China that has not experienced institutional constraints on executive power," he wrote. "And we also do not know how sustainable such an unbalanced, unchecked system will be under the external conditions it will face in the future."

Bizarrely, the FIPPA treaty embraces these perils. China's SOEs include its three large national oil companies: Sinopec, CNOOC and Petro China. Sinopec is larger than ExxonMobil. All three firms have been involved in human rights scandals and environmental abuses abroad as well as deep corruption at home. Yet Harper's ethical oil office can't wait to do business with them.

COMPLYING WITHOUT A STRATEGY

The Economist, widely considered the world's most credible business magazine, clearly identifies China's SOEs as the greatest obstacles to the rule of law and democratic reform in China. In 2011 the U.S. China Economy and Security Review Commission also concluded that "there is no indication that the CCP was or is aiming to turn China into a bastion of free market capitalism dominated by privately owned entrepreneurial firms, responding to market incentives."

But the imminent ratification of FIPPA without public debate or significant reviews signals that Harper is too eager to pause for strategic reflection.

The Chinese, of course, don't work that way. Unlike Harper they have an energy strategy and its national oil companies spearhead that party-directed strategy. And unlike Canada’s witless Tories they also think 50 to 100 years down the road. As disciples of Sun Tzu, they typically prefer doing business with short-term fools.

FOUR CRITICAL QUESTIONS CANADIANS NEED ANSWERED

Last but not least the Harper government has put the proverbial cart before the horse with FIPPA. Given that China's SOEs behave ruthlessly and have deep ties to the Communist Party, the Canadian government and the Canadian media should be debating four essential public policy questions:

Is Canada's antitrust regime equipped to accurately assess the competitive effects of SOE behavior in Canadian markets?

Do existing Canadian laws regulating market activity adequately contemplate an economy in which state-owned or controlled enterprises are major players?

Does Canada securities law disclosure regime provide investors with a complete and accurate picture of the ownership and governance of Chinese SOEs?

Last but not least, where an investment is made by a state-owned or controlled enterprise, should that entity be characterized as an "investor" for purposes of a FIPPA treaty? (The treaty Harper proposes to ratify wasn’t designed for state-state arbitration but for investor-state arbitration!)

Unlike the Canadian parliament, the U.S. Congress has asked these vital questions. So, too, has U.S. corporate law expert Curtis J. Milhaup.

HIGH FIVES IN BEIJING

With the exception of Elizabeth May and one or two New Democrats, Canada's politicians have avoided the salient facts. The silence of Canada's provincial premiers raises even more concerns.

In contrast poll after poll shows that the Canadian people, a well of common sense, have raised profound concerns about SOEs investing in Canada.

No FIPPA critic has asked Canada not to trade to China. But they (and everyone from Diane Francis to Gus Van Harten) and the Canadian public have asked for democratic representation instead of total capitulation and strategic policy instead of a dumb economic sell-out.

A government that approves a treaty with the world's second most powerful economic warrior without understanding the enemy's full intent is, and I will say it again, engaging in economic treason.

In Beijing party cadres no doubt are now gloating. They have found a weak leader in Canada who sells without negotiating, governs without consulting and rules without thinking.

Given FIPPA's imminent approval, China's State-Owned Enterprises appear to have won a victory without even fighting a battle in Canada.

And all thanks to Chairman Harper.

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