Free enterprise must fight for its life in the new Cold War
Diane Francis | 29/11/13 | Last Updated: 29/11/13 2:25 PM ET
Tomohiro Ohsumi/BloombergIn late 2012, Ottawa mistakenly approved an audacious bid by China’s
CNOOC of $15.1 billion for a major Canadian oil company – that is now gobbling up assets and small
entities in the oil patch. This is China’s “Trojan Horse” strategy enacted globally: biding time until it
can buy an iconic corporation then using that as a platform to buy out others and gain political influence.
The new cold war is underway and pits free enterprise against state capitalism.
Countries like Canada, the U.S. or Germany have fostered their multinationals and they have acted as de facto instruments to grow their economies through trade success.
But countries like Russia, South Korea, China, Singapore and others operate like gigantic holding companies armed with “soft economic weapons” that include oligarchs, national champions, state-owned enterprises, protectionism, diplomatic initiatives and sovereign wealth funds.
Unfortunately, too few western leaders have a glimmer of understanding about this and are failing to devise policies to counteract and defend their economies.
But there is a glimmer in Canada and this week Ottawa announced what it calls a Global Markets Action Plan. In essence, the scheme will put trade before foreign policy in terms of External Affairs efforts.
More meaningfully, the Plan will deputize diplomats to drum up trade around the world, or become essentially export salesmen. Even better, the Plan does not take a shotgun approach but targets countries – led by the United States – with good credit ratings, fair markets, laws, similar values and promising economic prospects.
(Unfortunately, this Plan will require a cultural shift by career diplomats who are usually international relations or language majors without business backgrounds.)
Nearly one-third of global mining is held in the hands of corporations owned or controlled by governments
To me, Stage 2 of such a Plan for a smallish economy like Canada is to look at what state capitalism tools can look like. The best example is Singapore where civil service personnel (and top trade officials) are routinely recruited by headhunters from the private sector, and paid upward of $1 million a year plus bonuses.
Unlike Canada that relies mostly on foreign investment and its resource endowment, Singapore has built the world’s highest living standards through its moxie and business talent. (I don’t admire Singapore’s money laundering niche, however; it has taken over from Switzerland in this regard.)
Canada wouldn’t exploit such an opportunity, but Singapore has no resources and yet makes lots of money from resources. The country has become the logistical kingpin for fossil fuels in Asia. It is now the region’s principal port and transport hub for oil supertankers and LNG and has branched into buying the stuff directly. This month, Singapore’s sovereign wealth fund and oil giant took another step in this direction and bought supplies to keep their hub humming. It bought 5% of Tunisia’s future fossil fuel production.
These countries think like companies and countries like Canada and the United States and Europeans are being left behind. Between 1990 and 2010, the emerging nations’ share of the trade pie has gone from 27% of total exports to 50% and from 12.5% of all global financial assets, such as cash, stocks and bonds to 25% .
Their companies are giants too. In 2000, seven of the world’s 10 biggest oil companies were American or European but by 2010, 28 of the fifty biggest oil companies were government-owned, according to industry bible Petroleum Intelligence Weekly. Nearly one-third of global mining is held in the hands of corporations owned or controlled by governments.
These giants can outbid and outmanoeuvre western multinationals because they play rough and dirty. They benefit from side deals or sweeter terms, as a result of diplomatic pressure, foreign aid, market access, cheap loans, weapons or bribes.
They are protected from takeovers.
These “companies” are bigger than most countries. By 2011, Beijing’s largest oil companies – PetroChina, Sinopec-China Petroleum, China National Oil Company and China National Offshore Oil Corporation (CNOOC) — had combined revenues of $1.1 trillion, equivalent to 78.8% of Canada’s GDP.
They have a single shareholder and began targeting Canada’s resources a few years back. If allowed they would buy out all of Canada’s oil and mining companies then import Chinese to work in their mines and oil fields.
In late 2012, Ottawa mistakenly approved an audacious bid by CNOOC of $15.1 billion for a major Canadian oil company – that is now gobbling up assets and small entities in the oil patch. This is China’s “Trojan Horse” strategy enacted globally: biding time until it can buy an iconic corporation then using that as a platform to buy out others and gain political influence.
This fall, China bought America’s biggest agricultural exporter, Smithfield Foods, and another Chinese agri-business entity snapped up 5% of Ukraine’s arable land.
The United States and Canada and others must realize they are playing checkers while their competitors are playing chess, thinking several steps ahead.
They must realize and admit they are being gamed and, in Canada’s case, the Canada-China trade agreement, still awaiting signature, must be recanted.
China, India, Japan and the four Asian Tigers—South Korea, Taiwan, Singapore and Hong Kong—will be as big as the West by 2020, according to the International Monetary Fund. And China’s economy will overtake America’s in size by 2018.
Another issue involves sovereign wealth funds from Asia and the Middle East that operate outside the law. Their operations and assets are hidden. They trade clandestinely in jurisdictions that do not require disclosure, the payment of taxes or adherence to trading rules that govern private-sector, western mutual and pension funds. Their size, and ability to buy billions of dollars’ worth of government securities, also gives their government owners special access and inordinate political leverage.
Facts are that the new cold war is like the old one but is about conquering markets and resources. Canadians and Americans must join this economic weapon race and creating a trade sales force through embassies is a decent beginning. But much more needs to be done in concert with the Americans.