Beijing’s Long Game in the Oil Sands

With a Trudeau in office, the Chinese government’s decade-old strategy kicks into gear

On October 20th, 2015, Prime Minister-elect Justin Trudeau received a congratulatory call from China’s ambassador Luo Zhaohui. The next day, the state-run China Daily newspaper celebrated “improved prospects for a Free Trade Agreement with China” under Canada’s new Liberal government. A week later Premier Li Keqiang himself picked up the phone.

China’s second-in-command formally invited Trudeau to Beijing for a state visit and trade talks. Next, a visiting Chinese trade official spoke of a “rare historical opportunity” to open up greater access to Canada’s energy resources. As Vice-Minister Han Jun explained, that means lifting restrictions on China’s state-owned oil companies and getting a pipeline built to the West Coast.

It’s clear that Trudeau will face both demands as soon as he gets off the plane in Beijing. His visit was originally penciled in for March, though it has now been pushed back to the fall. Still, why the rush? With oil below shut-in prices and world leaders talking about a post-carbon future, why is China suddenly pushing for a greater stake in the oil sands?

To answer that, we have to look simultaneously into the future and the past.

Like father, like son?

Justin Trudeau’s late father is still remembered fondly by the regime in Beijing. “They are,” according to former Prime Minister Brian Mulroney, “remarkably loyal to the memory of Pierre Trudeau as the architect of Canada-China relations.”

Pierre Elliott Trudeau travelled to China in 1949 in the midst of the Communist Revolution, returning in 1960 with his friend Jacques Hébert. The pair wrote a book about the experience titled Two Innocents in Red China. That was the first time Trudeau met Chairman Mao Zedong.

After Trudeau won the election in 1968, Canada became one of the first Western countries to recognize the People’s Republic of China. Diplomatic relations were established in 1970 and Trudeau returned to China on an official visit in 1973, the first Canadian Prime Minister to do so. “That was an extraordinary political vision,” said Chinese President Xi Jinping on the sidelines of the G20 conference last fall. “China will always remember that.”

In 2013, newly-elected Liberal leader Justin Trudeau was asked which country he most admired. “There’s a level of admiration I actually have for China,” Trudeau said. “Their basic dictatorship is actually allowing them to turn their economy around on a dime.”

That enthusiasm is echoed by a powerful Canada-China business lobby within the Liberal Party. These former cabinet ministers and bureaucrats, executives and lawyers are now joining Beijing’s push for a trade deal before Trudeau’s first term is up.

The Harper decade

If there’s a sense of pent-up urgency to the Chinese administration’s movements since the Canadian election, that’s partly because of their experience with a politician named Stephen Harper.

If there is a rule for maintaining friendly relations with China, it is that the regime does not appreciate criticism of its ongoing (and worsening) human rights abuses. So when the newly-elected Conservative Prime Minister awarded honourary Canadian citizenship to Tibet’s exiled Dalai Lama, he definitely got Beijing’s attention.

Next, Harper pushed for the release of a Muslim Canadian citizen from a Chinese jail. He made friendly overtures toward Taiwan, accused China of commercial espionage, and later skipped the Beijing Olympics. Harper also made it clear he wasn’t interested in signing a trade deal with a country that tortured and murdered its own citizens.

“I think Canadians want us to promote our trade relations worldwide, and we do that, but I don’t think Canadians want us to sell out important Canadian values,” he said. “They don’t want us to sell that out to the almighty dollar.”

But as most of the world’s economy faltered in 2008, Harper’s critical stance on China ran into conflict with his signature policy priority as Prime Minister: forging Canada into an energy superpower.

Realizing that his dream of tripling oil sands production would require a massive influx of foreign capital, and recognizing that this goal aligned perfectly with the Chinese government’s quest to secure fuel for its huge military and booming economy, Harper and his ministers toned down their criticisms and began courting Chinese government investment in Canada’s oil sands.

Beijing was way ahead of Harper. Back in 2005, the state-owned PetroChina had partnered with Enbridge in a first attempt to get the Northern Gateway pipeline and oil tanker project off the ground. The Chinese government foresaw a need for a marine outlet to drain bitumen production from the Alberta oil sands, where it proceed to invest an estimated $40 billion.

Oil rigs as a “strategic weapon”

The attempt to buy up Canadian oil did not go entirely smoothly. The Canada-China business lobby will tell you that by Chinese state-owned enterprises operate according to “strict commercial logic”. In reality, China’s big three oil companies have long been organs of the government and integrated into the regime’s security apparatus.

In recent years, Sinopec (the world’s 2nd largest company), PetroChina (the world’s 3rd largest company) and CNOOC have been embroiled in internal Communist Party power struggles, corruption scandals, purges, and even mysterious deaths, all of which have impacted their Canadian operations.

Hesitations surrounding Chinese government control over Canadian energy reserves were not helped by the powerful Chinese state-energy bureaucrats themselves. In 2012 CNOOC Chairman Wang Yilin remarked that his drilling rigs were “mobile national territory and a strategic weapon,” helping to further turn Canadian public opinion against investment by Chinese SOEs.

This simmering public opposition exploded in 2012 with CNOOC’s bid to purchase Canadian oil sands company Nexen for $15 billion. While opposition to the Nexen takeover crossed the political spectrum, it was sustained backlash from Canadian conservatives that ultimately forced the Prime Minister to reconsider. Although Harper did ultimately approve the CNOOC-Nexen deal, he also brought in strict new regulations that essentially prevented any further takeovers by foreign SOEs of large Canadian resource companies.

Meanwhile, Enbridge’s China-backed pipeline plan was once again facing headwinds in British Columbia. The response from China was bitter: “It’s the same situation as the leftover single women,” said CNOOC’s Chen Weidong at an energy forum in Beijing later that year. “It will be the same for the oil sands. They will be outdated.”

Growing urgency

Still, $40 billion is $40 billion. In 2014 as the Enbridge approval came and went, China’s oil czars started getting antsy. Feng Zhiqiang, Sinopec Chairman for North America, advised Ottawa to become more assertive in getting pipelines built. If government and industry persuasion efforts do not suffice, Feng said, Sinopec would welcome more active intervention by Ottawa — even if that included legislation to force the pipeline’s construction.

In January this year Chen Weidong of CNOOC was back in the Financial Post, venting his frustration to columnist Claudia Cattaneo. “Canada is good on the legal, commercial, political stability and also technology, but it’s slow,” Chen said. “The federal government (in Canada) is a weak government, not like China in comparison.” On pipelines, he said “you go to Pacific, you have to negotiate with B.C. and B.C. has a lot of First Nations. I participated in three conferences. They continuously talk about First Nations issues. I didn’t see any progress.”

Still, the Chinese government has not abandoned its long-term focus on the oil sands. It is clearly irritated by the rule of law, Indigenous title and rights, Canadian environmental rules, restrictions on investment by state-owned oil companies, and majority public opposition — but sees none of them as insurmountable obstacles.

If necessary, Chinese SOEs may resort to the secretive and anti-democratic mechanisms contained in the Canada-China Foreign Investment Protection Agreement (FIPA) ratified by Stephen Harper in 2014. In the meantime the Chinese government has other tools to secure long-term access to Canadian energy resources, and what it believes to be a friendly partner in Ottawa.

Prime Minister Justin Trudeau will face a stark choice when he travels to China this fall. Pressured by both the Chinese government and the Canada-China business lobby at home, he will have to reconcile a series of apparent contradictions.

Trudeau has promised to reduce Canada’s climate pollution, while at the same time expanding the market for Canadian heavy oil. The new Prime Minister has promised to build new relationships with First Nations — and build new pipelines through their territories. He will have to grapple with the fact Canadians do not want more Chinese government control of the economy, even though Trudeau has promised closer ties to China.

Increased trade may be inevitable, but for many reasons — climate, Canadian law, rights and title — a pipeline to the West Coast cannot be on the bargaining table. Besides, no respectful negotiation begins with one country issuing demands before the two sides even sit down. Trudeau has six months to make this clear to the Chinese government, or British Columbians will do it for him.

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