SINGAPORE/HONG KONG Dec 10 CNOOC's promise of
transparency, pledged to win approval from Canada for its $15.1
billion purchase of Nexen Inc, looks like a positive step on the
face of it but is unlikely to represent a sea change in Chinese
To be sure, the details of commitment are not clear. The
state-controlled energy firm has promised the Canadian
government an annual compliance report on all its commitments
that are part of its takeover of Nexen Inc, China's biggest ever
takeover. These include listing shares on Toronto stock
exchange, which comes with certain disclosure requirements.
But when capital is king, cash-rich Chinese state-owned
enterprises have the balance of power in any acquisition talks,
leaving doubts about the real potency of transparency pledges.
"On the transparency side, I believe there will be efforts
from foreign governments to get more information, but it's still
a question of how far China is willing to give," said Robert
Lewis, a partner at Zhong Lun law firm in Beijing.
"Twenty years ago it was all about foreign capital coming
into China and that foreign capital having the leverage in
negotiations. Now it's the other way round, so China will not
have to give as much on the transparency side as some might
The international community has demanded greater
transparency from China on a number of fronts for years, wary of
its intentions as the country grew to become the second-biggest
economy in the world and symbolic of a shift in global power to
On the latest front, U.S. securities regulators are in an
intense stand-off with their Chinese counterparts over access to
Chinese audit documents. Separately, a U.S. congressional
advisory panel described Chinese investment in the United States
as a "potential Trojan horse."
China's state-secrets laws, massive bureaucracy and cronyism
make it difficult to get key, verifiable information from
CNOOC was unavailable for comment.
But the same Chinese companies yield considerable global
clout. Chinese companies launched $51.3 billion of overseas
acquisitions this year, second only to Japan, Thomson Reuters
data shows, making the country one of the world's most active
buyers of corporate stakes and businesses abroad.
Much of that acquisition power is led by China's
government-run companies, and its energy sector, which has both
the cash and the need to build up oil-and-gas supplies to fuel
the $5.8 trillion economy.
The government owns all large financial institutions, which
lends according to state priorities and directives and which
favour large state enterprises -- one reason why the Washington
think tank, the Heritage Foundation, ranks China 138th out of
179 in global economic freedom.
Even Chinese companies that aren't classed as state-owned
enterprises, such as telecom giants Huawei and ZTE,
face accusations they could covertly gather information for
In October, a U.S. congressional report urged American
companies to stop doing business with the two companies saying
the Chinese government could take advantage of their equipment
for espionage purposes. Canada and Australia have also indicated
they will ban Huawei from taking part in communication network
projects due to cyber security concerns.
The Nexen deal, and a separate though less
contentious $5.3 billion offer by Malaysia's Petronas for
Canada's Progress Energy, provided capital infusions to
two Canadian companies, not to mention payouts to shareholders
at a time of economic uncertainty.
Such considerations may trump the fear of a state-owned
bogeyman coming to town.
"No government in the world is going to say 'we don't want
your money'," said Andrew Lumsden, a partner at Corrs Chambers
Westgarth in Sydney. "There will be a bit of huffing and puffing
but it's probably business as usual".
Last week, the U.S. Securities and Exchange Commission (SEC)
charged the Chinese affiliates of five of the world's biggest
audit firms with violating U.S. securities law.
The United States and China could still reach a settlement,
but the action shows the U.S. securities watchdog and their
Chinese counterparts could not find agreement on the exact topic
under discussion with CNOOC-Nexen: transparency of information.
Canada though is following in the steps of other countries
that have attracted money from state-backed Chinese companies,
such as Australia and Norway, in putting place a working set of
"There's become an almost standard set of behavioural
undertakings that firms accept in Australia from these kind of
companies and reading between the lines it looks like the
Canadians are doing similar," said Lumsden at Corrs Chambers
"The companies put in place a series of undertakings such as
ensuring they have local management and comply with local
environmental laws", he said.
Rupert Li, a partner at King & Wood Mallesons in Hong Kong,
said all Chinese companies should study Nexen's transparency
clause, particularly those that plan to venture abroad.
"If you want to be part of the global business community,
people should have more visibility into your management, your
finance, and who actually drives your strategy," Li said, adding
the extent of a board's independence was also important.
"The question is whether the Chinese companies can actually
dispel the notion that they are just part of the mandate from
the Chinese government as opposed to being a true profit seeking
entity," he added.