China’s bullying ways should weigh on Canada’s investment decisions

Kelly McParland: China’s bullying ways should weigh on Canada’s investment decisions
Kelly McParland | Sep 21, 2012 11:36 AM ET
More from Kelly McParland | @KellyMcParland
The New York Times has a fairly fawning article about President Barack Obama and how he’s come to take a tougher line with China.
It reads a lot like it was dictated direct from the White House press office. Obama aides, or former aides, testify to the change in the president’s thinking that saw him shift from appeasing Beijing to issuing thinly-veiled threats direct to President Hu Jintao. Secretary of State Hillary Clinton attests that expressions of gratitude have rolled in from Asians relieved to have the newly resolute president on their side:

“Time and time again, I had leaders — I mean, I’m talking about the highest leaders — essentially say: ‘Thank goodness. Thank you. I’m so pleased you’re here. We were worried about America,’ ” says Clinton, who, by the way, “played a significant role in shaping the president’s approach to China.”

Gosh, isn’t the United States lucky to have such a tough commander in chief at a time of rising Chinese power? And how coincidental that this admiring feature should run in the final weeks of a close presidential election.
Cynicism aside, it’s an issue that should be of considerable concern to Canadians, who are constantly being told of the great business and trade prospects that lie in China’s growing power. True enough, but the cost is considerable, and minimizing it carries very real danger. The Globe and Mail on Friday ran a story reporting that “federal officials are privately concerned about security risks to Ottawa’s computer networks” from Huawei Technologies, a Chinese telecom giant founded by a former military engineer from the People’s Liberation Army.

“Top-secret Canadian government documents authored as recently as May 17, and obtained by The Globe and Mail under the access-to-information law, show that the national cryptologic agency, the Communications Security Establishment, has cast a wary eye on Huawei.”

The report follows an appearance this month by executives from Huawei and ZTE Corp. before the House Intelligence Committee of the U.S. Congress over similar concerns.

“Huawei and ZTE provide a wealth of opportunities for Chinese intelligence agencies to insert malicious hardware or software implants into critical telecommunications components and systems. And under Chinese law, ZTE and Huawei would likely be required to co-operate,” committee chairman Rep. Mike Rogers said, according to the Associated Press.
Rogers said the committee has received multiple reports that Huawei’s equipment has been known to “beacon” back to China, or relay data without the consent of the user. He cited unnamed sources overseas as saying that anomalies of equipment from both Huawei and ZTE appeared designed to allow unauthorized access.

The committee has spent a year studying whether the two companies represent a threat to U.S. national security. They insist they don’t, of course, saying it would be “corporate suicide,” but they also cite Chinese state secrecy laws for their refusal to hand over corporate documents demanded by the committee. Huawei has also had problems in Australia, which blocked it last year from participating in a $38 billion national broadband network. Huawei is also concerned that Chinese firms will be targeted by new laws to protect Australian communication networks from cyber-attacks.
Given the level of concern in other countries, Canada would be foolish it it didn’t share the doubts about Chinese firms and the degree to which they must listen to Beijing’s dictates. Even privately-owned firms are not free from the all-encompassing powers of China’s one-party state, which could hobble a company like Huawei so it crumbled as quickly as it grew. The chief obstacle to that might be the damaging signals it sent beyond China’s borders, but for any sizeable Chinese firm there is immense reason to co-operate quietly with Beijing rather than risk its wrath.
At the moment, of course, the federal government has a crucial decision to make regarding Chinese investment in the oilsands. On Thursday shareholders of Calgary-based Nexen Inc. agreed to a $15.1-billion takeover bid by CNOOC Ltd., a Chinese state-controlled company. In a sop to win support, CNOOC agreed to keep the company’s name, retain all 3,000 staff, list on the Toronto Stock Exchange and make Calgary its North American headquarters.
That’s smart public relations, but the deal has to be approved by Ottawa on the vague basis of its “net benefit” to Canada. No one knows exactly what that means, and Australia obviously decided Chinese investment wasn’t a “net benefit” to its telecoms market, given the spying dangers. Digging for oil doesn’t have the same technological opportunities available to a telecom supplier, but Canada’s spymasters have made little secret of their belief that Beijing takes every opportunity it can to soak up secrets, wherever it finds them.
According to the Times article, Obama spent his first year in office hoping that accommodating China would result in reciprocal action on issues like Iran or North Korea, where Beijing carries considerable influence. It didn’t.

“China spurned the United States on climate change standards, dragged its feet on efforts to pressure Iran and began bullying its neighbors over territorial claims in the South China Sea. That last development, in particular, persuaded the administration that the time for accommodation had come to an end.”

Even now Beijing is busy trying to bully Japan over ownership of a desolate patch of offshore islands. Both have sent military vessels; China has the world’s second biggest navy but little firsthand experience, while Japan has a smaller but more advanced and sophisticated fleet. Purely by coincidence, of course, Japanese web sites have suddenly come under cyberattack. Reuters reports that at least 19 Japanese sites, including a government ministry, courts and a hospital, have come under cyberattack, while 300 other Japanese organisations were listed as potential targets by a Chinese “hacktivism” group. Many were altered to show messages proclaiming Chinese sovereignty over the disputed islands.
It is important for Canada to attract foreign investment, and to expand trade beyond dependency on the United States. Just this week Ottawa was refused a place at an East Asian summit because of its lack of serious engagement in the region. But in judging the Nexen deal, and similar investments by China, Ottawa should be under no illusion about the nature of the regime it is dealing with, nor should it assume good financial relations will be reflected in other dealings with Beijing. If such deals are approved, they must include the strictest possible ongoing monitoring by Canadian security, cryptology and defence agencies to ensure Chinese companies play by the rules, and a commitment to deal harshly with any violations. It is essential that China understand that a growing role as a world power comes with the expectation it will conduct itself according to the laws and expectations of western powers, not just what passes for law in Beijing.
National Post

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