Pending CNOOC-Nexen deal puts West in hotseat

An increasingly xenophobic West will face an important test in the next 30 days as Canada weighs whether to approve the $15 billion purchase of local oil exploration giant Nexen by Chinese rival CNOOC. The deal could well become an important indicator of the West's willingness to accept China as an equal partner in the global economy, and its approval would send a positive signal after a more controversial decision last week that saw two of China's leading technology firms locked out of the US telecoms equipment market due to security concerns.

Recent signals have been all over the map regarding whether Ottawa will approve CNOOC's Nexen purchase, which was announced in July and would see the Chinese oil giant pay a 60 percent premium for the Canadian company. CNOOC knew from the start that the deal could face resistance and built in incentives to ease some concerns, such as saying it would list its own shares in Toronto and make Nexen's base in Calgary into one of its own global headquarters.

Late last week the Canadian government extended the period for its review of the deal by 30 days, saying it needed more time to consider the complex and politically sensitive transaction. Despite the largely political concerns, the deal itself is largely commercial in nature and supporters have pointed out it contains few, if any, implications for compromising Canada's national security.

Prime Minister Stephen Harper said from the start he will weigh public sentiment in making his decision, and that Canada needs to balance its desire for stronger economic ties with China with the need to safeguard national security. Canada's main opposition party has repeatedly come out against the deal, saying it is bad for the country. CNOOC itself previously said it was optimistic of the deal's approval, and just last week a former Canadian central banker also said that the transaction should be approved, pointing out that most of Nexen's assets weren't even in Canada.

Consideration of the deal comes at a critical time, as the final ruling is likely to be announced just weeks after another controversial trade-related decision in the US involving Chinese telecoms equipment giants Huawei and ZTE. That decision saw a Congressional panel rule that equipment from the two companies could compromise the integrity of US telecoms networks and make them vulnerable to spying from Beijing, which has a record of meddling in the affairs of major Chinese firms.

Many might argue that Beijing does indeed need to take steps to show it won't interfere with major Chinese companies, which should be allowed to conduct their business based on commercial considerations without having to worry about carrying out government agendas. But in the case of CNOOC-Nexen, there's little or no obvious way that Beijing could use the deal to achieve anything other than securing the energy resources it needs to feed China's fast-growing economy. Accordingly, Canada should approve this deal that is really mostly commercial in nature, and send an important signal that it and other Western nations welcome China's growing participation in the global economy.