By David Ljunggren
Unclear investment rules are hampering trade between Canada and China, a study by officials from both countries said on Wednesday, just three weeks after CNOOC Ltd offered $15.1 billion for Canada's Nexen Inc.
The bid from China's state-owned CNOOC - politically sensitive for Canada's Conservative government - is seen as a key test of whether Canada is open to foreign investment as it seeks both to tap foreign funds to develop the Alberta tar sands, and to sell oil to China and elsewhere in Asia.
The government study of the economic interests and requirements of both countries said "certain obstacles" limited the ability of China and Canada to reap the full benefits of trade and investment in natural resources.
"Canadian and Chinese stakeholders have highlighted the need for increased regulatory clarity, efficiency and predictability in the context of direct investments in each other's countries," said the report.
"Resolution of these obstacles will be essential to improving market access, and facilitating two-way trade and investment in the natural resources sector."
Critics have long complained that the rules Canada uses to determine whether to approve foreign takeovers are too opaque, and the process is too secretive. Ottawa says Canadian resource firms are being unfairly restricted in China.
But the two countries also want to cooperate. Canadian prime minister Stephen Harper visited China in February, and said the two nations would launch talks on further deepening trade ties.
China is Canada's second-largest trading partner, albeit far behind the United States, while Canada is China's 13th most important trading partner.
"It is clear that there is huge untapped potential to increase trade between China and Canada," said the report.
Chinese energy firms are particularly interested in the Canadian oil and gas sector, and have invested more than $7 billion in the last year alone. Alberta's oilsands are the world's third-largest proven reserve of crude, and the Nexen bid is China's richest takeover to date.
"Over the coming decades, massive investments will be required to further develop Canada's natural resources potential. China's growing investment interest in Canada's natural resources is adding to the diversity of domestic and foreign funding sources available," said the report.
Ottawa says foreign investment in the energy patch could hit $500 billion over the next decade.
Ottawa must now decide whether CNOOC's bid for Nexen is of net benefit to Canada, the yardstick it used when it rejected BHP Billiton's bid for Potash Corp in 2010.
Trade experts and industry analysts say it would be unusual for the Canadian government to reject the bid, given its attempts over recent years to boost business ties with China.
That said, members of Harper's right-of-centre Conservative Party are uneasy about the idea of a Chinese company buying up Canadian resources, and some U.S. politicians have also expressed concern.
Canadian trade minister Ed Fast said Canada was carefully reviewing the report's findings, but he did not commit to taking any specific action.
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