Jim
Letourneau, Big Picture Speculator
CALGARY
(KWR) Global demand for commodities has been a boon to
resource rich countries like Canada and Australia. Increasing
demand for raw materials has led the Chinese government
to take a proactive role in the procurement of commodities
and the facilitation of their production. The proposed
$7 billion purchase of Toronto-based Noranda by China’s
Minmetals is part of this initiative.
Resistance to the transaction is not unexpected. Noranda has a made-in-Canada
corporate history dating back to 1922. The transformation of a prospector’s
dream into an international mining conglomerate is a source of national pride.
The sale of Canada’s largest mining also includes 60% of Canada’s
third largest miner, Falconbridge.
Although much is being made of Canada’s resistance to this transaction
it appears to be restricted to the minority. The loudest complaints have
been from the 3rd ranking opposition NDP party who are raising the specter
of China’s human rights record. Some are even trying to wrap themselves
in the red maple leaf flag and raise sovereignty issues about Canada’s
resources. While there may be a time when countries want to hoard their raw
materials for domestic consumption in the face of shortages, the fact remains
that Canada is great exporter of raw materials. After all, there are 32 million
Canadians and 1.3 billion Chinese.
Images of Tiananmen Square in 1989 are still fresh in people’s minds
but the advances in the average living standards and freedoms for the Chinese
people have been ignored. China’s transition from Soviet style central
control to a more market driven economy has been extraordinarily rapid.
Human rights issues are important to Canadians, we believe in diversity,
freedom of expression and compromise. We don’t want evil empires using
our resources for nefarious purposes. Countries that execute criminals, torture
political prisoners and discourage freedom expression might not be ideal
trading partners but as long as Canadian’s are willing to turn a blind
eye to the human right’s record of other countries there are no moral
grounds to not trade with China as well. So far trade restrictions on softwood
lumber, grain, and beef that benefit American special interest groups have
been refreshingly absent for Canada-China trade relations.
It appears unlikely that Canadians will be undertaking a global inventory
companies involved with countries with human rights issues. There are numerous
small-scale resource development projects being spearheaded by Canadian companies
in countries with sketchy human rights records. If a country is open for
resource-related business, chances are there’s a TSX Venture exchange
company using Canadian capital to explore for it.
I know from personal experience that almost everything we buy comes from
China. During a recent move, I collected approximately 20 different sized
boxes from the local Wal-Mart. While the in-store recorded announcement distracted
unconcerned soothed crowed that the vast majority of the goods they sold
were “sourced from Canadian suppliers”, the boxes all had the
words “Made in China” on them. As my daughter Veronica succinctly
stated “Where else are we going to get our stuff from?”. Trade
is a two-way street.
China as also indicated that they are in the market for Canadian energy assets.
Canada’s oilpatch has a longstanding tradition of selling its assets
to the highest (usually American) bidder when prices are high and then buying
them back for a song when prices are low. Foreign investment in Canadian
natural resources is nothing new.
On a more practical level Bombardier is in the running for $4.5 billion worth
of Chinese transportation contracts. Canadian Prime Minister Paul Martin
is clearly aware of the consequences of restricting the free flow of goods
and services between the world’s most rapidly growing economy and Canada.
Mild opposition followed by practical compromise is the preferred modus operandi
of Canadians. While the purchase of Canadian companies by Chinese interests
may not be greated with open arms, there are no reasons to prevent it outright.
A multi-billion dollar transaction without a European or American purchaser
is a new phenomenon to Canadians. Ultimately, everyone will get what they
want. China will get access to Canadian resources, technology and capital
markets, Canadians will strengthen trade relations with China and the Canadian
opposition parties will get attention by opposing it all. Noranda will be
sold and China will be making additional investments in Canadian resources
in the near future.