The federal government rejected the Chinese takeover of a Toronto-based construction firm on national security grounds because it would have given Beijing access to a trove of sensitive data about some of Canada's most-critical infrastructure, such as nuclear power plants and the Toronto subway, says a senior government source.
The Trudeau government cited reasons of national security for its decision this week to decline the proposed $1.5-billion purchase of Aecon Group Inc. by CCCC International Holding Ltd. (CCCI).
The insider, who spoke on condition of anonymity due to the delicate nature of the file, described the decision as black and white. The source said it was largely due to deep concerns about the potential consequences of a state-owned enterprise controlling Aecon, along with its extensive historical records from major infrastructure projects over the decades.
In addition to information that would have been collected through future projects, the source said the Aecon takeover would have given CCCI access to intellectual property from the company's long history of construction in Canada, particularly its work on transportation, telecommunications and electricity grids.
Aecon has worked on many key Canadian projects such as the CN Tower, Vancouver's SkyTrain, the St. Lawrence Seaway, the Halifax shipyard, the refurbishment of Ontario's Bruce nuclear plant and the Toronto subway.
A months-long national security review by Canada's intelligence agencies examined CCCI's record around the world and its other, similar transactions and found there was seller's remorse in other jurisdictions, the source said.
The recommendations were clear and the government made the call because it didn't want to compromise national security, even though the decision could have an impact on Canada-China relations, the insider said.
Earlier Thursday, Beijing's top envoy in Canada said he was very disappointed with the Trudeau government's move to reject the takeover.
Lu Shaye, China's ambassador to Canada, told The Canadian Press he hoped the decision was not guided by "prejudice" towards his country's state-owned companies.
Chinese state-owned enterprises, like CCCI, are no different than multinational firms in western countries in the sense that they want to expand their profits while strictly adhering to the rules of the market, he said.
If the federal government's refusal was based on the fact it was a state-owned company, Lu said he would consider it a move made under "measures of prejudice."
"Chinese state-owned enterprises – they are not guilty. They have made great contributions to safeguard the welfare of the Chinese people," said Lu, who spoke through an interpreter at the embassy in Ottawa.
"We feel it is really a pity that we couldn't make such kind of good deal to happen."
Lu argued the deal would have benefited both companies, but he noted it's Canada's "sovereign right" to block takeovers of its domestic companies. Despite the decision, he said the Chinese government would stay committed to deepening its co-operation with Canada.
The rejection, however, will play out differently with the Chinese business community, he insisted.
"I think it will definitely send negative signals to the market, especially it will attack the confidence of the Chinese investors who want to invest in Canada," Lu said.
Experts had warned the Liberal government to proceed with caution when considering any investment bids by Chinese state firms and to be as transparent as possible in reviewing the proposed deal. The federal government announced a full national security review of the proposed takeover in February.
The Liberals also came under intense domestic pressure to reject the proposal.
The Liberals have tried to develop a good relationship with China since coming into office in late 2015. But in recent months, progress on the economic partnership appears to have hit a few potholes.
Prime Minister Justin Trudeau visited China in December, but left without a formal commitment to moving free trade talks past the exploratory phase into formal negotiations. He has been unable to persuade China's leaders to formally entrench labour, gender, environment and governance issues in the negotiating framework.
On Thursday, Trudeau offered few details when asked about his government's confidential decision-making process behind the rejection of the Aecon takeover, which followed a lengthy review by Canada's security agencies.
"They made a very clear recommendation that proceeding with this transaction was not in the national security interests of Canada," Trudeau told reporters during visit to the Quebec town of La Malbaie, where Canada will host the G7 leaders' summit next month.
He suggested the decision was made, at least in part, to maintain Canadian control of a key industrial sector.
To make his point, Trudeau specifically pointed to the case of Australia, where he said people suddenly realized that "a significant portion of their energy grid, for example, is owned and controlled by a government that is not their own."
State Grid Corp., owned by the Chinese government, has sizable power assets in Australia.
In 2015, CCCI acquired one of Australia's largest engineering and construction firms. Five years earlier, it purchased an offshore architecture and engineering firm based in Houston.
"There are always going to be concerns about the ability of a country to continue to protect and deliver essential services to its citizens in a way that enhances and maintains their own sovereignty," Trudeau said.
"And how we move forward on that requires reflection and care."
When it comes to trade with China, Trudeau stressed the need to defend Canadian interests, saying a good deal must set clear rules and expectations.
"This is an example of the kinds of challenges that exist any time one looks to work closer with China, but it's also one that I think we should be continuing to talk about," he said.