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A Canadian flag flies in front of the Peace Tower on Parliament Hill in Ottawa, Ontario, Canada,
Reuters/Chris Wattie
Flying solo.
A TAD SENSITIVE

A deal Canada just blocked could have given China inroads to its military and nuclear facilities

By Josh Horwitz

As the US grows more wary toward Chinese investment, Canada appears to be following suit.

On Wednesday (May 23), Canadian officials confirmed that a $1.2 billion deal in which China’s state-controlled Communications Construction Company International Holding (CCCI) would have acquired Aecon, a 140-year-old Canadian construction firm, had been blocked on national security grounds.

That followed Washington blocking a string of attempted Chinese acquisitions in the United States.

Collectively, the moves highlight growing concern in the West about the Chinese Communist Party’s political influence overseas.

Economic-development minister Navdeep Bains wrote in a statement:

“As is always the case, we listened to the advice of our national security agencies throughout the multi-step national security review process under the Investment Canada Act. Based on their findings, in order to protect national security, we ordered CCCI not to implement the proposed investment.”

Unlike some of the Chinese companies that have failed to acquire US firms, CCCI’s ties to the Chinese state are out in the open. It’s the overseas arm of China Communications Construction Company (CCCC), a sprawling entity majority-owned by the Chinese government (pdf, p. 46).

CCCC has built a staggering number of public works (pdf, p. 3-5) in China and overseas. Among them: a 470-km (292-mile) railway in Kenya, a highway connecting northern and southern Jamaica, and a 55-km (34-mile) bridge linking Hong Kong with Macau and southern Guangdong—the world’s longest sea bridge.

One of CCCC’s many subsidiaries is CCCC Dredging, which, in addition to winning development contracts from Malaysia and the Philippines, has reportedly been involved with Beijing’s controversial island-building projects in the South China Sea. Surveillance footage from IHS Jane’s Defence Weekly, a provider of defense intelligence, taken in early 2015 showed a vessel owned by CCCC Dredging in the Spratly archipelago, where China has built a number of artificial islands. A spokesperson told the Wall Street Journal (paywall) it “would neither confirm nor deny” its involvement with the land reclamation efforts.

It’s not clear if CCCC’s alleged work in the South China Sea played any role in the Aecon deal’s failure in Canada. As the bid went through a review process, opponents argued that Aecon’s contracts with the military and nuclear power industry could fall into the hands of the Chinese government and threaten national security. In 2014, for example, one of Aecon’s joint ventures secured a deal to build a $65 million military facility in Halifax. As scrutiny toward the takeover deal increased, Aecon stated that it was not involved in “sensitive military installations.”

Anita Anand, a law professor at the University of Toronto, wrote of Aecon last month:

“It likely has access to design, operations, security and other sensitive information about the nuclear power facilities that supply almost half of Ontario’s electrical power. This is not information that should be in the hands of a foreign government, particularly if Canada’s relationship with that government were to sour.”

Opposed lawmakers also noted that both the World Bank and Bangladesh had in the past blacklisted CCCC due to fraud and bribery, respectively.

Aecon’s CEO said in a statement he was “disappointed” with the decision, while CCCC told Reuters that it hadn’t received documents from the Canadian government confirming the deal’s failure. Neither company responded immediately to Quartz’s questions.

The collapse of the Aecon acquisition follows several blocked Chinese deals in the United States. Among the most notable were Ant Financial’s bid to purchase MoneyGram and HNA’s attempt to buy Anthony Scaramucci’s hedge fund.

US lawmakers are currently preparing legislation that would give regulators greater authority to review similar acquisitions.