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Canada blocks Chinese takeover on security concerns

HONG KONG — Canada has blocked a $1 billion takeover of a construction company by a state-controlled Chinese company over national security concerns, a rare move by a government that until now has largely welcomed such deals despite growing skepticism over Chinese money elsewhere.

The deal became politically charged after members of Canada’s opposition party raised concerns about Aecon’s access to government contracts — particularly in the nuclear power industry — and the Chinese company’s ties to the Chinese state.

“As is always the case, we listened to the advice of our national security agencies throughout the multistep national security review process under the Investment Canada Act,” Navdeep Bains, the Canadian minister of innovation, said in a statement.

A spokeswoman for Aecon said the company was “aware of the government’s decision and will be issuing a response in due course.”

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Chinese companies are increasingly facing hurdles as they go overseas to spread their wealth and acquire technology. Governments from Germany to the United States and Canada are pushing back, often citing national security concerns.

These companies have faced the greatest test in the United States, where a series of deals have been blocked by the Committee on Foreign Investment in the United States, a federal body that reviews proposals by foreign-owned entities to buy American companies.

The Trump and Obama administrations have expressed concerns over Chinese investments in American companies in areas where China has made clear it wants to be a dominant player, like artificial intelligence. Washington officials have stymied a series of Chinese deals, including the acquisition of Lattice Semiconductor by China-backed investors in September.

The overseas unit of the China Communications Construction Co., a publicly listed company in which the Chinese government is a majority owner, made a bid for Aecon in October in a deal that Aecon said would help it to expand overseas.

But by February of this year, the government said it wanted to review the deal by CCCI, the overseas arm of CCCC, under the Canada’s National Security Review of Investments Act. In Canada, any deal involving a state-owned company worth more than 398 million Canadian dollars (about $310 million) can be subject to a review if the government believes it could be “injurious to national security.”

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On Wednesday, the government said it blocked the deal based on its findings “in order to protect national security,” without elaborating.

“Our government is open to international investment that creates jobs and increases prosperity, but not at the expense of national security,” Bains said.

The Canadian government did not give details about its decision, but one of the biggest hurdles facing the deal, according to analysts, was Aecon’s contract for Canada’s CANDU nuclear reactors, which generate electric power.

Earlier this year, Canada’s Conservative Party called for a review of the deal and raised concerns about Aecon’s contracts with both the military and the nuclear industry. Members of Parliament also cited bribery allegations against one of CCCC’s units in Bangladesh. In January, the finance minister of Bangladesh said it was blacklisting China Harbour Engineering Co., a subsidiary of CCCC, after allegations arose that it tried to bribe an official.

“For reasons that have more to do with political opinion and the desire to limit competition, some opponents of the deal have made completely false claims about the nature of Aecon’s business and what may happen if it joins CCCI,” John M. Beck, president and chief executive of Aecon, and Lu Jianzhong, president of CCCC, wrote in an op-ed article in The Globe and Mail, a Canadian newspaper.

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CCCC is controlled by the Chinese state, but it is publicly listed and has shareholders that include the Canada Pension Plan Investment Board, BlackRock and Vanguard, Beck and Lu wrote.

But the giant engineering and construction firm has generated controversy in other countries, too. CCCC has been involved in China’s program to build artificial islands in the South China Sea, something that has become a growing source of tension between China and Western countries.

The World Bank also banned CCCC from making bids for projects for eight years until 2017 following a bid-rigging scandal in the Philippines.

This article originally appeared in The New York Times.

ALEXANDRA STEVENSON © 2018 The New York Times

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