Yesterday as I sat on a journalism panel at a TaiwanFest event, I was asked a difficult question.
A bright young man in the audience wanted to know about the implications of Canada joining the Asian Infrastructure Investment Bank, which is based in Beijing.
The AIIB has emerged as a rival to the World Bank, which is a Washington, D.C.-based institution that finances infrastructure projects. The World Bank is almost always headed by an American. (The International Monetary Fund, on the other hand, is always headed by a European.)
Chinese president Xi Jinping is hoping the nascent AIIB can finance infrastructure initiatives along the Silk Road through Central Asia all the way to Europe and Africa. This will enhance Chinese influence and help promote trade between the Middle Kingdom over land-based routes.
The fact is China needs friends in the world. For years, its closest allies were North Korea, Burma, and Pakistan.
The upside for Xi is that the powerful U.S. Navy is unable to interrupt the shipment of goods, including raw materials, that come by road or pipeline back to China. This is part of the motivation behind Xi's much-ballyhooed (in China) Belt and Road Initiative.
Keep in mind that China doesn't have many allies in the Asia-Pacific region. Xi has been reaching out to South Korea, but Taiwan, the Philippines, and Vietnam are all troubled by the Chinese president's aggressive moves to secure a foothold in the resource-rich South China Sea, in spite of international law. A key U.S. ally, Japan, is in a territorial dispute with China over a group of islands.
These countries look to the U.S. Navy to provide a measure of protection. And if sanctions were ever imposed on China, the Americans would likely have to enforce them.
Other U.S. allies joined AIIB
It's worth noting that the Americans were not pleased when the British, French, and Germans all signed on with the AIIB. No doubt, these European governments were lured by the prospect of companies in their countries winning lucrative infrastructure contracts.
After Prime Minister Justin Trudeau was elected last year, President Barack Obama launched a charm offensive to try to keep Canada in the U.S. fold. Trudeau was invited to a state dinner at the White House, an honour never accorded to his predecessor, Stephen Harper.
In addition, Obama came to Ottawa to address Parliament, receiving rousing ovations from Canadian MPs.
At the time, I wondered if Obama's diplomatic efforts might be sufficient to keep Canada from joining the AIIB. But this wasn't to be.
Trudeau announced Canada's intention to join the bank during his current trip to China. And on August 31, Finance Minister Bill Morneau held a joint news conference with AIIB president Jin Liqun to say that an application had been filed.
"Succeeding in the global economy of tomorrow will require strategic partnerships and openness to the world," Morneau says on the Canadian government's website. "That's why, in addition to helping families and making historic infrastructure investments at home, we are forging new ties with international partners. Canada is always looking for ways to create hope and opportunity for our middle class as well as for people around the world, and membership in the AIIB is an opportunity to do just that."
With its application, Canada is likely to become the first North American member of the AIIB.
Liberal roots run deep in China
So why would Trudeau do something like this? He must have known that it would alienate the Americans by undermining the global influence of the World Bank.
As I grappled with the question from the young man yesterday, I thought about how the federal Liberals have traditionally worked closely with the Chinese regime.
Trudeau's father, Pierre, was one of the first western leaders to extend diplomatic recognition to China in 1970. This was a factor in Taiwan (Republic of China) being kicked out of the United Nations in 1971.
In 1978, Canadian industrialist Paul Desmarais founded the Canada China Business Council, nine years after taking control of Power Corporation of Canada. Desmarais once employed future Liberal prime minister Paul Martin. And Martin took over a Desmarais shipping company, which was reliant on trade with China to boost its bottom line.
Moreover, Desmerais' son André married the daughter of another future Liberal prime minister, Jean Chrétien. André Desmerais headed the China Canada Business Council for many years.
John Rae, brother of another Liberal leader, Bob Rae, is executive vice president of Power Corporation and has worked for the company since 1971. Before that, John Rae was executive assistant to Chrétien when he was in Pierre Trudeau's cabinet.
In the 1990s, the Jean Chrétien-led Liberal government sold CANDU reactors to China despite intense opposition in Canada, including from then Sierra Club of Canada head Elizabeth May.
Power Corporation's investments have been questioned
Today, the chair of the Canada China Business Council is Peter Kruyt, vice president of Power Corporation.
Back in 2008, Power Corporation attracted unwanted attention for its indirect stake in the French energy giant Total S.A. It had significant operations in Burma while the country's dictatorship faced sanctions from Canada for its appalling human-rights record.
"For investors, the most immediate concern about Power's indirect investment in Total is that foreign companies conducting business in Burma are a source of hard currency for the regime," declared a shareholder's resolution from Ethical Funds Company.
One of Burma's closest diplomatic relationships at the time was with China. To some, it seemed like Burma was a client state of Beijing.
Meanwhile, Power Corporation's head office is in Montreal, which happens to be where Trudeau lives and where he's held a seat in Parliament since 2008.
Montreal is also headquarters for engineering and construction services giant SNC-Lavalin, which has also attracted unwanted international attention.
In 2013, the World Bank debarred SNC-Lavalin and more than 100 of its affiliates from obtaining its financing for 10 years.
According to a World Bank news release, SNC-Lavalin was involved in a conspiracy to pay bribes when bidding on World Bank-financed projects in Bangladesh.
"This case is testimony to collective action against global corruption,” World Bank Integrity vice president Leonard McCarthy said at the time. “Once we had evidence of the company’s misconduct, we referred the matter to the Royal Canadian Mounted Police whilst the World Bank finalized its investigation. Going forward, I hope that SNC-Lavalin’s commitment under this agreement represents meaningful action in deterring the risks of fraud and corruption to development projects.”
SNC-Lavalin later came under fire for its dealings with the Libyan regime once headed by Moammar Gadhafi.
While SNC-Lavalin faces restrictions on bidding on World Bank projects, there have been no similar prohibitions imposed by the Beijing-based AIIB. With Canada's membership in the bank, SNC-Lavalin may be poised to win contracts eventually, though for now the AIIB is respecting the sanctions imposed to similar international organizations.
In 2015, SNC Lavalin reached a settlement with the African Development Bank Group. It came after controversies arose over one of its subsidaries' contracts in Mozambique and Uganda.
"Under the agreement, SNC-Lavalin International Inc. will not be debarred, provided SNC-Lavalin meets certain conditions for a period of two years and 10 months," the company said in a news release. "The agreement, which relates to alleged actions of former employees in connection with contracts awarded in 2008 and 2010, includes a settlement payment of $1.5M in support of anti-corruption initiatives in Africa."
Perhaps this partially explains why SNC-Lavalin's share price has increased significantly over the past year. (See chart below.) If it eventually obtains more work through the AIIB, SNC-Lavalin could fare very well in the future.
SNC-Lavalin is a big player in B.C. economy
Nearly two years ago, Vancouver journalist Bob Mackin wrote a remarkable article in the Georgia Straight outlining the extent of SNC-Lavalin's activities in B.C. It's been deeply involved in the development of all SkyTrain lines, a Metro Vancouver water-filtration plant, various municipal construction jobs, B.C. Hydro and Columbia Power Corp. projects, and the Mount Polley mining-accident cleanup, to name a few.
Mackin later chronicled delays in the Evergreen Line SkyTrain project to Coquitlam, which is an SNC-Lavalin project. But the presence of its flashy new office at 745 Thurlow in downtown Vancouver suggests that SNC-Lavalin will be in Vancouver for many years to come.
This raises an intriguing question, given Vancouver's proximity to the Pacific Rim and the city's close ties to China.
Will AIIB funding of major projects eventually lead to more work for construction and engineering experts living in Vancouver and working for SNC-Lavalin? The company endured a serious blow to its credibility when it was subjected to a scathing denunciation from the World Bank just three years ago. But now, a Chinese-driven international financing initiative could offer it a lifeline.
So if you're wondering why Trudeau was willing to tick off Obama by joining the AIIB, this provides a plausible explanation. Two corporations with deep ties in the Montreal business establishment could be poised to reap big profits through Canada's participation in this initiative.
And if it generates some bad press in Bangladesh, that's not going to tarnish SNC-Lavalin's share price.