Canadians should be upset and insulted that China's biggest grab for control of a major resource company anywhere in the world is the $15-billion Nexen deal. Clearly, China is testing whether this Boy Scout of a nation will roll over.

This is just one of many reasons why Canada must reject this takeover. Another is a warning by CSIS against foreign buyouts of strategic assets, and yet another is that polls show public opposition to the deal.

One compromise that's been suggested is that the Nexen deal goes ahead but no more. That's crazy. Canadians have no obligation to feed China's appetite for resources just because it invited itself to our dinner.
In addition, Canada has no obligation to Nexen shareholders, directors and management because they knew, or should have known, foreign transactions are always at the pleasure of Canadian governments.

There should be no compromise and a turndown need not be difficult, won't burn any bridges and can be done elegantly in this way:

1. The Chinese must be told that this transaction is premature given that negotiations between Canada and China have just been announced to deepen the trading relationship and outline rules of engagement. This process will take years.

2. The buyer, CNOOC, should be told that it cannot buy control, but can own up to 20 per cent of Nexen if it wishes. Foreigners taking small positions in transparent, Canadian-based public companies are not a problem.

3. The Chinese should be told the deal is premature because Canadians must have a national conversation about this. A Parliamentary committee, proposed by independent MP Peter Goldring, is a good idea and would study all the ramifications and potential pitfalls of allowing state-owned enterprises to invest and operate within Canada. Nexen will be studied as will Sinopec, the workplace accident that took place in Alberta three years ago and other cases.

4. China must realize that Canadians must evaluate properly the reasons behind the Canadian Security and Intelligence Service warning that stated "certain state-owned enterprises and private firms with close ties to their home governments have pursued opaque agendas or received clandestine intelligence support for their pursuits here."

5. Ottawa should reiterate that Canada is open for business, but is a democracy and the people have spoken through polls that demonstrate enormous opposition to Nexen's takeover.

6. Ottawa must instruct Chinese entities that they cannot acquire control of Nexen or other resource and strategic assets on a collective basis either by, for instance, having five state-owned or state-controlled enterprises each buy 20 per cent of something. This is a critically important point, and interlocking ownership by all state-owned enterprises from all nations must be disclosed and tallied on an ongoing basis.

Nexen's suitor, the Chinese National Offshore Oil Company, is simply one of hundreds of corporate appendages of China Inc. Others include Sinopec, Chinmetals, PetroChina, the China Investment Corporation. Thousands more unknown Chinese corporations are owned by lower levels of government and are beginning to venture abroad to buy assets. One city Tsingtao is hunting for oil companies in Calgary.

The high profile Chinese companies may be listed on stock exchanges, or not, and they may have small foreign shareholdings. But in all cases effective control ultimately rests with China Inc., China's government and their controlling shareholder. And China remains a dictatorship.

This is why the collective holdings of China Inc.'s entities must be taken into consideration when determining whether a company has been taken over by a foreign entity. If five Chinese entities each own 20 per cent of Syncrude that amounts to de facto control.

Similar concerns would be raised if Rosneft, Gazprom and other oligarchs, with licenses to operate from the Kremlin, were to collectively launch a buying sprees in Canada. The same applies to companies like TAQA of Abu Dhabi and others who are ready to pounce here.

Syncrude is a case in point as are widely-held corporations like Suncor (Canada's largest non-financial corporation). This oil sands giant produces 350,000 barrels of oil a day, more than most nation-states produce and twice as much as OPEC member Ecuador.

Syncrude is considered a Canadian-controlled entity, but there's already sizeable foreign ownership with the Chinese being the most aggressive. Here's the breakdown: Canadian Oil Sands Partnership 36.74 per cent (a collection of investors); Imperial Oil 25 per cent; Suncor Energy 12 per cent; Mocal Energy (Japan's Nippon Oil) 5 per cent; Murphy Oil 5 per cent; Sinopec 9.03 per cent and Nexen with 7.23 per cent.

If Nexen is bought that would bring China Inc.'s collective ownership in Syncrude to 16.26 per cent. And given China Inc.'s strategy of "overpaying" for things, it's easy to imagine another 22 per cent up for grabs, if not more. You get the point. Canada cannot be naïve about all this. A Nexen approval will unleash a buying frenzy among foreigners already to pounce. But if turned down, Canada still has a great deal of work to do.

Canadian disclosure requirements lag those in other developed nations. Foreign ownership positions should be reported in real time and so should relationships with other investors. Reporting thresholds must match best practices: The Canadian Investors Relations Institute has recommended public disclosure be lowered to 5 per cent from 10 per cent. This would match requirements in the U.S, France, Germany, Japan, Australia and even India. The U.K. requires disclosure at the 3 per cent level.

In a way, China Inc.'s audacity has done Canada a favour. Turning down Nexen should be mark the beginning of a Canadian conversation about governance. Canada must decide what kind of table will be set to encourage investment here, who will be invited to dine and how guests must behave. Otherwise, Canada itself will become dinner.

This post originally appeared in the Financial Post.

Follow Diane Francis on Twitter: www.twitter.com/@dianefrancis1