The paper, by Wendy Dobson of the Rotman Institute for International Business, argues that the government's fears about Chinese firms buying up Canada's oilpatch are misplaced.
Moreover, she says the government's new policy announced after the controversial Nexen-CNOOC deal in 2012 aimed at state-owned enterprises, or SOEs, will deprive the oilsands of needed cash for development.
Dobson, who wrote the paper for the School of Public Policy at the University of Calgary, says that according to reliable estimates, the oilsands will require $100 billion in capital investment into 2019.
"Where is that going to come from?" she asks. "It's not going to come from the OECD (countries); it's not going to come from the United States. China is on a trajectory to be one of the largest outward investors on the planet and they are increasing their investment by leaps bounds in the United States and not much in Canada right now."
She points out that Chinese investment in this country appears to have come to a standstill in 2013, although there are other factors at play, including uncertainty about commodity demand and prices and about pipeline development. But Dobson believes the Harper government's new restrictions on SOEs is also a major factor.
In December 2012, the government announced the approval of two controversial takeovers in the oil and gas sector by Chinese-owned CNOOC and Malaysian-controlled Petronas, but at the same time said future majority takeovers by SOEs would only be given the green light under "exceptional" circumstances.
Former Harper cabinet minister Jim Prentice, now an executive with CIBC, was among the first to sound the alarm, saying in a speech in London almost a year later that foreign investment into Canada had fallen sharply and from China had all but dried up.
Definitive data has yet to be released, but Steve MacKinnon of Hill and Knowlton Strategies, which was involved in the CNOOC deal, agreed that the new policy has cooled foreign investment.
"Anyone on Bay Street will tell you that there has been an incredible lessening of interest," he said.
The Alberta government has also expressed concern.
Dobson said the problem with Ottawa's policy is that it clouds an approval regime that was already muddy and subject to arbitrary decision-making. SOEs must pass the ill-defined "net benefit" test and the national security test under the Canada Investment Act, and would still likely be rejected if the government decides the circumstances are not "exceptional."
She said the problem with the Ottawa's position, aside from scaring away companies that don't understand the rules, is that it focuses on the nature of the ownership rather than behaviour on the ground.
"We have the regulatory system and the regulators to exert oversight on everything from the treatment of workers to labour relations, the environment, finance, so we should be treating them in terms of how they behave," she said.
The other problem is that Canada likely needs China more than the other way around. She said China is investing in natural resource sectors around the world and Canada will miss out if it shuts the door of Chinese SOEs.
Dobson adds that the government has also failed to appreciate that, increasingly, Chinese SOEs are being forced to operate by their government as regular companies, not as political entities.