* Prentice says investment by state firms won't subside
* Says Canada shouldn't worry about "ethnicity of money"
* Current CNOOC-Nexen decision deadline is Dec. 10
CALGARY, Alberta, Nov 14 (Reuters) - Canada should not reject Chinese investments in its oil industry out of hand because China offers an important outlet as Canada seeks to broaden the market for its crude oil supplies, a former government minister said on Wednesday.
Jim Prentice, vice chairman for Canadian Imperial Bank of Commerce and a former member of Prime Minister Stephen Harper's cabinet, made his remarks as Ottawa reviewed the $15.1 billion takeover bid by China's state-owned CNOOC Ltd for Nexen Inc.
Prentice said Canada must remain open for business and realize that much foreign investment will be made by sovereign wealth funds and state-owned enterprises from both democratic and non-democratic countries.
The Harper government has intensified efforts to open up new markets for Canadian oil in China and throughout Asia to reduce reliance on the United States as its sole export market, in hopes of boosting returns for fast-growing oil sands production.
"In such an environment, saying 'no thanks' to the largest new market opportunity, namely China, would be patently unwise -- particularly in circumstances where the transactions do not imperil Canadian values or environmental and labor laws," Prentice said in notes for a speech to a major energy conference in London.
"One can fairly expect Prime Minister Harper to move with care and dexterity, balancing Canada's internal political concerns about foreign investment with the imperative to develop out its 'strategic partnership' with China and demonstrate progress on the need for reciprocity," he said.
Early this month, Ottawa extended its deadline for ruling on the takeover of Calgary-based Nexen by CNOOC to Dec. 10. The government is scrutinizing the contentious deal under guidelines for state-owned enterprises that Prentice drafted as minister of industry five years ago.
Canada blocked Malaysian state oil firm Petronas's C$5.2 billion ($5.2 billion) bid for Progress Energy Resources , a natural gas producer, on Oct. 20, but rather than completely ruling the deal out, it offered Petronas 30 days to make new representations to the government.
The government has pledged to release a clear set of guidelines for such transactions when it announces its decision on the takeover of Nexen.
Meanwhile, some Canadians, including a few members of Harper's government, have expressed concern over increasing control of the country's energy resources by China.
Prentice pointed out that most of the world's top 10 largest energy companies are state-owned and that most have investments in Canada, whose oil sands are the world's third-largest crude deposit.
He acknowledged such companies are different from other market players, as they "harness the power of both capitalism and the state," and therefore raise public policy questions.
As a result, Canada needs to make its criteria for allowing investments by state-owned enterprises clearer and insure that "undertakings" that investors agree to are enforced, he said.
Ottawa should not, however, concern itself with the "ethnicity of money" or try to force China and other countries to be more like Canada, Prentice said.
"The question must instead be whether the capital in question, once lodged in Canada, will adhere to market principles and to North American standards of governance and transparency," he said. "If so, then it should be welcomed. If not, then the investments should be scrutinized closely and potentially refused.