The Canadian government just approved the $15.1 billion acquisition of integrated oil and gas producer Nexen by China’s third-largest oil company, state-owned China National Offshore Oil.

The deal is an important step forward (or two) for Chinese investment, but a step back is probably soon to follow. Chinese outward investment has become a global force. The Nexen acquisition is the biggest ever by a Chinese enterprise and will push annual investment in 2012 to a new record. Moreover, the 2012 surge is focused on North America: Canada will be the leading recipient and the U.S. second. This will spur talk of a flood of Chinese investment in 2013 and extending indefinitely into the future.

Such talk will be exaggerated, however. There have certainly been bursts in Chinese investment activity, but there have also been stalls. The Nexen deal coming late this year all but ensures that Chinese investment will fall in 2013.

For the longer term, The Heritage Foundation’s China Global Investment Tracker documents well over $150 billion in troubled or even outright failed Chinese investments since 2005. In its announcement, Canada hinted at the principal reason for these setbacks: Host countries grow uncomfortable with large purchases by Chinese state entities. That unhappiness is an obvious opening for the U.S. to recognize the overwhelming mutual benefits of further energy cooperation with Canada and to move forward on the Keystone XL pipeline.

While approving the Nexen deal, Ottawa practically begged for private-sector partners from countries with open markets. The Obama Administration is partly or even largely responsible for putting Canada in this awkward position by playing games with the Keystone pipeline and Canada–U.S. energy relations in general.

The pipeline—and the right policy from the U.S. toward Canadian energy—would strengthen the American economy, add jobs, promote energy independence, and help perhaps our most important ally. It would also be a signal that the U.S. will compete with China in international markets, a competition that the vibrant American private sector would certainly win—if only it is permitted to.