OTTAWA - The Harper government is taking a close look at the pros and cons of doing business with state-owned enterprises in China, The Canadian Press has learned.

The politically-tinged issue is part a sweeping foreign policy review that the Foreign Affairs Department has been quietly conducting for months, say sources familiar with the review.

Prime Minister Stephen Harper ordered up the review in his letter of assignment to John Baird when he was given the foreign affairs portfolio last May after the Conservatives won their majority government.

The internal document is called the Foreign Policy Plan -- or FPP -- and it has been keeping bureaucrats busy at the Department of Foreign Affairs since late spring.

The FPP is timely given the events of the past week. The Obama Administration put the brakes on a major pipeline project that would carry Alberta oilsands crude to the U.S. Gulf Coast, and Harper responded that Canada would be making trade with Asia a top economic priority.

Harper was speaking at the recent Honolulu summit of Pacific Rim countries, just days after the White House imposed a one-year delay on the $7 billion Keystone XL pipeline between Canada and that U.S.

The FPP will attempt to enlighten the Conservatives about a number of strategically important countries. Among them are two major Muslim countries -- Indonesia and Turkey.

Indonesia is the world's fourth largest country with the largest Muslim population and is spread across a sprawling archipelago that spans the Indian and Pacific oceans. Turkey is a NATO ally that shares land borders with Syria, Iran and Iraq.

A core purpose of the FPP is to give the government a heads-up on potential flashpoints across the globe. Sources say the Tories believe Canada has been caught off guard in recent years by international events and the new plan would serve to mitigate that.

The document could be tabled in Parliament at some future point after Harper's office gives it the green light. But some sources say the FPP is unlikely to ever see the light of day because it could box the Tories in politically at a later date.

The document points out the obvious need to bolster trade with Asia, and China in particular, sources say.

China's fast growing economy has an insatiable need for natural resources to power growth.

But that has raised red flags because Chinese investors are state-owned entities, not private companies.

Foreign Affairs experts are working to draft a definitive document on the implications of doing business with state-owned enterprises from China, sources say.

The analysis comes as Chinese companies continue to invest billions in Alberta's oil sands and the Canadian energy sector. China's Sinopec acquired Canadian oil and gas producer Daylight Energy Ltd. for $2.2 billion last month, a year after it invested $4.65 billion in an Alberta oilsands project, China's largest-ever investment in North America.

The issue has already been well-studied by a variety of Canadian experts.

A report issued earlier this year by the Asia Pacific Foundation of Canada addressed several problems with such deals. The January report noted how it allows a country's national interest to play a role in business.

It cited a dispute last year over a maritime boundary between Chinese fishing boats and Japan's coast guard. China responded by threatening to block mineral exports to Japan.

"State involvement in overseas investments can create an unequal playing field, such as easier access to finance, market information, resources, key government networks, preferential supply contracts," said the January report.

"All state investment funds are not created equal: some are more transparent, and more prepared than others to work within a set of widely accepted best practices."

The Asia Pacific Foundation also commissioned a poll in March poll that found only 16 per cent of Canadians were in favour of a "Chinese government-controlled entity acquiring a controlling stake in a major Canadian company."

The survey of nearly 3,000 people by Angus Reid Public Opinion found that only one-tenth of Canadians "feel warmly" towards China, while one-third of respondents "describes having cold feelings towards China."

Baird travelled to China in July, as part of a continuing effort by the Conservatives to rebuild ties after Harper and his ministers chilled relations with a series of provocative swipes shortly after coming to power in 2006.

The government's interest and outreach towards China was duly noted last weekend when Chinese President Hu Jintao invited Harper to China for a visit next year.

"You have repeatedly stated that you attach importance to our relationship and that you hope to forge an even closer relationship with China," said Hu. "I appreciate that position."