The 2017 Sino-Canadian Investment Reset
Photo Credit: Reuters
By Tai Wei Lim

The 2017 Sino-Canadian Investment Reset

Dec. 26, 2017  |     |  0 comments

Canada’s economic exchange with China started in the 1960s with wheat exports to China, and the process was later greatly enhanced with the recognition of the People’s Republic of China (PRC) by the Pierre Trudeau government in 1970 and later, in 2005, when former Chinese Premier Zhu Rongji recognized Canada as China’s “strategic partner.” This series of events established the foundations for the PRC’s economic exchange with Canada.


Today, 50 percent of Canadian exports to China are based on natural resources and the Canadian government believes that they have more resources to offer and feed Chinese industrial needs. In addition to its innovative technologies to reduce emissions, Canada also exports wood to China, and is the world’s 4th largest crude oil, world’s no. 3 natural gas, and world’s no. 2 uranium producer.


 Amongst these natural resources, the most promising group of resources projected to grow much further are energy fuels. Canada is poised to increase beyond its current oil exports to China, and will start selling natural gas to China, especially after its three new Liquefied Natural Gas (LNG) projects on its Pacific coast, promising an annual output of 40 million tonnes of natural gas, are completed.


The year 2017 marks a turnaround in the fortunes of the Canadian resource sector when it comes to Chinese investments. Prior to 2017, the Chinese and other foreign investors were downsizing their presence in Canada’s resource sector. In December 2015, China’s USD 747 billion China Investment Corp shut down its Toronto headquarters, which had been the first overseas office of its kind for a Chinese sovereign wealth fund. In 2015, Canada’s resource sector was hit by low oil prices and declining metallic ore prices that proved challenging even for massive Chinese state-owned enterprises (SOEs) that were accustomed to making long-term business decisions that could ride out cyclical adjustments.


At the end of 2015, almost all Chinese major investments in the Canadian resource sector had run into difficulties. For example, CNOOC’s CAD 15 billion purchase of Nexen Energy in Calgary ran into then-PM Stephen Harper’s restrictions; the 2009 USD 1.5 billion investments in Teck Resources was affected by declining resource prices; and Chinese investments in Penn West Petroleum and Sunshine Oilsands made losses due to plunging oil prices.


Even with the about-turn of Chinese investments in 2017, it is wise to ensure bilateral economic exchanges remain sustainable by learning from the past, especially since Canadian public sentiments experience cyclical changes over time. For example, in September 2017, concerns about Asian investments (including Chinese) started to re-emerge with the Chinese acquisition of Montreal-based ITF Technologies and Vancouver’s Retirement Concepts.


Some observers argue that the lack of data or inaccuracy of information led to public misunderstandings about Chinese investment. For example, the 2015 survey data generated by the Asia Pacific Foundation of Canada indicated that Chinese foreign direct investment made up a quarter of Canada’s overall investments when the actual percentage was only 3 percent. Such inaccuracies led Canadians to develop the negative impression that the Canadian government was accepting “too much” investment from China.


At the same time, protectionist sentiments notwithstanding, Canada’s economy cannot grow without investment from Asia-Pacific economies, especially China, Japan, and Australia. 77 percent of the CAD 103.76 billion in Asia-Pacific investments in Canada from 2003-16 originated from China, Japan, and Australia. 70 percent of the value of these investments are resource-related, but when the statistics are conceptualized in terms of the volume of deals, 64 percent of these deals are in consumer goods, services, finance, industrial goods and services, and technology.

If China and Canada eventually move toward a free trade arrangement, it will be historic as China would then have its first free trade agreement with a G-7 member state.

In other words, Canada is experiencing gradual diversification of types of investments from Asia. This should dispel the myth that Asian investors are only interested in Canada’s resources, which has been a source of suspicions and anxieties about Chinese SOE investments. Moreover, most SOE investments are focused on a handful of resource mega-deals in British Columbia, Alberta, Ontario, and Quebec and, while SOEs make up 57 percent of overall investment value, they account for only 24 percent of the number of deals. Conceptualized in this manner, SOE investment is not as overwhelming as the public imagines.


Nevertheless, if Canada and China intend their bilateral economic exchange to be a mutualistic win-win situation, it may be necessary to work out institutional platforms for both governments to discuss concerns about investments in each other’s economy. The institutional platform may also have to release information about Chinese SOE investments in Canada in order to inform the public accurately on the state of such investments in Canada to prevent rumor mongering, over-anxiety, and alarm.


Eventually, Canada may have to engage in healthy and frank domestic political debates about Canadian views on foreign SOE investments in their resource sector and how best to protect their strategic interests. China’s SOEs may also need to practice greater transparency and dialogue with Canadian local communities, the general public, and the local business sector to assuage their fears and concerns about Chinese intentions. Ultimately, there is also an invisible hand in all these interactions as Chinese investments will inevitably react to market forces.


Progressive and liberal Canadian PM Justin Trudeau visited China in early December 2017 with a liberal message and agenda of prompting Beijing to look at labor rights, gender equality, and sustainable environmental development, and to support conditions for the working masses, with the intention to shore up like-minded Chinese President Xi Jinping who is keen to push for trade liberalization, globalization and free trade. Both leaders along with France’s President Emmanuel Macron are currently perceived as the world’s defenders of free trade, in contrast to the “America First” policy of US President Donald Trump. For some, this perception was confirmed with the US withdrawal from the Trans Pacific Partnership agreement which was advocated strongly by the preceding Obama administration. However, very often, characterizations of countries as being either pro or against globalization are really perceptions rather than the actual complex reality that affects the major players in the world trading system.


PM Trudeau exudes charisma and attraction, and enjoys high popularity amongst ordinary people, including the Chinese. He has been even-handed in pushing for progressive and liberal features to be included in his talks with Beijing as well as with the US on the North American Free Trade Agreement. Both Ottawa and Beijing are keen to launch more talks and dialogues about new features and elements of free trade agreements, and PM Trudeau’s visit may be a catalyst to kickstart officials and stakeholders at different levels to find points of agreement or unity. This is especially in areas like environmentally-friendly innovative technologies, global climate change, legal cooperation, educating and training young generations, and the cattle industry. In Guangzhou, at an international forum, PM Trudeau continued to advocate having more progressive trade agreements that go beyond removing tariff barriers and combating protectionism. Canada is an important free trade advocate that has tried to enlighten its partners like the US and Brexit-hit UK to look towards opening up rather than inward-looking protectionism.


If China and Canada eventually move toward a free trade arrangement, it will be historic as China would then have its first free trade agreement with a G-7 member state. If anyone from Canada can succeed, it would surely be PM Trudeau. The Trudeau family is a political dynasty that has long enjoyed friendship with Beijing. PM Trudeau’s father, Pierre, who was himself PM of Canada, went to China in 1960. Pierre Trudeau narrated his travel observations in a publication Two Innocents in China which praised the Chinese reception he experienced personally. Pierre Trudeau’s exploits were given a positive evaluation by Chinese President Xi Jinping and this implies that it is fine for Chinese policymakers to deal with the Trudeau administration.

Leave a Reply

Your email address will not be published. Required fields are marked *