Summary Report

2014 Investment Banner

By Ron MacIntosh, Senior Fellow, China Institute

On May 2, 2014 in Calgary, the China Institute of the University of Alberta convened some 90 business, government, and academic representatives from Canada and China at its 4th annual National Chinese Investment Forum.

The Forum featured keynotes from the Honourable Cal Dallas, Alberta's Minister of International and Intergovernmental Relations, Canada's Ambassador to China, Mr. Guy Saint-Jacques, and Mr. Wang Xinping, China's Consul General in Calgary. Minister Dallas brought a strong message that Alberta is "open to business" and to China's investment in particular - a much-needed source of capital for energy sector projects, and one driving long term linkages with China, spurring infrastructure development, and industrial spin-offs upstream and downstream. From his vantage in Beijing, Ambassador Saint-Jacques conveyed that Canada remains a priority with the Chinese government and one favourably viewed among investors. The fall-off in flows following the Nexen deal had coincided with a tough review by the new Chinese leadership on the prudence of all investments abroad by State-owned Enterprises (SOEs). It did not reflect a loss of confidence in Canada. Estimates of the current stock of Chinese investment in Canada ranged from $38-$50 billion.

Following the approval of the China National Offshore Oil Corporation (CNOOC) purchase of Nexen in December 2012 and new guidelines for foreign SOEs limiting majority stakes in the oil sands to "exceptional cases", amendments to the Investment Canada Act (ICA) were passed in July 2013. These amendments confirmed that the rise to $1 billion in transactions requiring review under the Act would not apply to SOEs whose threshold would remain at $330 million inflation-adjusted. It also broadened definitions of SOEs under the Act to entities deemed by the Minister to be "influenced" by government.

The Forum agenda was designed to address specific questions that have arisen since the decisions taken in 2012/13. On the subject of "the chill", for example, Forum discussion ranged from a view that concern persists in China over the direction and clarity of Canadian investment policy to assessments that the drop in Chinese investment flows was either exaggerated or due to factors other than the new rules. The former view holds that the new rules significantly account for sharp dip in 2013, even below pre-Nexen levels. The latter view held that the policy review in China, price and cost pressures facing all companies as well as learning curve factors affecting Chinese firms were of greater importance. Many viewed investment statistics as underestimated, and also missing activity in services or technology or funds arriving in other forms (supply chain participation; venture capital).

Longer term, the outlook was one of broad confidence in the potential of Canada-China investment ties; nevertheless, concern remains that the new measures had sent a negative, China-targeted message. The Forum showed a broad recognition that, as China goes global, and as China has newer choices available - in energy and other sectors, Canada must compete for Chinese capital. Public policy and public attitudes along with business returns are part of that competitive picture - as is the development within the private sector of enabling eco-systems for multi-sector partnerships. The move by Chinese financial institutions in Canada toward Schedule 3 status and efforts to establish an RMB settlement centre in Canada were seen as facilitative of capital flows. Overall, good care, appropriate messaging and sound strategy going forward would be essential, by government at all levels, as indeed by both public and private sector investors.

On the question of the dialogue necessary to manage investment policy effectively and to ensure an enabling environment in related areas, Forum participants agreed that recent experience in relation to China had underlined the importance of a truly national approach. Recognizing progress had been made, some unfinished business is evident. In the context of the broader relationship with China and the public controversy that persists, both the policy and promotional dimensions of foreign investment illustrate the opportunity and challenge ahead - and above all the complexity of the setting in which business and government must operate. As Minister Dallas noted, provinces possess vital industrial information that should be factored into net benefit assessments - as do other levels of government and stakeholders. It was agreed that decision-making practices must be collaborative.

The encounter of myth and reality concerning the nature of Chinese SOEs, globally and within Canada, is the source of public unease, aggravated by its newness and cross-cultural factors. Yet caution was registered on "overgeneralizing" on both the character and the behaviour of Chinese SOEs, particularly assumptions of irretrievable incompatibilities of mission, governance and management style. Perceptions risk distorting public policy. To be certain, Chinese SOEs are different, for instance, in their executive recruitment and training practices. Governance practices remain opaque. Yet at least in their manner of doing business abroad, SOEs have trended to a more truly commercial orientation and to management evaluation that accents operating performance over political considerations. Efforts are evident to accommodate of Canadian business practices and public expectations and to promote community integration. These efforts must be reciprocated by the Canadian side in investment policy (including FIPA ratification), in institutional and physical infrastructure being put in place, and by advancing public education on the merits of Chinese investments.

Finally, drawing on a panel of legal experts, the Forum considered the "net benefit test" under the ICA, including whether this tool was sufficiently well-conceived and adapted to the evolving circumstance of foreign investment in a global setting and to the circumstances of Chinese investment in Canada in particular. Considerations of net benefit were felt to be sufficiently understood that legal advice could confidently be given to investors in the vast majority of cases on what would "pass". However, none of the recent changes had much aided the cause of enhanced clarity and therefore predictability, as to how policy would be administered in high-profile cases and the rationale for decisions explained, for instance, along the lines of Australia. Moreover, there persist some ironies in the government insisting on commercial orientation as per the 2007 SOE guidelines while, in the course of negotiating approvals, adopting more interventionist, that is, government-directed approaches on specific undertakings.

This summary does not attempt to capture all the excellent points made at the Forum, but rather to highlight the principal themes around which consensus is evident and follow-up attention is warranted. After the recent controversy and the still evident challenges of public opinion and "social license", there are strong grounds for optimism on the potential for investment to grow and to play a valuable and ever more diversified role in the Canada China economic relations.