OTTAWA, July 5, 2012 /CNW/ - Canada's current review process for foreign
direct investment (FDI) dissuades Chinese investments in Canadian
resource industries. While some Canadians are skeptical of foreign
investment from China, a Conference Board of Canada report concludes
that a better approach is to clarify the Investment Canada Act to set
clearly-stated conditions for Chinese investment.
"In our view, Chinese investments are in the Canadian national interest.
China is seeking to invest in countries that can meet its growing
demand for resources. Canada is looking to diversify the export markets
for these same resources," said Glen Hodgson, Senior Vice-President and Chief Economist.
This report, Fear the Dragon? Chinese Foreign Direct Investment in Canada, explores how Canada's FDI rules can be modified to encourage
additional Chinese investment, while addressing domestic political
"Two characteristics of Chinese foreign investment make them among the
most politically sensitive in Canada. One is the focus on natural
resources and the other is the involvement of state-owned enterprises.
A more explicit regime that reduced arbitrary political intervention
would be better for these investments."
Previous Conference Board of Canada research showed that the Canadian
share of global inward foreign direct investment flows dropped from 16
per cent in 1970 to 3 per cent in 2009. Chinese FDI would help Canada
regain a portion of its falling share, which would contribute more
broadly to the growth of employment and productivity gains. China has
the potential to be the third largest FDI investor in Canada by 2015,
and could rank second only to the United States by 2020.
Furthermore, China is seeking to invest globally in resources. About
half of China's $14 billion in current investment are in resources,
specifically energy. In addition to China's focus on resources, China
presents a unique challenge because there are questions regarding
whether its state-owned enterprises operate on market or political
The current regime calls on the investor to demonstrate a net benefit to
the country. This unclear test creates political risk and makes Chinese
investments more costly. As a result, some investments may be
dissuaded. However, the opaqueness of the existing Investment Canada
Act process makes it impossible to say how many investors refrain from
investing in Canada because of these concerns.
The Australian review process serves as a potential model for Canada.
Australia attracts about three times as much Chinese FDI as Canada. The
Australian regime assesses Chinese investments on the basis of clearly
stated conditions related to
ownership and governance of newly-acquired resource companies. Although
the merger of Chinese aluminum giant CHINALCO with Australia's Rio
Tinto failed, Yanzhou Coal Mining Company Limited, has made two major
acquisitions in recent years.
The Conference Board recommends several reforms to the Investment Canada
Act that would facilitate Chinese FDI and address political concerns.
For example, an explicit foreign direct investment review regime would
be organized around two tests: a national interest test and a national
Under the national interest test, the federal government would need to
show how an investment is contrary to the national interest. For the
security test, specific security risks should be identified and
clarified for Chinese investments.
The report is published by the Conference Board's International Trade and Investment Centre. Now in its seventh year, the ITIC helps leaders better understand
changes in the global economy and their implications for Canadian
international business opportunities and public policies.
Link to publication: http://www.conferenceboard.ca/e-library/abstract.aspx?did=4884
SOURCE CONFERENCE BOARD OF CANADA
For further information:
Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext. 448