Ottawa—Canada’s review process for foreign direct investment (FDI) dissuades Chinese investments in Canadian resource industries, according to a Conference Board of Canada report.
The 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 concerns.
While some Canadians are skeptical of foreign investment from China, the 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,” Conference Board senior vice-president and chief economist Glen Hodgson said in a statement. “China is seeking to invest in countries that can meet its growing demand for resources (and) Canada is looking to diversify the export markets for these same resources.”
According to the Conference Board, its previous research showed the Canadian share of global inward FDI flows dropped from 16 per cent in 1970 to three per cent in 2009.
Chinese FDI would help Canada regain a portion of its falling share, the Conference Board claims, 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, the report predicts, and could rank second only to the United States by 2020.
According to the Conference Board, about half of China’s $14-billion in current investment are in resources—specifically energy.
In addition to China’s focus on resources, the nation presents a unique challenge because there are questions regarding whether its state-owned enterprises operate on market or political principles.
With the current Canadian process calling on the investor to demonstrate a net benefit to the country, the report claims Chinese investment becomes more costly.
As a result, the report alleges some investments may be dissuaded.
The Australian review process serves as a potential model for Canada, with that country attracting about three times as much Chinese FDI as Canada, according to the Conference Board.
The Australian regime assesses Chinese investments on the basis of clearly stated conditions related to ownership and governance of newly-acquired resource companies.
The report was published by the Conference Board’s International Trade and Investment Centre.