The Impact of China's State-Owned Enterprises in Canada

Introduction

Chinese businesses have grown more aware of the trade and investment opportunities in Canada and believe these opportunities can help to contribute tremendously to China's five-year plan for 2011-2015, which encourages overseas expansion and cooperation to secure access to resources, acquire technology, and improve management capabilities.1 Increased interest particularly from Chinese state-owned enterprises (SOEs) to invest in Canada is indicative of larger trends and China intends on maintaining a strong state presence in the management of its national economy, as well as in its interactions with the global economy. In line with findings from the Asia Pacific Foundation of Canada report China Goes Global 2010, the largest Chinese investments to date have come from state-owned firms.2 The results suggest Chinese SOEs have on average significantly larger intended investments in Canada than their non-SOEs counterparts and these SOEs are a major new source of global foreign direct investment (FDI) and overall economic growth and prosperity. The depth of such capital available for overseas investment is China's interest in resource assets, witness to the recent bid for Calgary-based oil gas company Nexen Inc. by China National Offshore Oil Corp. (CNOOC). This proposed acquisition and other subsequent transactions have raised concerns and an ongoing debate about the impact of foreign state-owned enterprise investments in Canada and about the growing power and influence of such firms, or if policymakers and citizens should welcome their contributions to job creation and economic growth. Some feel that Canada's economic future and wellbeing depends on engaging Asia and specifically China. Others believe a state-owned enterprise, especially when that state is China, will act in a way that best suits the interests of that country, which will lead to challenges on constitutional issues, the fall of Canada's reputation and stand on human rights, and could lead to potential loss of control of Canada's resource industry. Chinese investment is going to be a big part of Canada's economic future and before rushing into a deal that can have unforeseen consequences, the government needs to step back take these concerns Canadians have into consideration to either reform policies and set strategies in place to protect "the net benefit of Canada" or to reject the investments of state-owned enterprises all together.

Challenges on Constitutional Issues

Given China's rapidly expanding economy and increasing opportunities for foreign direct investment (FDI), the potential of China as a destination for Canadian investment is significant. Canadian investors have expressed interest in a broad range of sectors in China and Chinese firms have also expressed a strong interest in investing in Canada. The risks of investing abroad can be high and for this reason the Canadian government pursues policies including The Investment Canada Act (ICA) and negotiating Foreign Investment Promotion and Protection Agreements (FIPAs) in order to provide a more transparent and predictable climate for Canadian investors abroad. A FIPA is an international treaty providing binding obligations on host governments regarding their treatment of foreign investors and investments. By setting out clear rules and an effective enforcement mechanism, a FIPA provides a stable legal framework to promote and protect foreign investment. It typically sets out a range of obligations that host governments guarantee pertaining to non-discriminatory treatment, expropriation, transfer of funds, transparency, due process and dispute settlement. While Canada concludes FIPAs to protect Canadian investment abroad, the disciplines are reciprocal and serve to reinforce Canada as a stable and predictable destination for foreign investment.3 Although FIPA is to protect Canadians and help to enhance two-way investment flows between signatory countries, Canadians are expressing opposition to the new Foreign Investment Protection and Promotion Agreement with China arguing that it works against Canada's interests, rather than it's favor. Canadians fear that The Investment Canada Act will only apply to new investments of more than $1-billion per transaction. Under the FIPPA, once a Chinese company is established in Canada it would be treated like any other Canadian company opening the doors for the emergence of constitutional issues. Critics suggest that the treaty allows arbitrators, beyond Canadian courts and, in some situations, any court, to review decisions of any legislature, government, court, tribunal, first nation or municipality that affects any Chinese-owned asset.4-6 The arbitrators have immense power to challenge Canadian laws on social, environmental and economic matters, and make Canadian taxpayers liable for millions in damages. Recent examples contributing to this argument involves the Chinese insurance company Ping An invested in Belgo-Dutch bank Fortis. After the 2008 financial crisis, Fortis was nationalized and sold. Ping An lost about $3 billion as a result, and is suing Belgium for damages.7 Several countries have faced catastrophic awards under these treaties, the arbitrators have steadily grown their role, investors increasingly sue developed states and the amounts at stake have escalated to tens or even hundreds of billions of dollars. The arbitrators are on a roll; questions of democracy and judicial independence remain outstanding.4

Exhaustion of Natural Resources

China's appetite for overseas assets continues to grow, with energy and natural resources as key targets, since the country aims to secure the resources it needs to fuel its economic growth. The exploitation of natural resources is a key factor in economic growth and development and China's aim to secure resources for economic prosperity raises voices of concern that Canada is putting itself in the position of a developing country and as a result risks loss of control of natural resources. These include the destruction and degradation of old growth forests, the depletion and pollution of water resources, the decimation of fisheries, and the despoliation of land in order to extract mineral resources. Critics argue there is a flip side of the coin to the fast growing economies, like China also increasing their wealth and this wealth calls for more natural resources to satisfy all the needs of the population. China's hyper-growth has made it the single largest importer of natural resource-based commodities.8 Article 33 of the FIPA treaty stipulates that "nothing in this Agreement shall be construed to prevent a Contracting Party from adopting or maintaining measures, including environmental measures ... necessary to protect human, animal