Ottawa has for years struggled to strike a balance between attracting Foreign Investment & fending off Politically motivated takeovers by Foreign States.

Canada needs to clarify its Foreign Investment Rules, as the COVID-19 Pandemic puts the Country at heightened risk of strategic takeovers by aggressive foreign actors like China, Several International Affairs Experts say

In testimony before a House of Commons Committee on Monday, Experts repeated the long-held claim that Canada needs to more clearly define what it considers its “strategic interests,” particularly when the economic fallout from the pandemic has made many Canadian firms ripe for acquisition.

Ottawa has in recent months signalled that Canadian assets are at a higher risk of foreign takeovers, and has moved to review proposed acquisitions more closely.

Charles Burton, senior fellow at the Ottawa based Macdonald-Laurier Institute, said potential takeovers by Chinese state-owned enterprises (SOEs) are particularly worrisome, as they could be used on behalf of the Communist Party of China to advance its foreign strategic interests

“Most of them, if not all of them, are serving the interest of the Chinese state, and are not simply about enhancing the profitability of the company in Canada through a shrewd investment,” he said.

Ottawa has for years struggled to strike a balance between attracting foreign investment and fending off politically motivated takeovers by foreign States. Those concerns reached new highs in 2013 when Ottawa threatened to reject but ultimately approved China’s $15 billion purchase of Oilsands Giant Nexen. More recently, in 2018, the Liberal government rejected the takeover of Canadian construction firm Aecon by a Chinese SOE, citing national security risks.

Burton on Monday reiterated concerns about Chinese-led takeovers in strategic assets like energy or telecommunications. Many investments made by Chinese firms are done purely out of strategic, rather than commercial interests, he said; like those being pursued under China’s Belt & Road Initiative.

“Many projects funded by China are in fact money losers, but serve the People’s Republic of China’s Geo-strategic interest all the same,” he said.

Those projects have increasingly come in the form of “debt trap diplomacy,” Burton said, in which the Chinese government loans money to struggling states under harsh terms, as part of a long-term plan to take over the asset at a later date.

Most of them, if not all of them, are serving the interest of the Chinese state

In April, Industry Minister Navdeep Bains put forward policy changes allowing Ottawa to more closely scrutinise “investments of any value, controlling or non-controlling” by foreign companies, particularly those involving public health or the supply of critical goods and services. He also removed thresholds for reviewing investments in any sector by state-owned or state-connected entities.

Attorney General David Lametti has also put forward draft legislation that would extend timelines allowed for the review of foreign takeovers.

Other experts on the panel disagreed that Canada is currently at a higher risk of foreign takeovers, saying that the hundreds of billions in capital pumped into the economy by the federal government and Bank of Canada has kept companies relatively healthy.

“I do not see generalised panic selling,” Daniel Schwanen, Vice President of Research at C.D. Howe Institute.

Schwanen, like others who testified on Monday, said Ottawa needs to be more clear in how it defines its strategic interests and threats to national security, as haziness around the issue has caused confusion for many foreign buyers.

It is difficult to distinguish what constitutes a strategic industry

He also stressed that any changes to Canada’s foreign investment should be careful not to unnecessarily scare away vital sources of funding for domestic firms.

“Foreign investment can be a very useful way of providing capital to these companies,” he said, warning against “knee jerk” opposition to foreign takeovers.

Experts testifying before the committee on Monday also acknowledged that tightening language around what constitutes a strategic interest could prove challenging, as it would force Ottawa to effectively choose essential versus non-essential industries.

“Everybody would want their industry to become strategic,” said Patrick Leblond, Professor of International Affairs at University of Ottawa. “It is difficult to distinguish what constitutes a strategic industry.”

Author: Jesse Snyder
Editor’s note: The article reflects the author’s opinion only, and not necessarily the views of editorial opinion of Belt & Road News.