I am back from another trip to China. With our CNOCC assignment concluded, we are of course looking for that next advisory opportunity. So the trip provided us a window into China’s current appetite for investment in Canada.  There is no question that H+K is well-placed for the next foray into Canada; the issue is whether the Chinese are as hot on Canada and the U.S. as they were before Nexen.

In our rounds with Chinese banks and energy, and mining SOEs, we still found a high degree of comfort in Canada as in investment location. Our system of government, our rule of law and our strong fiscal regime at the federal level are reassuring reasons to invest. But with the world economy slowing down, the Chinese also noted that their investment returns in Canadian resource stocks were down and there is increasing anxiety about the state of Canadian infrastructure to distribute commodities for export. Obviously, there is no point in investing in natural resources if you can’t get them to market.

We also encountered widespread concern about the implications of the government’s new SOE guidelines. After the Nexen transaction was approved and, on the same day, new guidelines were put in place to ring-fence the oils sands from new SOE investments. But the government also hinted that it wouldn’t hesitate to broaden restrictions into other sectors of Canada’s economy if it became too reliant on SOE investment. The vast majority of China’s big players are SOEs, so this caution was heard loudly by virtually everyone to whom we spoke. Ironically, while I was there, Minister of State for Trade Madam Wong, and this week, Minister Fast, were in China pitching Canada as a welcoming investment location. This suggests that the government needs to get its messaging a little bit more focused around what type of Chinese investment it is looking for. Given the Chinese concern about the inadequacies about our infrastructure, one obvious type of investment would be green-field projects around pipelines. Bringing some focus to what precisely Canada is looking for would be helpful because there are plenty of locations around the world from the UK and EU to Africa that have an open-door policy to Chinese investment.

Indeed, while I was there Australian Prime Minster Gillard signed a new treaty that will facilitate the exchange of the Australian dollar and the Chinese Renminbi. Although the Chinese are too polite to say so explicitly, it is very clear that, in their view, there are plenty of other opportunities out there if Canada and the U.S. have reservations about Chinese investment.

I suspect the Canadian government will be tested again soon enough. The convention oil and gas sector in this country is in need of investment – as is mining. But I rather think the next play will not be a blockbuster but something lower profile that is likely to elicit less attention. It will be interesting to see how the feds handle this.

As a postscript to Nexen, the Asia Pacific Foundation recently released a survey of its stakeholders with an interest in Asia.  It found that 56 per cent of the respondents approved of the deal. This jumped to 64 per cent support when asked about Malaysia’s SOE of ProGas. There is no doubt China’s investment is controversial in North America and this will continue to make the federal government’s reactions unpredictable.