News out of Beijing reported in The Globe and Mail’s March 12, 2014 Report on Business (ROB) suggests that Chinese investors are “skirting” foreign investment rules in Canada by focusing on transactions that cannot be blocked. Specifically, Chinese investors are looking at acquisitions of exploration properties that are not considered businesses under definitions prescribed in the Investment Canada Act. This interesting twist is no doubt being advocated by the M&A legal community in Canada, seeing as Chinese M&A activity has all but dried up since the introduction of the government’s new state-owned enterprise (SOE) guidelines in December 2012.
Despite front-page coverage on the ROB, we are unlikely to see any federal government move to plug this loophole—unless there is significant public reaction. In Australia, for example, the government recently introduced legislation to restrict the sale of agricultural property to foreign investors after Chinese conglomerates began buying up Australian farm properties. In this instance, the general public raised concerns that forced government to act. The same may not happen in Canada, as the exploration properties are owned by the provinces, who are very concerned that new SOE guidelines are restricting foreign investment opportunities in their resource industries.
While this development bears watching, it is also interesting to note that this week’s signing of the Canada-Korea free trade agreement grants the Koreans the same threshold limits that Canada gave the Europeans in the Comprehensive Economic and Trade Agreement (CETA) agreement. Both of these trading partners will now enjoy “Most Favoured Nation” treatment when it comes to Investment Canada thresholds. But in both cases, there is no escaping the restrictions around SOEs.
For a complete round up of last year’s foreign investment developments, take a look at my recently published article, “Foreign Investment: Another Year of Surprises”, which appeared in the March/April 2014 edition of Policy magazine.
Authored by: Mike Coates