Strained relations affecting Sino-Canadian business ties

The investment environment for China and Canada has been constrained in a variety of high-tech areas, according to the executive director of a business group and a recent survey.

"This goes hand in hand with US-China tensions and actions the US has taken against Chinese companies," Sarah Kutulakos, executive director of the Canada China Business Council (CCBC), told China Daily.

A report on Chinese companies' business practices and impact in Canada found that the business performances and practices of Chinese multinational enterprises (MNEs) in Canada have been impacted by unstable bilateral relations.

The survey conducted by the China Institute at the University of Alberta and the CCBC shows that although the impact of frigid Canada-China relations has not been as significant as expected and did not directly impact their business growth in Canada, but Chinese companies in security-related high-tech sectors were "harder hit" by the strained relationship.

For example, two Chinese high-tech companies in Canada saw a significant drop in sales after 2018 and had difficulties in developing and maintaining supplier and customer relations.

"Both indicated this was also a consequence of the state of China-US relations and related regulations," the report said.

Chinese telecom and security-related companies see closed ties and a stable policy environment as essential to their future growth in Canada. Instead, many companies expressed that chilly relations were "challenging" to navigate, even though the impact was often indirect.

Kutulakos said Chinese companies are affected in a variety of high-tech sectors, from telecommunications, where there have been some specific exclusions, to artificial intelligence, where it is often unclear what is "inbounds" or "out of bounds" to other types of tech, where the line between civilian and military applications may be unclear.

"In my opinion, the biggest result is a discouragement of investment by Chinese companies, who may be worried the investment will be turned down on national security grounds," she said.

The China Institute's China-Canada Investment Tracker database shows that Chinese investment flow to Canada expanded rapidly until 2017, before China's tightening policy for overseas investment took effect.

However, Chinese investment in Canada has faced heightened scrutiny relating to national security, labor conditions and environmental impact in recent years.

In fact, 75 percent of respondents indicated that changing Canada-China relations have had some negative impact on their company in Canada. Compliance issues and public relations are among the top factors that affect Chinese firms' overseas investment decisions.

The survey found that although partnerships between Canadian and Chinese companies are common, Canada's public sector supply chains "rarely" include Chinese companies. Additionally, "very few" Chinese companies have received financial support from the Canadian government.

"Only a handful of Chinese companies have developed business collaborations with the Canadian public sector or have participated in any Public-Private Partnership projects," the report said.

As indicated by the survey results, the regulatory environment in Canada is generally stable, albeit with some concerns on policy stringency. However, some companies said that the regulatory environment has tightened for Chinese connections in their business since their initial investment.

On the other hand, many argue that Canada benefits from Chinese companies' job creation, product and service diversification, and global value-chain integration usually outweigh the risks of Chinese investment, according to the report.

Contrary to the negative impact on Chinese companies, the survey shows that Chinese companies have made great contributions to Canada through job creation, government tax revenue, investment, more consumer choice, improving exports of products and services, benefiting the Canadian supply chain, and greater social responsibility.

Most Chinese companies hire locally, although that is less often the case for management personnel.

The survey shows that Chinese firms actively engage in corporate social responsibility (CSR) activities in Canada. Eighty-five percent of Chinese companies surveyed reported CSR practices within Canadian communities.

The survey also demonstrates Chinese companies' impact on the competitive landscape in local markets, as 62.5 percent of respondents believe that their business in Canada significantly impacted the competitive market structure.

Some respondents said they improved product variety with differentiated products and services, some of them believed they filled a market gap with significantly different products and services.

Canada-China relations have deteriorated significantly in recent years since Huawei Technologies executive Meng Wanzhou was arrested by Canada at the request of the US in December 2018. The relations between the two countries remain tense and need to be restored even after the release of Meng, experts said.

Asked about how relations could get back on track and the business sectors rebooted, Kutulakos, of the CCBC, noted that the most important step is resumption of regular dialogue for the business community, specifically the Economic and Financial Strategic Dialogue, which was last held in 2018.

"Regular bilateral exchanges such as the EFSD (Economic and Financial Strategic Dialogue) allow both countries to raise and resolve issues affecting the business community," she said.

Although faced with challenges such as strained bilateral relations and the COVID-19 pandemic, interviewees from the Chinese companies were generally optimistic about the future, as the effects of the pandemic slowly dissipate, according to the report.

Looking ahead, "all interviewees confirmed their companies would continue to operate and invest in Canada, despite the fact that some have been negatively affected by political tensions and the COVID-19 pandemic," the report concluded.