Chinese investment in High Tech and Controversial bid to acquire Canada’s Norsat

June 20, 2017

The Trudeau government’s recent decision to approve the China-based Hytera Project Corporation’s bid to acquire Norsat International Inc. has been challenged by the U.S-China Economic and Security Review Commission. The Commission’s Michael Wessel told the Globe and Mail that the Canadian government is jeopardizing US-national-security interests “in exchange for obtaining a bilateral free-trade deal with China.” Prime Minister Trudeau rebuked such criticisms, stressing that the US and other allies were consulted before the sale was approved. Echoing these comments, in an interview with the National Post, Canada’s Ambassador to China John McCallum said that he heard “no chatter from Chinese officials about security concerns” around the Norsat deal, stressing that Canada is “always open to foreign investment” from China and other countries. This comes at a time when officials in Ottawa are working with their Chinese counterparts to strengthen economic cooperation between both countries, partly in light of recent American threats to impose tougher restrictions on imports of Canadian softwood lumber and dairy products and the re-opening of the North American Free Trade Agreement (NAFTA). It is important to note, however, the Norsat deal has not closed at this stage, and is merely in bidding phase. An American company is also in the process of placing a bid.

Hytera Project Corporation’s move appears to be consistent with the overall trend in Chinese global foreign direct investment (FDI). Chinese outbound FDI reached record high in 2016, exceeding USD$200 billion, according to a recent report by MERICS and Rhodium Group, with investments increasingly going into the high tech sector. In the U.S., Chinese investment in high tech sector exceeded USD$7 billion from 2010-2014, according to the findings of a 2014 study by the Asia Society and Rhodium Group. In Europe, of the EUR€35 billion in 2016’s total Chinese FDI, over half has been in the high tech and advanced manufacturing sectors. According to data collected by the China Institute at the University of Alberta, Chinese investment in the high tech sector in Canada increased from around CAD$500 million in 2013 and 2014 to CAD$1.07 billion and CAD$861 in 2015 and 2016, respectively.

As manufacturing declines as a share of the total economy in China, and as demand for high tech products increases, Chinese investors are increasingly interested in expanding into the latter sector in order to ensure China global competitiveness in a rapidly changing global economic system. Chinese investment is almost certain to continue to flow into potentially sensitive projects in the high tech sectors in Canada and other developed countries. Clearly defined review processes will continue to be needed for any foreign investment that may raise security concerns. However, it is in Canada’s interest to be open to foreign investment in a wide range of sectors from diverse source countries, including China, given the weak economic growth and uncertainly regarding future trade with the US.