September 29, 2017
According to the China Institute’s China-Canada Investment Tracker database, the relative share of Foreign Direct Investment (FDI) transactions made by Chinese SOE investors in Canada has decreased significantly: prior to 2014, the vast majority of acquisitions made in Canada by Chinese firms were state-owned enterprises (SOEs)—which were particularly active in the Alberta energy sector. However, since 2014, most of the investment in Canadian industries was committed by private ventures: in 2016, 95% of the total Chinese FDI into Canada was from private firms for a total of CA$7.14 billion. Between January-August 2017, 80% of Chinese FDI was contributed by private firms for a total of CA$4.249 billion.
While the number of private transactions has significantly increased, along with a decrease in state-owned acquisitions, SOEs still account for almost three quarters of the cumulative investment in Canada by China since 1993. This is due, in part, to several large energy sector acquisitions, notably the China National Offshore Oil Corporation (CNOOC) takeover of Nexen in 2013 for CA$19.9 billion (including the assumption of debt), the sale of PetroKazakhstan Inc. to China National Petroleum Corporation for CA$4.9 billion in 2005, and 9% stake in Syncrude by China Petrochemical Corporation for CA$4.8 billion in 2010.
While SOEs were encouraged to expand their presence abroad since 2000 as part of the Chinese central government’s “Go Global” strategy, the relative share of SOEs in both China’s domestic and international markets has decreased in comparison to private firms. This is, in part, due to efforts made by the Chinese government to liberalize trade, ease monetary restrictions, and shed “zombie firms”—that is, unprofitable state owned enterprises that are kept afloat through government subsidies. In March of 2016, Premier Li Keqiang stated that the Chinese government intended to deal proactively with zombie firms by cutting back on overcapacity and shutting down unprofitable SOEs.
However, SOEs are not likely to be entirely replaced by private firms: while the motivation of private corporations is to maximize profits for shareholders, SOEs operate to be profitable, but are also a means through which the government pursues social responsibility and strategic objectives. SOEs are most active in sectors determined to be strategic for the central government, known as ‘pillar industries’, such as energy, metal and minerals, and aviation. This is consistent with investment trends in Canadian industries, as Chinese SOEs have traditionally been most active in the oil and gas sector. It is therefore likely that while the relative share of private firms for Chinese FDI into Canada will increase in the coming years, SOEs will remain significant partners for the Canadian energy sector.