August 31, 2017
The majority of new Chinese investments in Canada for Q2 2017 were in the agriculture and food sector, which consisted of a single deal worth CAD $225 million. Prior to this quarter, the agriculture and food sector had not been a significant recipient of Chinese FDI. The combined total value of Chinese investment into the Canadian agriculture and food industry from 1990 until the end of Q1 2017 date was CAD$136 million. However, the most recent greenfield investment by Feihe International Inc. increased the combined total of Chinese FDI in the agriculture sector by 129% to CAD $400.7 million.
While there is not enough data to determine whether this large greenfield start-up will be indicative of further investment in the Canadian agriculture and food sector, recent regulatory changes may encourage Chinese investors to diversify into industries that previously have not received significant attention. On August 18, 2017, the central Chinese government announced new regulatory restrictions for Chinese outward investment: investment in “gambling and sex industries” will now be prohibited, while investment in foreign real estate, entertainment, film, and sport industries will be restricted and reviewed. Investment in industries that are determined to be strategic, such as infrastructure projects in the ‘Belt and Road’ countries, will not face any new restrictions.
As noted in The China Institute’s 2016 Occasional Paper “China’s Food Security Situation: Key Issues and Implications for Canada”, food security and “self-sufficiency in staple foods [are] a political project rather than an economic necessity” for the Chinese government. New controls on capital outflow will serve to both reduce risk and further devaluation of the renminbi, but will also direct investment into industries deemed to be of strategic priority for the central government. As the one-child policy is phased out, China has begun to experience a significant increase in the number of babies born, and thus a new strategic priority has emerged: The Globe and Mail reports that roughly 85% of the baby formula and milk products produced at the new Feihe plant in Kingston, Ontario will be transported back to China. Given Canada’s reputation as a safe and reliable food producer, it is likely that, in the future, similar greenfield investments may flow into Canada to satisfy China’s growing middle class.