July 23, 2018
Verifiable Chinese foreign direct investment (FDI) in Canada recently dropped to its lowest level since 2009, totaling only $668.74M CDN in the first half of 2018, according to data collected by the China Institute. This represents a decrease of 79% from the corresponding period in 2017, in which Chinese FDI to Canada equaled $3.21B. This recent decline in investment reflects a broader trend of diminishing FDI from China, also observed in the second half of 2017 wherein investment fell by 12% from the previous year. Additionally, the number of individual investments decreased significantly with only 32 transactions in the first half of 2018, as compared with 50 and 54 in the corresponding periods in 2016 and 2017 respectively.
Chinese demand for Canadian assets faltered in part because of Chinese capital outflow restrictions implemented in late 2016; however, it is likely that the troubled NAFTA negotiations and the opening skirmishes of the U.S.-China trade war may also have contributed to the sharp decline in investment between the first halves of 2017 and 2018. The newly implemented U.S.-China tariffs have decreased demand for U.S. exports such as soy and pork, which, in turn, lowered their market prices thus decreasing profits for U.S and Canadian farmers alike (Financial Post). Similarly, U.S. tariffs against Canada aimed at leveraging NAFTA negotiations have decreased our access to select sections of the U.S. market thereby depressing sales for Canadian steel and aluminum exporters among others (CBC1, CBC2). Cumulatively, these circumstances reflect rising risk and uncertainty in North American and Canadian markets, which may be discouraging to a broad range of investors.
However, risk is often accompanied by opportunity; data collected by the Canadian Grain Commission suggests a significant increase in wheat and barley export to China in 2018 (Western Producer). Crude oil shipments from Canada’s West Coast to China have also increased in 2018, with Vancouver's largest shipment of oil to China since 2015 departing earlier this month, according to a Reuters report. Given the relatively widespread fallout from the aforementioned trade disputes, Canadian businesses may find some relief in these successes.
While these trade disputes dominate our daily news, it is important to note that other factors are also influencing the flow and composition of Chinese investment in Canada. In a report published by the University Of Calgary School Of Public Policy, author Wendy Dobson noted that Chinese State-owned Enterprises (SOEs) are more inclined to target strategically important assets such as natural resources than private corporations (policyschool, p3). Indeed this is being observed in Canada, where investment is increasingly coming from private investors instead of SOEs, and, as a consequence, the destination of investment is shifting from natural resources to consumption goods. This move from capital-intensive industries to industries requiring less capital may also help account for decreasing Chinese FDI in Canada.