Why Chinese Businesses Invest in Foreign Business and Economies
China has a series of bilateral trade agreements in seventy countries around the world. In late September 2014, the Chinese government decreased controls over foreign direct investment in a number of industries such as:
- Agri-Food and Seafood
- High Tech
- Real Estate
- Clean and Green Energy
This foreign investment trend began in the mid 2000’s and involved a shift to a higher volume of investments in North America and the European Union. Whereas before recently, businesses and investors had to get foreign investments approved between $100 million and $1 billion, now those transactions (should they be conducted in the Shanghai Free Trade Zone) need only be registered with the Chinese government.
As Chinese Foreign Investment has increased, many investors have jumped into the North American and European markets without guidance, and in many cases failed. Organizations like the Invest Canada Alliance help Chinese investors to understand the Canadian market better, to understand which industry and company options are the best fit for them, and provide assistance to develop strategic relationships with Canadian government and for-profit organizations.
On October 1st, 2014, provisions of the newly signed and ratified Canada-China Foreign Investment Protection Agreement came into effect. There have been a number of different perspectives on this investment and trade treaty agreement, however all agree the agreement will increase Chinese investment in Canada. China was a very closed, inward focused and highly regulated economy over a decade ago, and takeovers of companies such as Nexen and Hummer have taken place. PricewaterhouseCoopers predicts that by 2050, China will have the largest economy in the world, followed by the U.S. and India.
Real estate investment has been dominated over the years by U.S. and EU investors. However recently this trend has showed signs of changing. Chinese Real Estate firm Greenland Group recently invested in their largest project to date, a 67,000 square meter property. Though many condo buildings in China are empty, Canadian companies like Talon International Development are working with Chinese investors are building residential buildings like the Trump International Hotel and Towers in Toronto.
China has a population of about 1.4 billion people, many of which are getting wealthier and gaining more purchasing power and demanding higher quality food products. Canadian wine companies like Pelee Island Estates are benefitting from Chinese consumers wanting higher quality products. Distrust in Chinese domestic food safety regulations has encouraged investors and consumers to look for products like lobster, mussels, shrimp, clams and beef from Canada. China is Canada’s second largest trading partner in the Agri Food industry.
In renewable energy, partnerships have formed between companies like BC’s Top Renergy and China’s Taisheng Wind Power Equipment to develop a $25 million wind power factory in Thorold, Ontario. The Chinese Investment Fund has set up its operations in Canada because of the business friendly climate which does not exist with the level of regulation, and support in China.
As China’s economy grows, it has shown signs of looking for opportunities to invest in countries with innovative products, business friendly governments and regulations, and products and services which can add value to its own population. By taking steps to support foreign investment from China, which has grown from only 2 percent of Canada’s foreign investment twenty years ago to over twenty percent; Canada can gain access to strategic growth opportunities and prosperity from what promises to be the world’s strongest economy in future decades.