Canada’s review process for foreign direct investment (FDI) discourages Chinese investments in Canadian resource industries, according to a report issued this morning by the Conference Board of Canada.
Fear the Dragon? Chinese Foreign Direct Investment in Canada explores how Canada’s FDI rules can be modified to encourage additional Chinese investment, while addressing domestic political concerns.
According to the report, Canada’s current FDI review process requires investors to demonstrate a net benefit to the country.
“This unclear test creates political risk and makes Chinese investments more costly,” the conference board said in a statement, adding that some Chinese investments are thus dissuaded.
The report argues that Australia’s review process, which attracts three times as much Chinese FDI as Canada, could serve as a potential model for Canada. It states that the Australian regime assesses Chinese investments “on the basis of clearly stated conditions related to ownership and governance of newly acquired resource companies.”
The conference board report recommends reforming the Investment Canada Act to facilitate Chinese FDI by organizing an FDI review regime around a national interest test and a national security test.
“Under the national interest test, the federal government would need to show how an investment is contrary to the national interest,” the report states. “For the security test, specific security risks should be identified and clarified for Chinese investments.”
