Canadian mining industry continues to receive Chinese investment despite ban
Despite legislation restricting investment in Canadian critical mineral industries by foreign state-owned enterprises, Chinese state investment in the Canadian mining industry has continued
Source articles: Bloomberg, Financial Post
In 2022, the Canadian federal government introduced legislation regarding investments in Canadian entities and assets in critical minerals sectors from foreign state-owned enterprises (SOEs) under the Investment Canada Act. The act regulates investments in Canadian companies that operate in sectors relating to minerals identified in Canada’s Critical Minerals List. This list was announced in 2021 and includes 31 minerals that can be produced in Canada and are considered critical for the sustainable economic success of Canada and Canadian allies. Regarding the importance of critical minerals, Jonathan Wilkinson, federal Minister of Natural Resources said, “right now, it is abundantly clear that the mining and processing of critical minerals is concentrated into few countries. Some of them do not share our interests, our priorities or our values. This must change. We cannot allow our future prosperity, economic security and our ability to meet net-zero goals to be held hostage.”
Under the policy, applications for acquisition of Canadian businesses involving critical minerals by SOEs will only be approved in exceptional cases. Under the act, SOE investment in any Canadian business operating in a critical minerals sector or supply chain automatically must be scrutinized on national security grounds. To be permitted to proceed, the federal government must be satisfied that investment “is likely to be of net benefit to Canada” before any transaction may proceed. Investment would only be permitted in exceptional circumstances, and factors observed in an approval process include the degree of control that an investor would gain over the business, alignment of the standards of governance of the investor with those of Canada, the nature of competition in the sector, and more. Under the act, the federal government has already ordered divestment and blocked deals from some SOEs.
Despite these restrictions on foreign investment, Chinese SOEs have continued to invest in Canadian businesses. Chinese ambassador to Canada Cong Peiwu has stated the Canadian government is “wrong” to restrict investment, and indicated that China will “…continue to do business on the basis of mutual respect and mutual benefit.” As Canadian mining firms have struggled to raise investment due to low commodity prices, some have turned to China as an answer. In the past few months, producers in multiple sectors have received significant Chinese investment. Regarding questions over the continued Chinese investment, Industry Minister François-Philippe Champagne said, “I would say to anyone watching or reading, it’s never smart to try to circumvent the rules, the Government of Canada has a number of tools in our toolbox to make sure Canadian law is upheld.” On March 5, one Canadian company announced a decision to cancel a deal with a Chinese SOE.
As critical minerals prove to be a key point in international relations and a center of growing global protectionism, policies intended to protect domestic interests from foreign interference may become increasingly prevalent and central in economic policy.