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Chinese buying spikes

From Wednesday's Globe and Mail

Beijing — New Chinese investment in Canada jumped dramatically to a record flow of about $100-million (U.S.) last year, up from just $5-million in the previous year, according to new figures from the Chinese government.

The increase does not include some of the biggest Chinese investments in Canada, including those by state-owned Chinese oil companies in the Alberta oil sands, which were not counted because the transactions were made by their European subsidiaries. Nor does it include investments that were not officially reported to the Chinese government.

Although the latest figure is an underestimate, it gives a glimpse into the sharp upward trend in Chinese investment in Canada. Trade officers at the Canadian embassy in Beijing also recorded a steep rise in Chinese investment in Canada last year, especially in the oil sands, energy and mining.

Private analysts confirmed the trend. “The sharp rise in Chinese investment is consistent with our research indicating a strong desire by Chinese enterprises to go global,” said Yuen Pau Woo, president of the Asia Pacific Foundation of Canada.

“We should not presume, however, that Chinese investors are only interested in Canada's natural resources. Our research suggests that Chinese enterprises are also looking at investments in the information and communications technology sector, as well as in manufacturing. The recent Nortel-Huawei joint venture in Ottawa is an example of new-generation Chinese overseas investment.”

The new flow of investment in 2005 will produce a big bump in the total cumulative stock of Chinese investment in Canada, which stood at only $220-million (Canadian) by the end of 2004, according to Statistics Canada, which uses a different method of calculating investment levels. Statistics Canada is expected to release its 2005 update in May.

The new figures from the Chinese Commerce Ministry show that Chinese companies invested almost $7-billion (U.S.) around the world in non-financial direct investments last year, up 26 per cent from the previous year. About 60 per cent of Chinese investments were in Asian countries, while only 6.7 per cent were in North America.

Despite the big increase last year, Beijing has said it is still dissatisfied with China's small share of global outward investment flows, and some analysts are predicting a doubling in China's foreign investment within the next five years.

Much of this investment could go to Canada. A survey of Canadian oil executives and investment bankers, released in January by the Calgary law firm Blake Cassels & Graydon, found that the United States and China are expected to be the most active sources of foreign investment in Canadian oil and gas assets this year.

Last year, China National Offshore Oil Corp. paid $150-million (Canadian) for a one-sixth stake in MEG Energy Corp. of Calgary, which holds property in the oil sands region.

The Sinopec Group, another major Chinese oil company, paid $105-million for a 40-per-cent stake in the Northern Lights oil sands project.

And the biggest Chinese oil company, China National Petroleum Corp., agreed to pay $4.2-billion (U.S.) to purchase PetroKazakhstan Inc. of Calgary. (None of these transactions appear to be included in Beijing's official report on Chinese foreign investment last year.)

Reports last week suggested that CNPC is considering further investments in the Canadian oil sector, including the possible takeover of Husky Energy Inc. or Canadian Natural Resources Ltd.

In the mining sector, Zijin Mining Group of China paid $1.9-million (Canadian) to acquire 19.4 per cent of Pinnacle Mines Ltd. of Vancouver last year.

Despite all of these transactions, Canada still receives only a very small percentage of Chinese foreign investment.

“Even with the sharp increase last year, Canada's ranking as a destination for outward investment from China is somewhere in the mid-20s,” Mr. Woo said.

“Our research suggests that Chinese companies do not consider Canada to be a prime destination for outward investment. The new Conservative government should signal to the Chinese that the ‘strategic partnership' between the two countries means an openness to two-way investment.”

© The Globe and Mail

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