Nearly eight percent of Chinese companies are intending to invest in Canada within the next three years, according to a survey released Monday, with about half of those polled expressing an interest in the North American manufacturing sector.
In the report "China Goes Global 2011" conducted by the China Council for the Promotion of International Trade presented by the Vancouver-based Asia Pacific Foundation of Canada, the survey sent out 3,000 questionnaires between December 2009 and March 2010 to small- and medium-sized companies to ask their response to China's Going Global policy which encourages its domestic firms to look outward.
In total, 1,377 companies replied, a 46 percent response rate. The companies, with experience in import and export activities, were asked about their intentions and the challenges facing enterprises in their overseas investments.
A key finding was that the Canadian economy was one of the " most open" toward Chinese outward foreign direct investment, ranking equal fourth with Singapore among the 29 destinations listed. Hong Kong and Macao held the top two spots, followed by the United States.
The data indicated investment in Canada provided an ideal gateway for Chinese companies into North America, particularly the huge American market. About 49 percent expressed interest in the manufacturing sector, followed by hospitality (14 percent), wholesale and retail shops (14 percent) and finance (13 percent).
Yuen Pau Woo, president and CEO of the Asia Pacific Foundation of Canada, said the significance of the findings was that Canada was "on the radar screen of Chinese investors", ranked ahead of such places as Germany, Australia, Britain, South America and Africa.
Of the 84 Chinese companies planning to invest in Canada - 50 percent indicating they are small- or medium-sized companies and 23 per cent large companies (the others didn't indicate their size) - the mean intended investment abroad is 16.1 million U.S. dollars.
"The fact is the pool of potential investment is so large that you only need to capture a relatively small percentage of that investment to reap the benefits," Yuen said. "The key is to be under consideration for investment."
He added Chinese companies were looking for access to technology, and a diversified and dynamic labor force. Yuen tipped telecoms and auto parts as two sectors that could receive investment.
Last year, Shenzhen-based telecom network giant Huawei invested 50 million Canadian dollars in a research and development center in Ottawa with Bell, while the Toronto-based Public Mobile is in partnership with telecom equipment provider ZTE to build a wireless network stretching from Ontario to Quebec. The 350 million Canadian dollar project is being financed by the Export- Import Bank of China.
Last week, providing perhaps the strongest indicator of the interest in Canada, the state-run China Investment Corp opened a Toronto office, signaling it is planning to invest some of its 300- billion-dollar Sovereign Wealth Fund into the resource-rich country.
"Clearly they (China) see assets in Canada that go beyond market access. I would say also that much of the investment is likely to help Chinese manufacturers move up the value chain," Yuen said.
"So they are not looking for cheap labor that they could get in Thailand or the Philippines or African countries, but they are looking for technological and management and marketing expertise that will allow them to be global companies."
About 56 percent of the respondents said they wanted to set up their own sales channels, while 22 percent indicated they would enter the market through joint-ventures. Twelve percent of the companies would gain access through mergers and acquisitions, and 10 percent planned to set up wholly-owned manufacturing companies.
Of the barriers facing Chinese companies in their North American investment were a lack of managerial competence, difficulty in identifying business partners and a lack of knowledge about legal and market risks in Canada.
"The barriers Chinese enterprises face are not insurmountable," said Kenny Zhang, the Asia Pacific Foundation's senior research analyst. "There is a role for government, industry association, investment promotion agencies and professional service firms to reduce the barriers to Chinese investment in Canada."
