Foreign Affairs Committee on April 17th, 2018

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

I'd like to come back to some of the issues raised by Mr. Grinius. When Chinese state-owned companies acquire Canadian companies, are these then run as Canadian subsidiaries of a Chinese state-controlled company, or do they become Chinese subsidiaries within Canada? It almost seems like a rhetorical question.

I'm not sure that our regulatory framework and the way we decide these questions are adequately suited to this particular scenario. Should we think in terms of a special ongoing regulatory framework that's not a one-shot decision—“okay, we're going to allow this to proceed”—but that there be a regular review whenever these sorts of decisions are made. These are not regular corporate entities the way we understand them. This idea of “corporate DNA” is actually “central party DNA” in an evolving oligarchic state capitalist system within China.

In the opinion polling, the Canadian public may not fully comprehend what it is, but that unease about Chinese investments in major companies here in Canada is quite accurate. In an innate way, the public sees the potential dangers of a one-shot decision—"okay, we're going to allow this to proceed"—and then we live with the consequences for decades afterwards.

We'll start with you, sir.

[Ferry de Kerckhove]

I'll defer to the two with much greater expertise, but I am sympathetic to this notion of an evolving regulatory framework: the more we practise some of those new relationships.... I agree entirely with Hugh. We should pursue this with our eyes open, but we should definitely pursue them. The question is, do we have to think about a special regulatory framework to manage them over time, if only to assuage the concern of Canadians? I don't think we have to over-regulate, but we have to answer your questions about whether those SOEs will be conducted like private concerns over time.

My impression is that the Chinese themselves would want their SOEs to reform and to conduct themselves like real business concerns, but I really defer to Sarah and Hugh on this.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Perhaps, we'll go to Sarah.

[Sarah Kutulakos]

Yes, we work closely with a number of SOEs that have invested here. I think it's important to note that the subsidiaries that establish in Canada in most cases report up through publicly listed companies on the New York Stock Exchange or the Stock Exchange of Hong Kong and, in some cases, the Shanghai Stock Exchange.

From my observation of them, they are operating as truly commercial entities. Any sort of influence from headquarters implied by the notion that the state is running these companies is not something that the executives here in Canada would think about on a daily basis, if ever. They're really looking at these questions: Is the market big enough? Are we following the regulations? Are we reporting back to the regulatory authorities the way we think we should?

I think when it comes to expectations of SOE investment in Canada, we need to make it very clear what we expect, especially with regard to management teams and things like that. I see examples like the oil sands companies, which have kept very local management teams, a very low percentage of expatriates. They've continued to make capital investments in the oil sands even during a very difficult economic period, because they really want to do the right thing and they want to be good corporate citizens in Canada.

I guess I would caution about a separate regulatory regime. Perhaps the issue is to assuage the concerns of Canadians or Canadian officials. Are there things you can require them to provide you that show they are following the rules?

I'll turn it over to Hugh for more comment.

[Hugh Stephens]

I would just add that we have the investment Canada process, and it can always be tweaked. Certainly when CNOOC acquired Nexen it was required to commit to a number of undertakings, which it may or may not have done. Things are little hard to enforce sometimes after the fact.

I wouldn't disagree that we should keep our minds open, that there is always a possibility for regulation to evolve. At the moment, it's gone in the direction of somewhat lighter regulation. If there were an experience or reason to think it should be tightened or tweaked in certain areas, that's certainly within the purview of the government to consider.

[The Chair, Liberal, Bob Nault]

I'm going to wrap it up here.

I want to thank our witnesses very much for their presentations. This is a very good start on our continued engagement in Asia and the importance of it to Canada's future, so I want to thank our expert witnesses for coming forward and making it a little easier for us to make recommendations to the Government of Canada on behalf of all Canadians.

The meeting is adjourned.