As China’s “wolf warrior diplomacy” has strained Sino-Canadian relations in recent years, there is a growing sentiment in Canada that it’s time to rethink Canada’s relations with China and look for better trade partners.
“We should continue to trade, but we should avoid strategic vulnerabilities in our supply chains and our economies more broadly,” Deputy Prime Minister Chrystia Freeland said in a recent speech at the Brookings Institute.
China is Canada’s third-biggest trade partner, and B.C.’s second largest. It’s a significant market for Canadian commodities, and since the 1990s, Canadian resource companies have benefited from $78 billion in direct foreign investment from China.
“While the idea of pulling back trade with China is often-discussed in expert circles, China’s rapid growth, massive consumption of commodities and integration in the global supply chain make it exceedingly difficult for Canada to ‘turn off the taps,’” the University of Alberta’s China Institute noted in a 2021 report.
B.C.’s exports to China are dominated by resource commodities, and the lion’s share of China’s $98 billion in direct foreign investment in Canada since the 1990s have been disproportionately weighted towards resource industries: Oil and gas and mining.
Investments in oil and gas accounted for $57 billion; Canadian minerals, metals and mining companies accounted for $21 billion.
Whereas much of the investment in oil and gas was in Canadian assets – mainly in Alberta and B.C. – Chinese investments in mining have been less in Canadian mines and more in Canadian mining companies with assets outside of Canada.
B.C. exported $8.9 billion worth of commodities to China in 2021. Three commodities accounted for 69 per cent of that: Metallurgical coal ($3.4 billion), pulp ($2 billion) and copper ore and concentrates ($1.4 billion). China accounted for 39 per cent of the metallurgical coal exports from B.C. in 2021, 24 per cent of the pulp and 15 per cent of the copper.
One of China’s largest investments in oil and gas was the $20 million acquisition of Nexen Energy in 2013 by the China National Offshore Oil Corp. (CNOOC), which included the Long Lake oilsands project in Alberta and shale gas assets in B.C.
CNOOC is now rumoured to be considering divesting its Alberta assets over fears that Chinese companies could one day face the kind of sanctions Western countries have imposed against Russia. CNOOC also owns seven per cent of Syncrude, one of the largest oilsands operations in Alberta; Sinopec owns nine per cent.
In British Columbia, PetroChina (SHA:601857) – the publicly listed arm of the state-owned China National Petroleum Corp. (CNPC) – owns 15 per cent of the $40 billion LNG Canada project being built in Kitimat.
PetroChina also owns 20 per cent of the Shell Canada’s Groundbirch operations in northeastern B.C. Groundbirch has more than 500 producing natural gas wells and four natural gas producing plants.
In the case of LNG Canada, some of the investments have also flowed the other way, with the China Offshore Oil Engineering Corp. (COOEC) landing a contract to build 35 processing modules for a reported $960 million, according to China’s Jinzheng Energy.
But Chinese investment in Canadian oil and gas has dwindled in recent years. It has been supplanted by increased acquisitions of Canadian mining and mineral exploration companies, notably in gold, copper, lithium, uranium and metallurgical coal.
China is the world’s biggest steel producer. Not surprisingly, Chinese companies have invested in B.C. coal mining.
China Investment Corp., China’s largest sovereign wealth fund, owns 10 per cent of Teck Resources (TSX:TECK.B), Canada’s biggest metallurgical coal producer. One Chinese mining company, HD Mining International Ltd., plans to build an underground metallurgical coal mine: The Murray River project near Tumbler Ridge.
Chinese companies have also been heavily investing in or acquiring Canadian copper and gold mining companies.
Ivanhoe Mines (TSX:IVN), a major copper and platinum miner, is nominally a Canadian company, headquartered in Vancouver, but its assets are outside of Canada, and Chinese investors are now principal shareholders.
CITIC Metal Africa Investments Ltd. owns 25.98 per cent of Ivanhoe Mines and Gold Mountains (H.K.) International Mining Co., a subsidiary of Zijin Mining Group, owns 13.65 per cent. Founder and co-chair Robert Friedland owns 13.42 per cent and now co-chairs the company with CITIC Metals Group president Yufeng (Miles) Sun.
In 2018, Vancouver headquartered Nevsun Resources Ltd., which owned a zinc-copper mine in Eritrea, was acquired by Zijin Mining Group for $1.8 billion.
China’s appetite for gold has been insatiable in recent years. In 2020-21, China bought $2 billion worth of gold from Canada, mostly from Ontario, according to the China Institute.
The most recent corporate target of that appetite is the Rosebel gold mine in Suriname, which is owned by IAMGOLD (TSX:IMG, NYSE:IAG). The Canadian company announced last week that it has agreed to sell the mine to Zijin for $360 million.
Gold Mountain Asset Management Ltd., a subsidiary of Zijin Mining Group, owns a 10.5 per cent share of Vancouver headquartered Guyana Gold Strike (TSX-V:GYA), which has claims in B.C.’s Golden Triangle.
In 2020, Zijin acquired Continental Gold, which had a development project in Colombia, for $1.4 billion.
Chinese companies have also invested in lithium and uranium companies in Canada.
In 2018, Vancouver’s Lithium-X Energy Corp., which had properties in Argentina and Nevada, was acquired by Nextview New Energy Lion Hong Kong Ltd. for $330 million.
More recently, in January, the Canadian government approved the sale of Canada’s Neo Lithium Corp., to Zijin for $960 million. The federal Conservative party called for the sale to be subject to a national security review. Even American politicians weighed in.
“China’s increased economic influence over companies in both the U.S. and Canada is a grave national security threat, especially as it pertains to critical minerals that are essential to the future of U.S. energy independence,” Republican congressman Michael Waltz told CTV News.
In approving the sale, Ottawa noted that, though Neo Lithium is headquartered in Canada, its only development project is in Argentina.
Another critical metal that raises sovereignty concerns over strategic minerals and metals is uranium. China’s CGN Mining Co. owns a 14.3 per cent share in B.C. based Fission Uranium Corp. (TSX:FCU), whose Triple R exploration project is in Saskatchewan.
Gordon Houlden, director emeritus of the China Institute, said there is a lot of scrutiny when it comes to selling strategic minerals like uranium to China.
“There will be no actual uranium – ore or enriched – that leaves Canada for China, regardless of which companies they invest in,” Houlden told BIV.
“First, uranium is off-limits by federal legislation. So that one is impossible. But on lithium or other rare-earth metals, I just don’t see approvals [from Ottawa] for anything that is seen as sensitive or strategically important.”
In 2020, the Canadian government rejected the acquisition of TMAC Resources – now owned by Agnico Eagle Mines Ltd. (TSX,NYSE: AEM) – by Shandong Gold Mining, a state-owned Chinese gold mining company, which suggests the Canadian government may now be taking a stronger stance against ownership of Canadian resources and assets by Chinese state-owned entities.
“I’m very skeptical that any [Chinese investment] won’t be subject to increased scrutiny,” Houlden said. “While there are opportunities, the resistance is just too high, and I don’t see the [political] climate changing soon.”