Local concerns crucial in China's outbound investment

When Chinese companies formulate overseas investment strategies, they need to look beyond their own growth. They must also address the concerns of the local society, according to Sean Weir, national managing partner and chief executive officer of Canada-based law firm Borden Ladner Gervais LLP.

When expanding abroad, Chinese companies can expect better results through working with local partners and adopting a strategy of bit-by-bit expansion, said Weir on Tuesday in Beijing, where he was visiting to mark the opening of BLG's China representative office.

Lily Wang, a BLG partner who is qualified as a lawyer in both Canada and China, said that by comparison, the direct takeover of a company with a large market value inevitably requires government approval and raises concerns among local policymakers and the public.

BLG said that it has Canada's largest team of lawyers, with about 750 in Canada's four largest business centers and the national capital of Ottawa.

Among BLG's China clients, 80 percent are from the oil, natural gas and mining sectors, Weir said.

One deal that the firm helped to complete recently was Yanchang Petroleum International Ltd's acquisition, valued at $206 million, of Canada's Novus Energy Inc, an oil and gas producer based primarily in Saskatchewan and Alberta. The deal was announced in January.

Yanchang International also has interests in Madagascar, Thailand and Kyrgyzstan. Its parent company is Shaanxi Yanchang Petroleum (Group) Co, which is owned by the provincial government of Shaanxi and based in Xi'an, capital of Shaanxi province.

In contrast, an acquisition valued at $15.1 billion of the Canadian oil and gas company Nexen Inc by China National Offshore Oil Corp, one of the country's three largest State-owned oil and gas companies, caused quite a stir in the industry and in Canada.

The CNOOC-Nexen deal was the largest and most daring foreign acquisition by a Chinese SOE.

In 2005, CNOOC bid $18.5 billion for control of Unocal, then a US oil and gas company. And Aluminum Corp of China tried in 2009 to offer $19.5 billion for a partnership with UK-based Rio Tinto Group, one of the two largest suppliers of iron ore in the world. But both attempts failed.

Although the CNOOC-Nexen deal was granted approval by Ottawa and completed in February 2013, the Canadian government has since tightened its screening of M&A activities by state-owned companies from all other countries in Canada. Industry and legal sources warned that similarly ambitious deals would be more difficult, if not entirely impossible, in the future.

But overall, said Fang Qiuchen, deputy director-general of the Ministry of Commerce's department of American and Oceanian affairs, business ties between China and Canada are important and vibrant. Bilateral trade was valued close to $55 billion in 2013, with China being Canada's second-largest trading partner.

Mutual investment, in aggregate terms, is about $51 billion, Fang said. Due to the country's increasing demand for energy and raw materials, China will remain a key trading partner with Canada.

The recent streamlining of outbound investment regulations will also facilitate more Chinese companies' investment in Canada, the official said.