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Foreign investors to face additional scrutiny under proposed changes to investment act

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The federal government on Wednesday unveiled what officials bill as the biggest update to Canada’s foreign direct investment laws in over a decade, with new rules requiring approval for investments in “sensitive sectors” and broader efforts to share information on firms under review.

The pre-implementation requirement is one of several changes outlined in a bill seeking to modernize the Investment Canada Act in order to further protect Canada from malicious foreign actors.

“The reality is, geopolitics of the world today have vastly changed in the last few years,” Minister of Innovation, Science and Industry Francois-Philippe Champagne told reporters Wednesday evening in Ottawa.

“That’s why we must be prepared to face the challenges that could endanger our economic security, and I would say our national security.”

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The proposed amendments do not specify what sectors will require the new pre-implementation filing, which will require firms seeking to make foreign investments in those sensitive sectors to give advance notice of those proposed investments. The change is meant to give the government a chance to ensure foreign investors do not gain access to “sensitive assets, information, intellectual property or trade secrets” that would become available on the closing of a deal before a national security review can be done.

Champagne told reporters the list of sectors the changes seek to protect will include critical minerals — where lithium, graphite and cobalt are increasingly being used for electric vehicles and other goods — as well as sensitive technologies and those holding Canadians’ personal information.

“We’ve seen more and more in the digital economy, people want (to) access the data of Canadians,” Champagne said.

He also mentioned quantum and artificial intelligence as technologies in need of protection.

Failure to submit the filing will result in a fine of at least $500,000, according to the legislation.

Other changes in the proposed bill include a more streamlined process to initiate a national security review of any foreign investment and additional powers to the industry minister during such a review.

The legislation would also increase penalties for any non-compliance with the act to $25,000 per day, per infraction, with no limit.

 

Why reform the foreign investment law now?

The government says the proposed changes are meant to address “evolving national security concerns,” and are the latest move by Ottawa amid renewed scrutiny on its ability to counter foreign interference and influence in its domestic affairs.

The federal government last month unveiled a new Indo-Pacific strategy aimed at countering a “disruptive” China that includes military, domestic security and cybersecurity enhancements, and a new Investment Canada Act rule restricting the involvement of foreign state-owned firms in Canada’s critical mineral sectors was announced on Oct. 28.

The new legislation would give Champagne, as industry minister, the ability to extend a national security review into any foreign investment after consulting with the public safety minister. Currently, extensions require a Governor in Council order. The government says the change would streamline the process and give security and intelligence agencies more time to complete their reviews.

Champagne would also be able to impose conditions on an investment under national security review, including freezing the transfer of assets and intellectual property, and directly approve actions by investors that would mitigate a national security risk. The minister said this change brings Canada in line with the United States, which already has such rules in place.

He added that while the current version of the Investment Canada Act only allows the government to say “yes” or “no” to foreign investments being reviewed for national security concerns, the change would give Champagne the opportunity to say “maybe, but with conditions.”

The proposed changes would also allow Canada to share information about investors with foreign allies “to potentially address common national security threats.”

Government officials said in a technical briefing this is aimed at better examining investment proposals from firms that may be seeking sensitive technologies in multiple jurisdictions.

Currently, specific investor information is considered privileged and cannot be disclosed.

Champagne’s mandate letter instructed him to modernize the Investment Canada Act with goals to “promote economic security and combat foreign interference” by strengthening the national security review process.

The Indo-Pacific Strategy also stated that Canada will implement changes to the Investment Canada Act in an effort to “strengthen the defence of Canadian infrastructure, democracy and Canadian citizens against foreign interference” at the domestic level — protecting Canadian critical minerals supply chains, intellectual property and research and strengthening Canada’s cybersecurity systems.

Following the announcement, Champagne ordered three Chinese firms to divest from Canadian critical mineral companies on Nov. 2.

— with files from Global’s Heidi Lee and The Canadian Press

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Weaker Orders, Investment Underscore Ailing US Manufacturing – Yahoo Canada Finance

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(Bloomberg) — US manufacturing showed more signs this week of succumbing to the Federal Reserve’s aggressive interest-rate hikes that are taking a bigger bite out of demand and risk upending the economic expansion.

Most Read from Bloomberg

The government’s first estimate of gross domestic product for the fourth quarter and a report on December factory orders for durable goods pointed to sizable downshifts in both spending on business equipment and bookings for core capital goods.

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The durable goods report Thursday showed orders for nondefense capital goods excluding aircraft — a proxy for business investment — dropped 0.2% in December after no change a month earlier. Over the fourth quarter, bookings for these core capital goods posted the weakest annualized gain since 2020. Shipments, an input for GDP, decreased for the third time in four months.

“Taken in tandem with the output data where industrial production has declined in six of the past eight months, it is increasingly evident that the manufacturing recession is well underway,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a note to clients.

Also on Thursday, the GDP report showed outlays for business equipment dropped an annualized 3.7%, the largest slide since the immediate aftermath of the pandemic. That decline was part of a broader demand slowdown, which included a smaller-than-forecast advance in personal spending.

While GDP growth beat expectations, details of the report that offer a clearer picture of domestic demand were decidedly weak. Inflation-adjusted final sales to private domestic purchasers, which strip out inventories and net exports while excluding government spending, rose at a paltry 0.2% rate — also the weakest since the second quarter of 2020.

Last month’s retreat in core capital goods orders indicates manufacturing output, which already registered sharp declines in the final two months of 2022, may struggle to gain traction this quarter.

Read more: Weak US Retail Sales, Factory Data Heighten Recession Concerns

The slump in housing is also spilling over into producers of non-durable goods. Shares of Sherwin-Williams Co. tumbled this week after the paintmaker pointed to pressures stemming from a weak residential real estate market and inflation.

“We currently see a very challenging demand environment in 2023 and visibility beyond our first half is limited,” Chief Executive Officer John Morikis said on a Jan. 26 earnings call. “The Fed has also been quite clear about its intention to slow down demand in its effort to tame inflation.”

An accumulation of inventories only adds to the headwinds. Inventory building accounted for about half of the 2.9% annualized increase in fourth-quarter GDP. For the year as a whole, inventories grew $123.3 billion, the most since 2015.

With demand moderating, there’s less incentive to ramp up orders or production as companies make greater efforts to sell from existing stock.

In addition to the aforementioned data, the latest surveys of manufacturers show sustained weakness. Measures of orders at factories in four regional Fed surveys have all indicated multiple months of contraction.

All surveys released so far for this month are consistent with an overall contraction in activity that extends back through most of the second half of 2022.

Next week, the Institute for Supply Management will issue its January manufacturing survey and economists project a third-straight month of shrinking activity.

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.

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Canada expected to buck trend of big investment banking layoffs – Reuters

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TORONTO, Jan 26 (Reuters) – Some of Canada’s top investment banks plan to maintain staffing levels to meet client expectations for the same level of coverage through the ups and downs of business cycles, head hunters and industry executives said.

U.S. investment banks, including Goldman Sachs (GS.N), began cutting over 3,000 employees on Jan. 11 citing a challenging macroeconomic environment, raising fears Canadian banks may follow suit. Like their global peers, many Canadian investment banks had staffed up during the pandemic only to see dealmaking slow last year.

At Royal Bank of Canada (RY.TO), the country’s biggest lender, for instance, headcount at its capital markets division jumped by 71% over the two years ending Oct. 31, 2022 to 6,887 employees.

But in the meantime Canadian dealmaking fell 39.7% last year to $89.7 billion. That is more than the 36% drop in global deal values to $3.8 trillion following a stellar 2021, according to data from Dealogic.

Yet, Canadian banks have not announced layoffs and some even say they may increase headcount, though dealmaking in the new year is down nearly 50% to $3.2 billion from a year ago, according to Dealogic.

“Right now there is a sense that there isn’t a need for cuts in the system,” Dominique Fortier, partner at recruitment firm Heidrick & Struggles’ Toronto office, told Reuters.

“When there was an upswing in 2021, it happened so quickly that there was no corresponding increase in hiring and so I don’t see that we’ll have the same decrease in terms of headcount coming.”

Toronto Dominion Bank (TD.TO), which last year agreed to buy New York-based boutique investment bank Cowen Inc (COWN.O), expects to continue to grow its global investment banking business as it work towards closing the deal, a spokesperson said.

Desjardins, another Canadian lender, will continue to invest in its growing capital markets division, a spokesperson said.

EXPENSIVE PROPOSITION

Bill Vlaad, a Toronto-based recruiter who specializes in the financial services sector, said that while there was some nervousness around the stability of investment banking teams, Canada is unlikely to see U.S.-level redundancies aside from the annual cull of poor performers called “maintenance layoffs.”

“The U.S. is very nimble. They will go in and out of hotspots very quickly. Canada doesn’t have that same luxury and has to stay relatively consistent in coverage,” said Vlaad.

“You have a consistent group of people working…and they don’t fluctuate all that much year to year, decade to decade.”

But another down year for dealmaking could see bonuses taking a hit.

RBC, which was ranked No. 2 in Canada M&A, equity capital markets and debt capital markets last year according to Dealogic, has no layoff plans for investment banking in Canada, a source with knowledge of the matter said.

Spokespeople for JP Morgan, which topped the M&A league table last year, Scotiabank (BNS.TO) and Canadian Imperial Bank of Commerce (CM.TO) declined to comment. BMO did not respond to requests for comment.

Headhunters and lawyers say it’s less expensive to lay off bankers in the United States compared to Canada.

Howard Levitt, senior partner at employment law firm Levitt Sheikh, said Canadian investment banking employees would be entitled to somewhere between four and 27 months severance with full remuneration depending on their status, re-employability, age and length of service.

Reporting by Maiya Keidan
Editing by Denny Thomas and Deepa Babington

Our Standards: The Thomson Reuters Trust Principles.

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Weaker Orders, Investment Underscore Ailing US Manufacturing – BNN Bloomberg

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(Bloomberg) — US manufacturing showed more signs this week of succumbing to the Federal Reserve’s aggressive interest-rate hikes that are taking a bigger bite out of demand and risk upending the economic expansion.

The government’s first estimate of gross domestic product for the fourth quarter and a report on December factory orders for durable goods pointed to sizable downshifts in both spending on business equipment and bookings for core capital goods.

The durable goods report Thursday showed orders for nondefense capital goods excluding aircraft — a proxy for business investment — dropped 0.2% in December after no change a month earlier. Over the fourth quarter, bookings for these core capital goods posted the weakest annualized gain since 2020. Shipments, an input for GDP, decreased for the third time in four months.

300x250x1

“Taken in tandem with the output data where industrial production has declined in six of the past eight months, it is increasingly evident that the manufacturing recession is well underway,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a note to clients.

Also on Thursday, the GDP report showed outlays for business equipment dropped an annualized 3.7%, the largest slide since the immediate aftermath of the pandemic. That decline was part of a broader demand slowdown, which included a smaller-than-forecast advance in personal spending.

While GDP growth beat expectations, details of the report that offer a clearer picture of domestic demand were decidedly weak. Inflation-adjusted final sales to private domestic purchasers, which strip out inventories and net exports while excluding government spending, rose at a paltry 0.2% rate — also the weakest since the second quarter of 2020.

Last month’s retreat in core capital goods orders indicates manufacturing output, which already registered sharp declines in the final two months of 2022, may struggle to gain traction this quarter.

Read more: Weak US Retail Sales, Factory Data Heighten Recession Concerns

The slump in housing is also spilling over into producers of non-durable goods. Shares of Sherwin-Williams Co. tumbled this week after the paintmaker pointed to pressures stemming from a weak residential real estate market and inflation.

“We currently see a very challenging demand environment in 2023 and visibility beyond our first half is limited,” Chief Executive Officer John Morikis said on a Jan. 26 earnings call. “The Fed has also been quite clear about its intention to slow down demand in its effort to tame inflation.”

An accumulation of inventories only adds to the headwinds. Inventory building accounted for about half of the 2.9% annualized increase in fourth-quarter GDP. For the year as a whole, inventories grew $123.3 billion, the most since 2015.

With demand moderating, there’s less incentive to ramp up orders or production as companies make greater efforts to sell from existing stock.

In addition to the aforementioned data, the latest surveys of manufacturers show sustained weakness. Measures of orders at factories in four regional Fed surveys have all indicated multiple months of contraction. 

All surveys released so far for this month are consistent with an overall contraction in activity that extends back through most of the second half of 2022. 

Next week, the Institute for Supply Management will issue its January manufacturing survey and economists project a third-straight month of shrinking activity.

©2023 Bloomberg L.P.

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