Canadian officials should tighten rules on foreign investment by state-owned entities from authoritarian countries, such as China, and consider making permanent rules imposed on takeovers during the coronavirus pandemic, experts say.
The House of Commons industry committee is holding hearings on whether there should be a freeze on large foreign takeovers of Canadian businesses and whether the Investment Canada Act needs changing.
As part of those hearings, the committee heard on Monday about the need to balance the impact any regulatory changes could have on investor confidence with the threats posed by allowing Chinese firms either owned by or tied to the state to takeover Canadian businesses.
However, the concept of how “strategic” should be defined remains a key question and one MPs should try to define more clearly as they recommend how the government should move forward, experts said.
Story continues below advertisement
“We’re not here to make China any favours. We especially shouldn’t at this time. But some investments might still be in the interests of both and we should cautiously pursue those while restricting others,” said Daniel Schwanen, vice president of research at the C.D. Howe Institute, before the committee.
“Maybe this crisis is an opportunity for us to ask, what is strategic? What is national security? And maybe have a broader view of what that entails.”
3:26 Coronavirus outbreak: Freeland says government will protect Canadian companies from hostile foreign takeovers
Coronavirus outbreak: Freeland says government will protect Canadian companies from hostile foreign takeovers
The uncertainty of the coronavirus pandemic has wrought economic turmoil as countries around the world have put their citizens under months of lockdowns and struggled to craft policies that will keep their economies from collapsing under the chaos.
That impact has hit across economic sectors, roiling stock markets and leaving even large companies strapped for cash and rolling out massive layoffs.
Story continues below advertisement
All of that uncertainty has prompted fears that Canadian businesses, particularly those deemed critical or strategic for national interests, could become attractive targets for hostile foreign takeovers.
The Canadian Security Intelligence Service warned about exactly that in its most recent annual report.
The agency said that while many foreign investors are not hostile, those from state-owned enterprises and firms with close ties to governments or intelligence services need to be weighed very carefully.
“Corporate acquisitions by these entities pose potential risks related to vulnerabilities in critical infrastructure, control over strategic sectors, espionage and foreign influenced activities, and illegal transfer of technology and expertise,” the report stated.
“As difficult as it is to measure, this damage to our collective prosperity is very real.”
2:00 Alberta energy industry cautiously optimistic about big business support
Alberta energy industry cautiously optimistic about big business support
Foreign takeovers of Canadian businesses are evaluated under the Investment Canada Act, which weighs the “net benefits” of proposed takeovers with an eye to things like potential jobs versus potential risks.
Story continues below advertisement
To weigh those risks, national security agencies like CSIS and the RCMP can share their concerns with the government and when the federal cabinet shares those concerns, it can block takeovers.
Effectively, it forces officials to ask the question: jobs might be created, but at what cost?
Charles Burton, senior fellow with the Macdonald-Laurier Institute, was also a witness at the hearing on Monday. He said while would like to see a moratorium on all foreign investment from Chinese state-owned enterprises, he thinks the guiding principle for tightening up the Act itself should be reciprocity.
“They’re able to acquire things in Canada that we would not be able to acquire in China,” he said, pointing to strict Chinese rules banning the foreign takeovers of things like mines and high-tech companies on the grounds of national security.
Burton said while he thinks enhanced screening measures put in place in April were prudent, he thinks the government should put a temporary moratorium on all Chinese state-owned investment until the criteria for review under the Act can be more permanently strengthened.
Those new rules said the government will put under extra scrutiny “foreign direct investments of any value, controlling or non-controlling, in Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians or to the government.”
As well, those extra screenings will also apply to “all foreign investments by state-owned investors, regardless of their value, or private investors assessed as being closely tied to or subject to direction from foreign governments.”
“Some investments into Canada by state-owned enterprises may be motivated by non-commercial imperatives that could harm Canada’s economic or national security interests, a risk that is amplified in the current context,” the notice of the rules stated.
Patrick Leblond, an associate professor of international politics with the University of Ottawa, told the committee that while there’s room to “improve the process,” there are also reasons to be cautious about making any rule changes more permanent.
“If we’re constantly changing the rules of the game, we may not be able to have the right investors that will build a competitive business environment and that could slow down economic growth,” he said.
“I think the Act is strong enough as it is right now with the current guidelines.”
Finance Minister Bill Morneau has not yet committed to keeping the tougher rules in place.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
