deloitte - the east eyes the west coast

7/28/2019 Deloitte - The east eyes the west coast

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The east eyesthe west coastThe emerging trendsin Chinese capital

and its impact on BCprivate companies


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2 The east eyes the west coast


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The east eyes the west coast

Foreword

When Deng Xiaoping transormed modern China rom acommunist state to a de acto market economy with his

Open Door Policy in 1978, the country nally opened the

door to oreign investments. That was 35 years ago.

Up until recently, however, when we hear about Canada-

China cross-border mergers and acquisitions (M&A) deals,

we oten think o the billion dollar public company energy

and resources deals. But is there an opportunity or BC

private companies to tap into coveted capital rom China?

With this question in mind, Deloitte set out to explore

the opportunities and challenges involved in partnering

with Chinese capital. Speaking to Chinese investors,

international banks, Canadian law rms and the BC private

companies who have taken this great leap orward, we

see Chinese capital as an untapped source o capital or

BC entrepreneurs.

Our point o view:

As the ocus on the naturalresources and energy sectorsshits, we predict that moreChinese investors will eye BCprivate companies as a hot

target or capital deployment.For BC private companies, thisrepresents the opportunity toaccess both capital and agrowing market.

In this report, we aim to share with you our point o view

on Chinese capital, and our insights on the opportunities

and pitalls or BC private companies to be mindul o.


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While the energy industry has

been under the spotlight in

recent years, in the next decadewell see the emergence o

investments in other industries,

such as lie sciences, agriculture

and high tech. Investment in

energy may not slow down, but

other industries will catch up.

Christopher Roberge, Partner, Deloitte Canada, and Managing Director,

Asia Pacic International Core o Excellence, Hong Kong


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The east eyes the west coast 3

Strategic industries

per Chinas twelfth Five-Year Plan

Examples of BC companies in each

strategic industry

Energy conservation and environmental protection

Energy reduction

Westport

Nexterra

Next generation IT

Broadband networks, Internet security inrastructure, network

convergence

Sierra Systems

Alpha Technologies

Bio-technology/lie sciences

Drugs and medical devices

Stemcell Technologies

QLT Inc.

High-end equipment manuacturingAerospace and telecom equipment AvcorpNorsat International

Alternative energy

Nuclear, wind, solar

Sea Breeze Energy

Alterra Power Corp

Advanced materials

Rare earth and high-end semiconductors

Commerce Resources Corp

Unit Electrical Engineering Ltd

Clean-energy automobilesAutomotive Fuel Cell Cooperation

Ballard

A mandate rom the top

Chinas twelth Five-Year Plan emphasizes a shit to aconsumer-based economy, creating opportunities or

Canadian high-tech, clean-tech, lie sciences and health

care sectors.

We have compiled an illustrative list o innovative BC

companies in accordance with their classications within the

strategic industries above. While some o these companies

may be publicly traded rather than privately held, they serve

as a good indicator o the products and services that are

highly sought-ater by Chinese investors.

The Chinese government has mandated that therenminbi (RMB) will become an international currency.Through oreign investments in Canadian businesses,they hope to diversiy the use o the RMB. Executive, major Chinese bank


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RMB$1.5 trillion (approximately C$250 billion) is rumoredto be invested in the development o the seven strategic

industries over the 2011 to 2015 time rame1, through both

Chinese domestic development and outbound investment.

Encouraging private and public Chinese capital to fow

into these strategic industries is a major goal or the

Chinese government, who hopes to acilitate both learning

opportunities and strategic collaborations with oreign

businesses.

Chinas top economic planner, the National Development

and Reorm Commission (NDRC), will also relax rules on

overseas investments by Chinese companies. Eective

March 2011, the commission exempts non-resource-related

overseas investments worth less than US$100 million rom

obtaining approval rom the NDRC. We expect this policy to

signicantly expedite outbound investments or BC private

companies.

More recently, China and Canada concluded negotiations

on the Foreign Investment Promotion and Protection

Agreement during Canadian Prime Minister Stephen

Harpers visit to China in February 2012. The agreement

urges local governments in China to provide more support

or oreign investment.2

1 Reuters, China mulls $1.5 trillion strategic industries boost: sources, December 2010,http://www.reuters.com/article/2010/12/03/us-china-economy-investment-idUSTRE6B16U920101203

2 China Daily USA, Chinese investments to maintain ast growth in Canada, April 2012,http://usa.chinadaily.com.cn/business/2012-04/19/content_15086647.htm


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The current marketplace

Global M&A led by Chinese companiesChina has been a leading orce in global M&A transactions.

In the past decade, outbound investment by Chinese buyers

increased dramatically, hitting a new peak o US$74.7 billion

in 2011.3

Chinas annual oreign direct investment (FDI) increased by

nearly 30 times between 2002 and 2011, demonstrating

an exploding appetite or oreign investment. Even during

the global nancial crisis rom 2008 to 2010, FDI rose by

a robust 32%, at a time when global FDI contracted by

37%.3 These incredible growth rates demonstrate thatChinas need or overseas projects, including resources and

technology, is on a steep upward trend.

While historical data is encouraging, will this trend

continue?

Interestingly, although Chinas gross domestic product (GDP

accounts or 10% o world GDP3, the countrys FDI still

only accounts or 4.4% o global FDI fows. This mismatch

implies that there is room or growth in Chinas FDI.

Impact on BCA desire to invest in BC companies is both government

driven and consumer driven. Earlier, we listed the industries

identied by Chinas twelth Five-Year Plan seven strategic

industries that represent investment targets emphasized bythe Chinese government. Consumer demand in the East,

however, also leads to oreign investment in sectors outside

o those named in the twelth Five-Year Plan. In particular,

we see increased activity in BCs ood and beverage and

agriood sectors.

0

10

20

30

40

50

60

70

80

0%

1%

2%

3%

4%

5%

6%

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

21.222.5

52.2

68.8

74.7

Chinas annual FDI flows (Lhs) Chinas annual FDI flows as % of world total (Rhs)

Chinas Foreign Direct Investment 1983 to 2011

US$

billions

56.5

3 Chinas Big Bang will revolutionise its nancial system, November 2012, HSBC Bank plc.,

Source: Chinas Big Bang will revolutionise its nancial system, November 2012, HSBC Bank plc.


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Case study: Shellfsh FarmA BC-based aquaculture company that specializes in

arming shellsh has recently signed an agreement to

sell a minority stake to a Chinese investor.

Quality o water has been an ongoing challenge or

shellsh arms in China, leading to a huge unmet

demand in China or resh shellsh. Canadian water

is widely seen as pristine and unpolluted, and Chinese

consumers trust the quality o shellsh armed in BC.

Some shellsh are also indigenous to British Columbia,

such as the geoduck clam, which is considered a

delicacy by many in China. Geoduck exports rom North

America have grown rapidly and are estimated to total

more than C$100 million each year. 4

The BC aquaculture company was able to benet rom

the emerging trend o seaood demand in Asia and tap

into resources unique to BC. According to the owner

o the company, investors are willing to pay a premium

or a stake in this BC company because they understand

the rising demand or the product, and the value o the

product being backed by a Canadian brand.

Case in point: AgrioodIn BC, the agriood industry has been drawing attention

due to the Chinese populations growing awareness o ood

saety. Known or its quality and cleanliness, BC agriood

products are more in demand than ever. Furthermore, BCs

strategic geographic location allows or easy transportation

o perishable goods to China.

I you operate an agriood company, ask yoursel the

ollowing questions:

1. Have I seen the price o my product rise in the last

ew years due to growing demand?

2. Is my product armed or cultivated exclusively in

Canada?

3. Does my business have the right inrastructure to

meet a much larger volume o sales?

Water quality is an issuethat cant be fxed in the next5 to 10 years in China, so wesee a big opportunity or us.

Owner, BC aquaculture company

4 Financial Post, Will Jim Trelvings wallet clam up?, March 2012,http://business.nancialpost.com/2012/03/19/will-jim-trelvings-wallet-clam-up/


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Case in point: Clean energy

Chinas exploding economy creates a massive appetite or

clean energy. Part o Chinas twelth Five-Year Plan ocuses

on the development o sustainable and renewable energy,

which includes solar, wind and waste water treatment. To

support this, the Chinese government is oering incentives

or companies in this sector, such as tax breaks and

subsidies or land and employee training.

Case study: Clean-tech

Deloitte was engaged by a Chinese state-owned

enterprise (SOE) who was mandated to invest in

wind power projects in BC. The SOE is an equipment

manuacturer looking at a wide range o wind power

assets, including early-stage greeneld wind projects

that have not secured a power purchase agreement.

This client was motivated by the prospect o being able

to place its turbines on a project being the rst to do

so beore its global competitors enter the BC market.

This is an emerging trend in BC that has been evident

in Ontario or some time. On July 13, 2012, Longyuan

Power Group Corp, a subsidiary o the Big 5 Chinese

energy rm SOE Guodian, signed a share purchase

agreement with Canadas Farm Owned Power

(Melancthon) Ltd. According to Zhu Yongpeng, General

Manager and Deputy Secretary o the Leading Party

Group o Guodian, this is the rst energy project that

Guodian has invested in overseas.5

I you operate a clean-tech company, ask yoursel the

ollowing questions:

1. Do I know the Chinese strategic players in the

renewable energy sector?

2. Have I consulted any proessional rms to set up

connections with potential Chinese investors?

3. Do I understand what the Chinese investors want

out o a joint venture with me?

Clean energy is the key or the economic transition o Chinaand also one o the key industries in the uture. The onlyplace where President Obama mentioned China in his Stateo the Union Address in 2012 was its shit to clean energy.Our company made signifcant investments in clean energyoverseas and has looked into wind power projects in NorthAmerica. We believe that wind power has signifcant

potential in both economic and environmental terms. Executive, large Chinese state-owned enterprise

5 China Guodian, China Longyuan Power Acquires a Canadian Wind Power Project, July 2011,http://www.clypg.com.cn/en/newscenter/headlinenews/268829.shtml


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Case in point: Lie sciencesWith the twelth Five-Year Plan aiming to modernize Chinas

rural economy and improve its health care system, a new

business opportunity emerges or Canadian companies in

health care services, pharmaceuticals, and medical devices

manuacturing. For example, Chinas Ministry o Health

indicated that it aims to increase patient visits at private

hospitals in China rom 8% in 2012 to 20% by 2015.

To achieve this, Chinas Foreign Investment Catalog was

updated in January 2012 to refect the encouragement o

private investment in public hospitals.6

According to the Asia Pacic Foundation o Canada, the

pharmaceutical markets in China have grown more than

16% annually or the past ve years, and are orecast to

continue double-digit growth rates until at least 2015.

In BC, health care innovation makes local companies

attractive to Chinese investors who are willing to inject their

capital in exchange or a share in the technologys prot

potential, especially ater scaling up to the larger Chinese

market.

I you operate a lie sciences company, ask yoursel the

ollowing questions:

1. Am I aware o any competitors in my industry that

have established R&D acilities or distributorship

arrangements oshore?

2. Does it make sense or my business both nancially

and strategically to conduct R&D or to license my

product in Asia?

3. Have I considered the implications o outsourcing

R&D oshore versus partnering with a Chinese

company to conduct R&D in-house?

4. Do I know how to go about establishing business

partnerships with Asian lie sciences companies?

Case study: WelichemSome BC biotech rms realize the value o partnering

with a Chinese company, such as the reduction o drug

development cost i clinical trials can be outsourced to

Chinese partners.

Vancouver-based Welichem Biotech, or example, has

a joint venture set up with Chinese pharmaceutical

companies Weihe Pharmaceutical o Yuxi and Celestial

Pharmaceuticals o Shenzhen. In 2005, Welichem

entered into an agreement with the two Chinese

companies to construct a research and development

(R&D) laboratory in the Yunnan province o China. The

acility will ocus on developing Welichems technology

and explore other innovations or pharmaceutical

application. Through Celestial, Welichem is able to

expedite the testing process o a cancer drug candidate

as well as the ling or clinical trial approval in China.

Welichem will also benet rom the Chinese investors

planned investment o US$50 million over three years.7

6 CNBC, China Taps Private Hospitals in OverhaulWill It Work?, October 2012,http://www.cnbc.com/id/49250873/China_Taps_Private_Hospitals_in_Overhaul_Will_It_Work

7 TMX Money, Welichem Biotech Inc. (WBI), November 2005,

http://tmx.quotemedia.com/article.php?newsid=3267089&qm_symbol=WBI


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The evolving ace o the chinese investorChinese SOEs have traditionally been the driving orce o

oreign investment. Besides continuously seeking global

business opportunities, SOEs are also ocusing on doing

deals properly with the help o advisors. Greater emphasis

is now placed on governance than ever beore. The

Chinese state-owned Asset Supervision and Administration

Commission (SASAC) was established to audit and govern all

SOEs, putting more pressure on justiying the use o unds

and investment cases.

Private companies are already planning to make oreign

investments, especially in the key industries emphasized

by the Ministry o Commerce. Wang Yusuo, Chairman o

the Xinao Group expressed during his speech at the 201

Durban International Conerence: According to statistic

among Chinese top 500 private companies, more than

hal have operations related to new energy and clean

technologies. During the eleventh Five-Year Plan period,

these companies have invested more than RMB$200 bill

in the clean technology sector, creating value exceeding

RMB$700 billion. This is a great accomplishment.

Many Chinese privately owned enterprises have a solid

going-out strategy. With private companies already

accounting or nearly hal o Chinas outbound investme

in 2011, they are expected to play a greater role going

orward.8

While the largest transactions are rom the SOEs, I seemore and more private companies playing signifcant roles inoverseas investment. The current trend o private companiesoutbound investment is similar to that o Japanesecompanies in the mid-1980s, with a double-digit growth rateper year, over at least 10 to 15 years. Private companies romthe Jiangsu and Zhejiang provinces are relatively strong in

terms o their capital and strategic planning. Je Xu, Tax Partner, Deloitte Shanghai and Eastern China Leader o Deloitte Global Business Tax Services

Private enterprises will defnitely play a more and moreimportant role in the process o the nations outbound direct

investment activities. They will probably surpass state-ownedenterprises as the major orce o Chinas investment wave.

Shi Ziming, Commercial Counselor at the Department o Outward Investment

and Economic Cooperation o the Chinese Ministry o Commerce

8 Forbes, Get Ready For More China Overseas Investment, October 2012,http://www.orbes.com/sites/jackperkowski/2012/10/03/get-ready-or-more-china-overseas-investment/


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SOEs are not in thebusiness o taking risks.

Partner, major international law rm

Canadian Inward Foreign Direct Investment from Asia(C$ millions)

1980 1990 2008 2011

Japan 605 5,222 12,411 12,789

China - - 5,665 10,905

South Korea - 312 1,425 6,078

Australia 74 758 5,167 5,617

India - - 6,514 4,396

Taiwan - 19 95 134

Singapore - 88 226 39

Hong Kong, SAR 51 1,374 - -

Malaysia - - 64 -

New Zealand - - 43 -

Philippines - - - -

Thailand - - 3 -

Total Asia 730 7,773 31,613 39,958

Source: Asia Pacic Foundation o Canada

(Figures include mergers and acquisitions as well as greeneldinvestments, or construction o new plants and acilities.)

Progress in CanadaJapan has traditionally provided the bulk o Asian direct investment dollars

in Canada; however, its Canadian FDI growth rate has noticeably declined in

comparison to other Asian countries such as China.

According to Lin Ning, Deputy Director-General o the Economic Inormation

Department o the China Council or the Promotion o International Trade,

China is now the second-largest trade partner o Canada.9

9 China Daily USA, Chinese investments to maintain ast growth in Canada, April 2012,http://usa.chinadaily.com.cn/business/2012-04/19/content_15086647.htm


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Worlds largesteconomies in 2011

Nominal GDP inbillions of US$ 201110

Protecting investorsrank 201211

Ease of doingbusiness rank 201211

CorruptionPerceptions Index

rank 201212

United States 15,075.68 6 4 19

China 7,298.15 100 91 80

Japan 5,866.54 19 20 17

Germany 3,607.36 100 19 13

France 2,778.09 82 29 22

Brazil 2,492.91 82 126 69

United Kingdom 2,431.31 10 7 17Italy 2,198.73 49 87 72

Russia 1,850.40 117 120 133

India 1,826.81 49 132 94

Canada 1,738.95 4 13 9

Australia 1,486.91 70 15 7

Spain 1,479.56 100 44 30

Canada: A sae haven or oreign capitalThe reason behind the numbers is not accidental. Canada

has long been perceived as a country receptive to FDI,

due to its stable and riendly political and investment

environment.

A large group o non-state-owned Chinese enterprises

are attracted to Canada because o advanced Canadian

technology, Canadas market access to the US, and a

dynamic labour orce. Yuen Pau Woo, CEO o the Asia

Pacic Foundation

A survey conducted by the Asia Pacic Foundation oCanada on 1,377 Chinese small and medium-sized rms

revealed that nearly 56% o those companies intending

to invest said that they would like to set up their own

distribution and sales channels in Canada, while 22%

preerred joint ventures. Another 12% preerred to merge

with local companies, while 10% would set up their own

wholly owned manuacturing base in Canada.

Canada is also consistently ranked among the best in

metrics such as protecting investors rights, ease o doing

business and low perceived corruption.

Global Country Rankings 2012

10 International Monetary Fund, World Economic Outlook Database

11 The World Bank, Doing business in a more transparent world, 2012,http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB12-FullReport.pd

12 Transparency.org, Corruption Perceptions Index 2012,http://www.transparency.org/cpi2012/results

Canada oers the most transparent process and alaw system that investors eel they can operate under.

Executive, major Chinese bank


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My concern is that we need toget small and medium-sizedbusinesses much more engaged

in the China story or theyll beshut out o the global supplychains. Too many small andmedium enterprises are tooconservative and too reliant onthe United States.

Peter Harder, President o the Canada China Business Council

Our point o view

As the ocus on the natural resources and energy sectorsshits, we predict that more Chinese investors will eye BC

private companies as a hot target or capital deployment.

For BC private companies, this represents the opportunity to

access both capital and a growing market.


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I run a BC private company.

What opportunities are there or me?

Case study: Russell Breweries

A leading Western Canada brewer, Russell Breweries

brews, markets, sells and distributes a portolio o

award-winning beers produced in BC and Manitoba.

In 2012, Russell Breweries and a group o Chinese

investors established a joint venture in China to import,

produce, package, use, market, sell and distribute

Russell-branded beer in China, Hong Kong and Taiwan.

I the crat beer business takes o in China and i we

have a team on the ground connected to the people

in China the nancial benets could be huge, says

Russell Breweries CEO Brian Harris, who believes that

the Chinese investors extensive knowledge o the local

brewery industry, as well as their existing operations

team, can make all the dierence.

The joint ventures plan is to open a fagship brew pub

in Anhui province in eastern China, with the possibility

o expansion i the venture proves to be successul.

Our existing business relationship with one o the

largest established local restaurant chains in the city

allows us to kick-start the business by leveraging

existing customer trac.

2. Scaling up to an international audienceDespite Chinas growing presence in the global market, large

Chinese enterprises remain challenged to create ootprints

internationally. To improve their overall competitiveness, Chines

investors are on the lookout to nd the next gem abroad. With

this mindset, they are driving both deal volume and deal value,

with the intent o securing interest in a Canadian company

and subsequently assisting the export o its products into the

Chinese market.

Capitalizing on this trend, BC companies can leverage

investments rom Chinese companies to create a global ootprin

o their own. Consider this: there are easily 45 million people

in a single Chinese province compared to British Columbias

population o 4.5 million.

Case study: Film projects hit the jackpot

Wuxi Studios, equipped with capital and ready to

invest, was one o three Chinese production companies

attending the rst China Canada Gateway or Film Script

Competition, which was held at the 2012 Whistler

Film Festival. The China Film Group, a state-run major

distributor o lms in China, was also present at the

competition as observers.

Three projects were chosen or investment by Chinese

lm studios to access up to C$15 million in much-needed

development unding.

One o the main concerns or the Chinese lm industry

is to globalize: not just in getting a market or their lms

overseas, but also being regarded as having their lms up

to international quality standards, said Christopher Rea,

assistant proessor o Chinese literature at the University o

British Columbia.13

British Columbia also oers generous tax credits andincentives to encourage business investment in the lm

production industry, making it nancially attractive or

oreign Chinese investors. And the deal isnt just one

way. For these Canadian lmmakers, not only will they

be gaining access to development unding, it is also an

opportunity to break into China, potentially exposing their

lms to a massive audience.

1. Market entryThrough cross-border investment, one o the biggest

benets or BC private companies is gaining a

knowledgeable local partner in China. Canadian rms

seeking geographic diversication can leverage Chinese

investors expertise and connections to gain access to

distribution networks, market share and human resources,

and to create closer ties to oreign customers, all much

aster than organic growth allows.

The Opportunity: A Chinese investor can help

you hit the ground running in China.

The Opportunity: A Chinese investor brings the

opportunity to scale up your business exponentially.


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3. Reputation and brand equityDont underestimate the value o a Canadian brand. For BC

companies, this is an extremely valuable asset that is not

refected in the books. By investing in a BC company, Chinese

investors and partners secure brands whose reputation is

dicult to build through organic growth.

Case study: White Spot

White Spot is well recognized in BC as a amily-riendly

casual restaurant a brand that many Canadians grew

up with.

Warren Erhart, President and CEO o White Spot Ltd.,

considered whether there was an opportunity or the

brand to extend its presence into Asia. First looking at

a ranchise opportunity in Hong Kong in 2003, Erhart

considered that the some 250,000 people living in Hong

Kong with Canadian passports would serve as a good

entry point or White Spot.14

Partnering with the right ranchisee is key. Erharts

team perormed thorough due diligence on White

Spots Chinese partner beore selecting them rom a

group o interested parties. Erhart indicates that it is

advantageous to have a local ranchisee rather than

one based in another country. 15

Today, White Spot has six locations in Hong Kong and

two locations in Singapore, and it plans to open 15

locations in China over the next our years.

The Opportunity: The value o a quality BC brand

can be maximized abroad with help rom the right

Chinese partner.

Case study: Clinical testing in Hong Kong

BC-based Pacic Rim Laboratories recently partnered

with Wellab o Hong Kong.

In Hong Kong and Italy, we have been successul in

partnering with local laboratories to provide specialized

services. Our Hong Kong partner has given us the

opportunity to work with the Hong Kong Environmental

Protection Department on a variety o projects

that would not have been possible without a local

presence.16 Management, Pacic Rim Laboratories

4. Technological capabilitiesFor BC high-tech companies, the motivation to move testing

to China is convincing cost-eectiveness. But where do

they start? With the help o a Chinese investor, they are able

to satisy oreign certication and regulatory requirements

in China with much more ease. Otherwise, it is exceptionally

dicult to break into the high-tech industry abroad without

existing networks with regulatory authorities.

The Opportunity: BC companies can learn to

navigate the intricate policies and delicate

regulatory environment in China with the help

o a local partner.

13 The Globe and Mail, Chinas Canadian casting call: Theyve got the money, weve got the talent, November 2012, http://www.theglobeandmail.com/arts/lm/chinas-canadian-casting-call-theyve-got-the-money-weve-got-the-talent/article5774651/

14 BC Business, Warren Erhart, President and CEO, White Spot, October 2012, http://www.bcbusiness.ca/people/warren-erhart-president-and-ceo-white-spot

15 Business in Vancouver, White Spot expands into China, July 2012, http://www.biv.com/article/20120731/BIV0106/307319869/-1/BIV/white-spot-expands-into-china

16 Industry Canada, Pacic Rim Laboratories, http://www.ic.gc.ca/app/ccc/srch/nvgt.do?sbPrtl=&prtl=1&estblmntNo=234567056056&prole=cmplt

Prf&proleId=501&app=sold&lang=eng


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While there are enormous growth opportunities, there are

also pitalls that you, as a BC private company owner, need

to keep in mind.

1. Be prepared for limited transparency

Beore deciding to work with a Chinese investor, one

potential challenge will be the low transparency in seeing

the counterpartys decision-making. Chinese investors

typically have complex corporate structures, with each arm

designed or a specic purpose. Thereore, it may be dicult

to understand their chain o command, the key approval

authorities and, as such, the impact that this will have on

the transaction timeline and outcome. This, coupled with

unamiliarity with regards to Chinese intellectual property

rules and dispute settlement processes, creates discomort

or many BC companies.

2. Language and cultureIn working with Chinese investors, BC companies need

to be cognizant that a lot o groundwork has to be done

beore a transaction can happen. That means its a two-way

communication process that will require both parties to

compromise over an extended period o time. Over and

over again, we heard BC companies who have partnered

with Chinese investors tell us how benecial it is to have

someone on their management team amiliar with Chinese

culture. Its important to ask, Is my team comortable

working with this investor or the long term?

3. Fear of politics

There are many doubts and misconceptions regarding

collaboration with Chinese investors, specically about their

investment intentions or ties to government.

It would require the SOE to sub-optimize its own goals

and perormance, putting at risk its corporate and nancial

integrity by undermining the good name and relationships

that take decades to establish. These SOEs are contending

or global position and leadership. It would entail direct

reputational damage among buyers, suppliers and service

providers, to say nothing o attracting lawsuits, security

investigations, etc. says Margaret Cornish, a Beijing-based

ormer Canadian diplomat now working as a senior advisor

to the Canadian law rm Bennett Jones.

Ocials rom the Ministry o Commence, which is

responsible or growing Chinese investment around the

world, are urging the international business community to

be more tolerant and rational toward ambitious Chinese

companies seeking to invest overseas. Once national

security issues are resolved, China should be treated like any

other oreign investor.

So, this all sounds great,

but whats the challenge?

Set the right expectation aboutthe timeline and culture Head o Vancouver operations, major Chinese bank

You can hardly make a riendin a year but you can easilyoend one in an hour. Chinese proverb


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At the end o the day,

its a relationship

business, one that

requires a multi-year

investment. Beverley Pao, Partner, Co-leader, Chinese Service Group Canada, Deloitte


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By now, its clear that doing a deal with a Chinese investoris no easy eat. Chinese culture, much like its multiaceted

geographic landscape, is complex. In turn, each investor

will be dierent and each transaction must be handled on

a case-by-case basis.

Key takeways or BC companies

BC companies mustensure that they have

an aggressive growththesis and drive theirbusiness with aglobal perspective,much like our UScounterparts. David Lam, Partner, Mid-market Corporate Finance

Leader o BC, Deloitte

Does this make sense or me?

Ask yoursel and answer truthully the ollowing

questions:

1. I Im planning to grow or exit the business

in a ew years, have I started to build Chinese

connections?

2. Am I mentally ready to take on the cultural

challenges o partnering with Chinese capital?

I you answered yes to both o these questions,

consider the ollowing:

1. Is my business in a targeted strategic industry or

a related subsector?

2. Is my business looking to expand into

international markets, particularly into emerging

economies?

3. Do I have a proprietary technology or process

that is cutting-edge in its eld?

4. Is my brand well recognized regionally, or even

nationally?

5. Is the current inrastructure o my business ready

to handle a large increase in scale?

6. Do I understand the pros and cons, as well as

the legal, nancial and tax implications, o a

joint venture, partnership or other structure?

I these questions are ones you have been pondering or

some time, Deloitte can help you.

A piece o advice: Dont undersellThe Chinese have an entrepreneurial mindset that

Canadians must appreciate to establish a ruitul

partnership. Despite cultivating many world-class

businesses, Canadians tend to undersell the potential. I

your business is in a strategic industry, has strong potentialor growth and has a solid reputation in the Canadian

market, then its time to think big.


21/22


We all know that relationships with Chinese investorscannot be built in a day or even over several business

trips. This is where Deloitte can help. With 100 years in

China, Deloitte has a long-term relationship with Chinese

companies large and small, SOEs and private companies

building an unparalleled level o trust. We understand that

it is dicult to close a deal in China, and that is why we

have over 13,000 proessionals working in 21 oces in the

Greater China Region.

Deloittes China Service Group (CSG) serves as the uniying

orce to help market, acilitate and deliver proessional

services to multinational corporations investing into

China, as well as Chinese companies expanding overseas.

Operating as a platorm to leverage expertise in China, CSG

bridges the cultural gap to ensure that your needs are met,

whether you are a Chinese rm investing into Canada or a

Canadian rm investing into China.

With a wide network o potential investors here in

Canada or through our China member rm, we can

connect businesses to the right sources o capital. Deloitte

proessionals have extensive experience in cross-border

Mergers and Acquisitions and acilitating outstanding

partnerships between Chinese and Canadian companies.

Let us be your network.

Special thanks to contributors

Deloitte - Let us be your network


22/22

www.deloitte.ca

Deloitte, one o Canadas leading proessional services rms, provides audit, tax, consulting,

and nancial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the

Canadian member rm o Deloitte Touche Tohmatsu Limited. Deloitte operates in Quebec as

Deloitte s.e.n.c.r.l., a Quebec limited liability partnership.

Deloitte reers to one or more o Deloitte Touche Tohmatsu Limited, a UK private company

limited by guarantee, and its network o member rms, each o which is a legally separate and

independent entity. Please see www.deloitte.com/about or a detailed description o the legal

structure o Deloitte Touche Tohmatsu Limited and its member rms.

To learn more about how Deloitte can help you in M&A,

please contact our Vancouver Financial Advisory practice:

Co-authors

Contact

Beverley PaoPartner, Audit

Co-leader, Chinese Service

Group Canada

604-640-3179

[email protected]

Linda ChewSenior Associate,

Mergers & Acquisitions

604-640-4906

[email protected]

Deloitte ContactDavid Lam

Partner, Corporate Finance

Mid-market Corporate

Finance Leader, BC

604-640-3249

[email protected]

Ivor Luk

Partner, Mergers & Acquisitions

Financial Advisory Managing Partner, BC

604-640-3084

[email protected]

Joyce Lee

Partner,

Deloitte Tax Law LLP

604-640-3092

[email protected]

Kanise Lo

Senior Manager,

Private Company Services

604-640-3300

[email protected]

Danna Zhu

Manager,

Chinese Service Group Canada

604-640-3123

[email protected]