How Chinese investment is changing in B.C.

The controversial HD Mining project in Tumbler Ridge has tried to bring in TFWs

The Chinese used to just want us for our raw natural resources. Not anymore

Terrace—a northwestern B.C. town of some 11,500 people—has been going through the painful process of reinventing itself over the past decade and a half, after its major industry, forestry, went into decline following the closure of the Skeena Cellulose mill in 2001.

So when a municipal agency from a port city three hours east of Beijing approached Terrace Mayor Dave Pernarowski in 2012 with interest in buying 1,100 acres of forest on the outskirts of town—to build an alfalfa protein plant (an ingredient in cow feed)—it was an unexpected (and welcome) alternative to the other proposal being floated by the province: a prison. “We’ve had a lot of people come into the regions and kick the tires,” says Pernarowski, who did not seek re-election in last November’s municipal vote. “We were cautiously optimistic.”

Last July, the Quinhuang-dao Economic and Technological Development Zone purchased the land for $11.8 million from the Kitselas First Nation and the city of Terrace. The move is just one example of dozens of Chinese companies surfacing in recent years with an interest in investing in B.C. China is currently the seventh-largest source of foreign investment in Canada, having increased 15-fold, from $113 million in 2004 to $16.6 billion in 2014. Although the federal government doesn’t keep statistics on how many dollars go to each province, B.C.’s share of Chinese investment is thought to have risen similarly.

While investments by individual Chinese immigrants account for 80 per cent of the transactions—from headline-grabbing purchases of west side Vancouver houses to investments in mom-and-pop businesses by immigrants in the provincial nominee program—they count for less than a third of the total flow of money. The bulk of investments, in dollars, are made by state-owned or -connected enterprises interested in resources. And those investments are, for the most part, in B.C.’s hinterlands: in proposed mines, in pulp mills—and, as in Terrace, in land zoned for industrial development.

In the 1980s a trickle of container ships began carrying B.C. coal, logs and pulp to China’s nascent ports. Then, in the 2000s, trade between the two jurisdictions began to boom. In that decade the value of B.C.’s exports to China grew at an average of 24 per cent year over year. China is now the destination for just under one-fifth of this province’s exports. And with that trade has come investment.

As the Chinese economy has grown, state-owned enterprises have sought to develop global supply chains in order to service domestic demand, according to Michael Grant, a senior researcher at the Conference Board of Canada. “A key priority of Chinese foreign direct investment is to develop global supply chains in order to service domestic demand for resources,” he says. In B.C. that has translated into investments in copper and steel-making coal mines, gas wells and pulp mills.

In the last five years alone, the deals have piled on. In 2009 the China Investment Corporation, the country’s sovereign wealth fund, took up a 17.2 per cent stake in Teck Resources for $1.5 billion. Three years later, Petro China took a $1.5-billion stake in Shell’s shale gas project in the Peace River region. Chinese state-owned enterprises have also made numerous smaller investments in B.C.-based miners: Selwyn Resources sold its shares in a zinc and lead mine to two Chinese companies for a combined $150 million in 2013, while that same year State Grid Corporation, China’s main electrical utility, made a $1.5-billion investment in Vancouver-based miner Quadra Mining Ltd. Then there’s a whole raft of yet-to-be-built projects, including the controversial HD Mining project in Tumbler Ridge (which infamously tried to bring in temporary foreign workers).

Outside of mining and oil and gas, investment by Chinese companies has been more modest. In the case of lumber, B.C.’s second most valuable export to China, the opportunities for investors tend to be “very limited,” explains Kevin Mason, senior analyst at ERA Forest Products Research. Mason says that many in the industry expected that more Chinese pulp and lumber buyers would take up stakes in B.C. companies, but that hasn’t materialized.

Back in Terrace, the land for the future industrial park has been clear-cut but still sits empty. The city has been paid in full for the property, and over the past six months it has installed electrical towers and transformers, water pipes and roads. For an industry town without a major industry, the city is desperate for a new tax base, explains Pernarowski.

“It was a surprise for a logging community to see a manufacturing plant come out of this deal,” says Pernarowski, who welcomes the plant as a chance to mitigate forestry’s boom-and-bust cycles. “We’re a logging community, but 10 years have gone by and there hasn’t been a lot of logging.”