China finds gems in Canadian tech as free trade talks stumble

While Chinese companies have been hunting for technology investments around the world, political tensions are increasingly prompting investors to look north to Canada from the United States

PUBLISHED : Wednesday, 06 December, 2017, 2:41pm
UPDATED : Wednesday, 06 December, 2017, 9:39pm

Free trade talks between Canada and China may have yet to achieve lift off, but tell that to the technology sector.

Major Chinese technology companies, including Tencent Holdings and Huawei Technologies, are boosting investment in Canadian companies with exposure to everything from electric vehicles to artificial intelligence (AI), attracted by the country’s swelling ranks of science and technology graduates, valuations that are cheaper than those in the United States, and government enticements.

“Over the last six months, I’ve probably been contacted by at least half a dozen new funds that have Chinese money,” said Janet Bannister, a partner at Toronto-based Real Ventures.

The venture capital firm said last week it raised C$180 million (US$142 million) in fresh funds for new Canadian start-ups, including an undisclosed amount from Tencent.

Based in the southern coastal Chinese city of Shenzhen, Tencent is the world’s largest video games company by revenue, as well as operator of the country’s biggest mobile messaging and social media platform, WeChat.

While China is Canada’s second-largest trading partner, Chinese investment in the country shrank to an annual average of C$1.21 billion in the 2013-2017 period, from C$8.16 billion in the previous five years, when the world’s second-largest economy was pouring money into the energy patch.

Justin Trudeau has vowed to reverse that trend but the two countries have yet to kick start talks on a possible free-trade agreement during the Canadian prime minister’s visit to China this week.

Still, technology is becoming increasingly attractive for China, though the values may be tiny compared to the US$15.1 billion takeover of oil and gas company Nexen by the state-owned China National Offshore Oil Corp in 2012.

In addition to the venture capital fund, Tencent took part in a US$102 million funding round for Montreal-based Element AI and put US$28 million into Kindred Systems, an AI robot-manufacturing start-up based in Toronto.

Privately held Huawei, the world’s biggest telecommunications equipment supplier, already employs 700 people in Canada. It is now testing an internet-of-things project alongside Canada’s BCE in a Niagara winery.

BYD Co, the world’s largest electric vehicle manufacturer, said it plans to open an assembly plant in Ontario after partnering with Loblaws, to electrify the supermarket chain’s trucking fleet.

Kathleen Wynne, the premier of Ontario, Canada’s most populous province, travelled to China last week to meet with a host of technology companies.

Announcements included a C$351 million investment from Hong Kong-based John Electric Holdings to augment its auto-parts operations, with the provincial government kicking in C$24 million.

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While Chinese companies have been hunting for technology investments around the world – Tencent bought a stake in US social media company Snap and backed German flying jet taxi designer Lilium – political tensions are increasingly prompting investors to look north to Canada from the US, Bannister said.

“With us being open to immigration and particularly with the US closing their door, that has also created a window of opportunity for the Canadian ecosystem and Chinese investors,” she said, adding valuations for start-ups in Canada tend to be more reasonable than in California’s Silicon Valley.

China is part of a broader wave of foreign investors tapping Canadian technology talent, particularly in AI. Facebook opened its first AI lab in Montreal this fall and Uber Technologies is building a team in Toronto to improve its autonomous-vehicle software, hiring a University of Toronto professor to lead its operations.

Canada’s robust talent pool and Shenzhen’s expertise in bringing products to market makes a great match, said Jenny Qi, chairwoman of the Canada Confederation of Shenzhen Associations, which connects businesses and investors between the two regions.

“In Canada, R&D advantage is here, education, research is here, but in Shenzhen, the global supply chain, manufacturing systems, commercialisation is really advanced,” Qi said. “They complement each other very well.”