Ottawa is taking steps to protect and develop its critical minerals supply chain by cracking down on foreign governments’ investment in these natural resources. On Nov. 2 Innovation, Science and Economic Development (ISED) Minister Francois-Philippe Champagne ordered three Chinese companies to sell their investments in Canadian lithium companies.
“We will act decisively when investments threaten our national security and our critical minerals supply chains, both at home and abroad,” he said in a statement.
Critical minerals, which include lithium, cobalt, copper, as well as the rare earth elements, are vital for a number of technologies across a range of applications, such as batteries, electronics, defence, and renewable energy. Thus the demand for them is only projected to go up.
China is by far the dominant player in the global critical minerals supply chain—with 80 percent market share in some cases—and Canada and the United States are trying to wrest control to ensure reliable access for themselves and their allies.
Champagne said the government has ordered Sinomine Rare Metal Resources Co. Ltd. to divest itself of its investment in Power Metals Corp., Chengze Lithium International Ltd. to divest itself of its investment in Lithium Chile Inc., and Zangge Mining Investment Co. Ltd., to divest itself of its investment in Ultra Lithium Inc.
“The government’s decisions are based on facts and evidence and on the advice of critical minerals subject matter experts, Canada’s security and intelligence community, and other government partners,” the minister said.
‘Additional Direction’
Less than a week before Champagne’s Nov. 2 order, the feds had provided “additional direction” on applying the Investment Canada Act (ICA) in cases involving foreign investments by state-owned enterprises (SOEs) in Canada’s critical minerals sectors.
“Significant transactions by foreign state-owned enterprises in Canada’s critical minerals sectors will only be approved as of likely net benefit on an exceptional basis,” said an ISED statement issued Oct. 28.
As is custom in such announcements, no specific country was named, but China would be the logical target given past Canadian experience with its SOEs and the current state of affairs with critical minerals globally.
“The global market for critical minerals is rapidly evolving and the strategic value of certain minerals, including lithium, has grown. The government has concluded that a lack of secure access to critical minerals found and developed both within and outside of Canada, by Canadian firms, is a source of national security risk for Canada,” a spokesman for ISED told The Epoch Times.
The government is in the process of finalizing its first Critical Minerals Strategy, announced in this year’s federal budget. Budget 2022 proposed to provide up to $3.8 billion over eight years to implement the strategy, starting in 2022–23.
Dealing With SOEs
China analysts and scholars have long said that due to China’s lack of transparency with respect to its organizational structure, domestic laws, and internal and undocumented regulations and customs, it can be difficult to distinguish between companies that are truly private and those that are state-owned.
For example, there continues to be broad concern over Chinese telecommunications giant Huawei’s ownership and claim of independence, especially considering China’s national security and cybersecurity laws, which have been taken to mean that Huawei and other Chinese companies are subject to Beijing’s direct orders.
“Big Chinese companies—especially those involved in sensitive industries like telecommunications—are all subject to the objectives of the ruling communist regime,” Michel Juneau-Katsuya, a former Canadian Security Intelligence Service senior manager, previously told The Epoch Times.
ISED’s Oct. 28 statement also provided the link to the feds’ updated policy on SOEs’ foreign investments in critical minerals under the ICA. In the policy, the department spelled out the problems, such as how they can be “motivated by non-commercial imperatives that are contrary to Canada’s interests.”
This includes the case of private companies that are “assessed as being closely tied to, subject to influence from, or who could be compelled to comply with extrajudicial direction from foreign governments, particularly non-likeminded governments,” the updated policy said.
The ICA includes in its definition of an SOE an entity that is “controlled or influenced, directly or indirectly, by a government or agency [of such a government].”
ISED said its updated policy is not retroactive.
The Quest for Lithium
One critical mineral—lithium—recently illustrated a potential weakness in Canada’s acceptance of foreign investment. The $960 million takeover by Chinese mining giant Zijin, announced in October 2021, of Canadian firm Neo Lithium went ahead without any scrutiny from the government.
Zijin is ostensibly a private company and thus falls under a much higher threshold for being allowed to directly take control of a Canadian firm without triggering a review. If the investor-purchaser is based in a World Trade Organization member country, as is China, the ICA’s 2022 threshold for SOE investments is $454 million, but the threshold for investment by a private company is now $1.141 billion.
The potential of SOE foreign investments threatening Canada’s national security has been considered so serious that a senator tabled a bill last year to require a mandatory national security review any time an SEO proposes a foreign investment in Canada.
Senator Thanh Hai Ngo, now retired, proposed Bill S-234 to amend the ICA and specifically pointed the finger at China. However, the potential legislation did not receive royal assent and came to an end in August 2021 when a federal election was called and Parliament was dissolved.
Canada has had its share of experiences dealing with Chinese SOE interest in Canadian natural resources and critical infrastructure. A high-profile case involved the attempted takeover of infrastructure giant Aecon in 2017. Canada rejected the takeover bid in 2018 on national security grounds.
Chinese SOEs have been known to undercut and bankrupt local companies and thus gain market share, with profitability being only a secondary concern.
Beijing has previously said it wanted “unfettered access” to Canada’s economy around the time when Canada-China free-trade talks were being considered in 2017.
