Canada: New Rules Governing China Central Government Controlled State-Owned Enterprises Investing in Canada

Last Updated: June 25 2012
Article by Michel A. Brunet and Pierre Lortie

New interim rules governing foreign investments by large Chinese central government controlled State‐Owned Enterprises ("SOE") have been promulgated and are effective since May 1st, 2012. The new rules in questions are specifically targeted at "Central Government Controlled SOEs", known in China as Yang Qi. Officially there are 117 such Yang Qi. The list may become shorter as the State‐Owned Assets Supervision and Administration ("SASAC") of the State Council plans to further consolidate those companies. The new requirements have a direct bearing for Canadians involved with such an investment partner.

The Context

Chinese outward foreign direct investment ("FDI") has become a major force in the global economy. In 2010, China ranked as the fifth largest international investor in the world while just a few years ago such Chinese outbound flows were marginal. Canada has been a significant recipient of these Chinese FDIs, no doubt because of the complementarities of our economies: we have the natural resources they need to fuel their economic growth.

China direct investments in the territory covered by Quebec's Plan Nord are a case in point. In several instances, they have been the key to the development of important projects. The $240 million investment by Wuhan Iron and Steel Corp. ("WISCO") was instrumental in the successful development of Consolidated Thompson Bloom Lake project. Following the acquisition of Canadian Royalties by the Canadian subsidiary of Jilin Jien Nickel Industry in January 2010, the construction of the Nunavik Nickel project was restarted. In January 2012, Wisco has made a $91 M investment in Adriana Resources to support the development of the Lac Otelnuk iron ore property. Chengdu Tiangi Industry Group is a strategic investor in Nemaska Lithium. There are no reasons to suggest that such inflows should abate soon. The great majority of these FDIs has been and will continue to be made by SOEs.

Foreign investments by SOEs have not been problem‐free. At the April 2012 high level Baoa Forum for Asia, Zhou Ziaochum, Governor of the Peoples' Bank of China, commented that "although we are large traders with many countries,...our investors are not familiar with the investment environment, legal systems, and financial markets in foreign countries. This will take some time to improve". Shao Ning, Vice‐President of the SASAC of the State Council was even more blunt: "I'm a little bit concerned about the Chinese enterprises going global because they lack the ability to operate internationally, have limited talent available, and know little about the foreign investment environment, especially the judicial environment". Not surprisingly such harsh assessments of performance and capabilities spurred new regulations.

The Scope of the new Regulation

Central government controlled SOEs are under the authority of the SASAC of the State Council. Concerned by the number of prominent foreign investment failures, the increasingly strident criticisms Chinese FDIs attract in countries around the world and a realisation that SOEs may not possess the management skills to deal abroad, SASAC adopted on March 18, 2012 a regulation governing the supervision and management of offshore investments by SASAC controlled SOEs ("Regulation"). These became effective on May 1st, 20121.

Offshore investments subject to the Regulation include fixed assets investments, equity investments and other investment activities by the SOEs under the direct supervision of SASAC and by all their wholly‐owned and holding subsidiaries. SOEs owned by provincial governments or very large municipalities directly under the State Council are not subject to SASAC control. These SOEs and Chinese private investors will continue to operate under different requirements, a situation that requires added caution by potential recipients of Chinese investments.

The Regulation makes both the enterprise under its ambit and their management responsible for ensuring compliance and accountable for Chinese FDIs that result in losses. The sanctions associated with this emphasis on personal responsibility, particularly in cases of material losses, should encourage strict conformity with the spirit and letter of the law.

The essential features of the Regulation can be summarized as follows. The SOEs must:

  1. Prepare and submit for approval by SASAC their annual offshore investment plan, including the sources of funding for the program and the financing plan and capital structure for each major project.
  2. Develop and implement a rigorous management system to assess investments opportunities, manage the risks inherent to such investments and audit their performance on an ongoing basis.
  3. Avoid investments in non‐core businesses. Such investments may be allowed only if necessary to the success of the SOEs business plan and specifically authorized and controlled by SASAC.
  4. Abide by the laws and policies of the countries where the investment is made and respect the local customs.
  5. Retain domestic and foreign advisors to assist in the implementation of the management systems and processes, the assessment of investments opportunities and the completion of the investments.

This obligation is a direct response to the concerns voiced about the competencies of Chinese managers to deal in foreign environments and a counter to their notorious reluctance to incur and pay professional fees.

Implications for Canadian Companies

The Regulation affect all Canadian companies involved with a SOE investment. Proper due diligence will require answers to the following questions:

Is the SOE subject to the Regulation?

  • Large SOEs tend to have multiple subsidiaries which often operate quite autonomously. The opacity of their corporate structures heightens the risks of running afoul of the Regulation.

What is the core business of the SOE?

  • This simple question may prove difficult to determine since many SOEs carry widely diverse activities and the Regulation does not provide a definition of "non‐core business".

Did the SOE comply with the Regulation and obtained the required authorizations?

It is too early to measure the impact of this new Regulation. One would expect that they would result in better investments and investment partners and promote a greater degree of probity and due diligence in SOEs foreign investment activities. It may also hasten the recognition that it is not necessary to own and control a mine or other producer to ensure future supply. A minority interest coupled with a long‐term off‐take or supply agreement will achieve the same result in the great majority of cases.


1. "The Interim Measures on Supervising and Managing Offshore Investments", StateOwned Assets Supervision and Administration Commission, 18 March 2012.

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
23 Oct 2018, Other, Toronto, Canada

Dentons and SheEO are coming together for an evening of #radicalgenerosity on October 23, 2017. Meet Vicki Saunders, Founder of SheEO, and learn about how SheEO is changing the landscape for female entrepreneurs.

23 Oct 2018, Seminar, Montreal, Canada

Dentons is pleased to invite you to join us for a breakfast seminar as part of the Les Matinées Dentons series on issues relevant to you and your business.

24 Oct 2018, Other, Toronto, Canada

If you build it, claims may come. Join the Dentons Construction group for breakfast and an informative discussion on current topics in construction law.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions