China finds gems in Canadian tech as free trade talks stumble

[TORONTO] Free trade talks between Canada and China may have yet to achieve lift off. Tell that to technology sector.

China tech giants including Tencent Holdings Ltd and Huawei Technologies Co are boosting investment in Canadian companies with exposure to everything from electric vehicles to artificial intelligence, attracted by the country's swelling ranks of science and technology graduates, valuations that are cheaper than the US, 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, partner at Toronto-based Real Ventures. The venture capital firm said last week it raised C$180 million (S$191.28 million) in fresh funds for new Canadian startups, including an undisclosed amount from Shenzhen-based Tencent.

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 Asian country 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, tech is becoming increasingly attractive for China, though the values may be tiny compared to the $15.1 billion takeover of oil company Nexen Inc by Cnooc Ltd 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 startup based in Toronto. Telecommunications giant Huawei, which already employs 700 people in the country, is testing an Internet-of-Things project alongside Canada's BCE Inc in a Niagara winery. And BYD Co, the world's largest electric vehicle manufacturer, said it plans to open an assembly plant in Ontario after partnering with Loblaws Cos, to electrify the grocery giant's trucking fleet.

Kathleen Wynne, premier of Ontario, Canada's most populous province, traveled to China last week to meet with a host of tech companies. Announcements included a C$351 million investment from Hong Kong-based John Electric Holdings Inc to augment its auto-parts operations, with the provincial government kicked in C$24 million.

While Chinese companies have been hunting for tech investments around the world - Tencent bought a stake in Snap Inc and backed German flying jet taxi designer Lilium GmbH - political tensions are increasingly prompting investors to look north to Canada from the US, Ms 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 startups north of the border tend to be more reasonable than Silicon Valley.

China is part of a broader wave of foreign investors tapping Canadian tech talent, particularly in AI. Facebook Inc opened its first AI lab in Montreal this fall and Uber Technologies Inc 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, commercialization is really advanced," Ms Qi said. "They complement each other very well."

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