TORONTO, March 6 (Xinhua) -- Cultural differences and business practices are the fundamental issues for Chinese investing in Canadian mining projects, said participants at a roundtable on Wednesday.
The Prospectors & Developers Association of Canada's (PDAC) held its annual conference here on March 3-6, bringing together delegates from over 125 countries and regions in one of the world's biggest events in the industry. Chinese and Canadian stakeholders took this opportunity to talk about ways to facilitate bilateral cooperation and overcome existing challenges.
They touched on several issues including China's macro demand for mining commodities, the effects of the European financial crisis and China's slowdown, but the topic that dominated the discussion mainly revolved around the cultural issues that often hinder Chinese investments.
In the current economic climate, many Canadian companies are desperate for Chinese investors to get on board on their projects right now, but both sides acknowledge that many problems often occur in the post-investment phase.
Most, like John Guo, the Chief Operating Officer of Jien Nunavik Mining Exploration, a Chinese-owned company with operations in Canada, agreed that the issues stem from a lack of cultural understanding of Canadian business practices.
"We have a lot of things to learn," said Guo. "The big challenge, I would say, (is) the experience and also the culture. How to integrate the Chinese way, or Chinese experience into Canadian regulations."
Having preconceived notions and expectations on a project without thorough research is a dangerous path for Chinese investors, he said. It's essential for potential investors to learn about Canada's lengthy permitting procedures, understand Canadian business practices and ultimately comply with regulations if they want to succeed.
"There's no shortcut and this is maybe one of the reasons the Chinese failed because they didn't expect such a procedure and they don't know how to proceed," said Guo.
IMPACT ON LOCAL ENVIRONMENT AND COMMUNITIES
It's important to know the rules of the game and fully comprehend all aspects of the project before investing, advised Guo. And that means understanding the full impact they will have on certain communities.
"They're usually selective to their due diligent. The only aspect (they're concerned with is) the technical part," he said. "But sometimes they just ignore for example the social aspect, the environment aspect, even the local community environmental impact."
In the mining sector, aboriginal rights have been a growing topic of discussion. Mining and exploration can bring these groups opportunities for economic development and employment, but it also brings environmental degradation. Jerome Beaugrand-Champagne, the China representative for a Canadian law firm Heenan Blaikie, said Chinese investors need to address these cultural issues head on, and not just deal with the Canadian companies alone.
"This needs to be addressed on a personal level," he said. "Different tribes have different leaders who have different opinions, so (they) really, really need to go and meet with them even before investing in a project, you need to sit with them, you need to show your respect to the leaders, to the elders and see how you can work with them so you have a win-win cooperation."
OPERATIONAL CONTROL
Another area of concern is the role Chinese investors have in the company after the initial investment. Some want operational control, but often end up as a passive investor. Industry experts said there is often a mismatch in expectations. To avoid these issues, both sides need to have a clear structure of investment drawn out right from the start.
Stephen Wortley, chair of China Practice Group of McMillan, said a strategic plan is needed, so that on the Chinese side they're not writing big cheques right away, but instead are investing incrementally.
"We say if you come in at a 20 or 25 percent level, and then couple that with agreements that give you board representation, and again going back to my earlier comment, a joint venture on the property, you may have the say you want without writing a cheque to buy the entire company," he said.
Harry Tian, senior manager of a Chinese company Boasteel Resources Int. Co. Ltd, believe it's important for investors to balance the risks, even if the deal looks good on the outside.
"If the condition isn't met, if you think it's tough to get a management team to Canada, my personal view is, even though the deal seems nice and decent, forget about it," he said. "Don't take too much risk."
CHINESE AND CANADIANS MEETING HALFWAY
The overall consensus was that Chinese investors need to understand the Canadian market and business practices. But on the other side, Canadian companies also need to meet the Chinese halfway, and try to understand and learn about Chinese values and culture as well.
It's a slow process, but Guo said he has seen some improvement in recent years.
"Before, the Canadian companies just consider Chinese companies as a deep pocket investor, so what they're looking for is just money," he said. "In recent years, more Canadian companies they understand what the Chinese investors want, what they're looking for."
"I believe nowadays, more Canadian companies they're trying to reach a win-win situation," he added.
Both sides have been continuing this conversation, networking and exchanging business ideas during PDAC meeting.
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