Think Asia, Thing Hong Kong, a conference focused on facilitating trade and investment with China via Hong Kong – took place in Toronto June 8th. Key among the participants was Stephen D. Wortley, Chair, Hong Kong Office and Co-Chair, China Practice Group at McMillan LLP. In conjunction with the conference, Asia Law Portal is pleased to publish this Q&A focused on successful facilitation of trade and investment between Canada and China via Hong Kong.
McMillan will be participating in the upcoming Think Asia, Think Hong Kong symposium set for June 8 in Toronto. Tell us about McMillan’s work as a facilitator of Chinese investment in Canada and Canadian investment into Mainland China.
McMillan is the only true Canadian national firm in Hong Kong, and the city has a legal system second to none. We focus on using Hong Kong as a jumping off point for investment into Canada, by way of the Hong Kong ‑ Canada Tax Treaty and leveraging the connection between Hong Kong and Mainland China to facilitate inbound work. We also use the city as the entry point for Canadian investment into China, via Hong Kong’s legal and tax system.
In connection with Chinese investment into Canada, we were especially pleased when Century Iron Mines Corporation recently was honoured with the 2014 Gold Business Excellence Award for Chinese Investment in Canada, which was presented by the Canada China Business Council. The deal was unique because it involved WISCO and Minmet, two large SOEs, Hong Kong management and Canadian mining assets. Century Iron is listed on the TSX.
Canadian businesses are awakening to the opportunities to partner with Mainland businesses. We are routinely assisting Ontario‑based businesses on how to structure Sino-foreign joint ventures or even to consider listing on the Hong Kong Stock Exchange. We were involved in the listing of Vancouver based, China Gold International, on the HKSE.
Mainland Chinese companies increasingly seek overseas investment and partnerships in an array of industries – and Canadian companies are actively seeking opportunities in China. What do you see as the main points of opportunity in each respective market?
In terms of investment from Chinese companies, we are seeing positive momentum in the aviation, automotive, heavy machinery and agriculture sectors. In the automotive sector, we assisted Wanfeng Auto Holdings in the acquisition of Meridian Lightweight Technologies. Wanfeng Auto is a China‑based company and one of the Group’s companies is listed on the Shenzhen Stock Exchange. Meridian is a leading Canadian manufacturing group with operations in Canada, the U.S., Mexico, the UK, Germany and China. In the heavy machinery sector, we have assisted Liaoning Censcience Industry Co. when it acquired the assets of Caterpillar Tunneling Canada Corp., a Canadian subsidiary of the Caterpillar Group.
On the Canadian side, we are seeing very positive strides being taken in the technology and consumer entertainment groups. Annidis Corporation, an Ottawa‑based company, appointed Yimai Technology International Company, a China‑based Hong Kong company, as its exclusive distributor in China of ophthalmology products). Empire Industries, listed on the TSX, is conducting joint venture operations in Guangdong Province in connection with its steel fabricating business and is selling its state of the art amusement park experiences. We have assisted both Yimai and Empire.
What potential challenges should investors be concerned about when seeking to enter the Chinese or Canadian markets?
For both sets of investors, use Hong Kong as your jumping off point. For Asian investors there is the advantage of the Hong Kong – Canada Tax Treaty. For Canadian investors, there is the rule of law.
Again for both sets of investors, doing due diligence and establishing positive relationships with a local partner are key.
As Chair of McMillan’s Hong Kong Office and the firm’s China Practice, your practice focuses on domestic and international securities and corporate matters. What legal trends do you see currently shaping Canada‑China cross‑border trade and investment that clients need to keep most in mind?
The most important legal trends are the use of strategic partnership arrangements and favourable government policies. Strategic partnership arrangements may involve: equity investments into a Canadian company; an investors rights agreement; a joint venture agreement; and project debt financing commitments. There is no set formula. Each transaction is unique.
On the policy side, each of the Canadian, Hong Kong and Chinese governments have been doing their parts. On the Canadian side, the government has dramatically increased the threshold up to which no pre-acquisition approval is required. That threshold is now C$600 million worth of enterprise value for WTO investors that are not SOEs. Both China and Hong Kong are WTO investor jurisdictions.
The Canada-China Foreign Investment Protection and Promotion Agreement is now in force and provides important safeguards for Chinese and Canadian investors. It is a bilateral agreement aiming to protect and promote foreign investment through legally binding rights and obligations focused on non-discriminatory, fair, and equal treatment.
Perhaps what is most significant is that Hong-Kong and Canada have implemented a tax treaty that will encourage cross-border business and investment, reducing the withholding rate for dividends from Canada to five percent, from 25 percent. Hong Kong does not have a tax treaty with the United States.
On the China side, the government has taken important steps to streamline outbound investment approvals and to promote outbound investment in its 12th Five-Year Plan that is supported by its policy banks like China Development Bank.
McMillan chose Hong Kong as a base for its Asia practice. How has Hong Kong been an integral part to both the firm and its clients?
Hong Kong is a unique and bustling hub for commerce and trade among countries that comprise the ASEAN group. The city also boasts a robust legal system, an expansive infrastructure, and great access to financial and technical expertise.
We believe Hong Kong will continue to play a critical part in launching trade and investments going in and out of Mainland China. So, being based in Hong Kong places us in a good position to take advantage of these opportunities. We like to think that Hong Kong is the gateway in which McMillan can later expand into other areas.
Lastly, our lawyers, when working in Hong Kong, benefit from accessibility in terms of both language and geography – making the city a highly desirable place to live and work.
What advice would you give current law students who might wish to focus on a career in Canada‑Asia cross‑border investment?
Interning in a law firm that is focused on cross-border investment would be a key step. Also key is to keep apprised of evolving developments both in terms of government policy and industry trends. Attending conferences focused on cross-border investment would also be important as such conferences provide ready access to a network of potential contacts and opportunities.