The east eyes the west coast

The emerging trends in Chinese capital and its impact on BC private companies

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Foreword
When Deng Xiaoping transformed modern China from a communist state to a de facto market economy with his Open Door Policy in 1978, the country finally opened the door to foreign investments. That was 35 years ago. Up until recently, however, when we hear about CanadaChina cross-border mergers and acquisitions (M&A) deals, we often think of the billion dollar public company energy and resources deals. But is there an opportunity for BC private companies to tap into coveted capital from China? With this question in mind, Deloitte set out to explore the opportunities and challenges involved in partnering with Chinese capital. Speaking to Chinese investors, international banks, Canadian law firms and the BC private companies who have taken this great leap forward, we see Chinese capital as an untapped source of capital for BC entrepreneurs.

Our point of view: As the focus on the natural resources and energy sectors shifts, we predict that more Chinese investors will eye BC private companies as a hot target for capital deployment. For BC private companies, this represents the opportunity to access both capital and a growing market.
In this report, we aim to share with you our point of view on Chinese capital, and our insights on the opportunities and pitfalls for BC private companies to be mindful of.

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While the energy industry has been under the spotlight in recent years, in the next decade well see the emergence of investments in other industries, such as life sciences, agriculture and high tech. Investment in energy may not slow down, but other industries will catch up.
Christopher Roberge, Partner, Deloitte Canada, and Managing Director, Asia Pacific International Core of Excellence, Hong Kong

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A mandate from the top

Chinas twelfth Five-Year Plan emphasizes a shift to a consumer-based economy, creating opportunities for Canadian high-tech, clean-tech, life sciences and health care sectors. We have compiled an illustrative list of innovative BC companies in accordance with their classifications within the strategic industries above. While some of these companies may be publicly traded rather than privately held, they serve as a good indicator of the products and services that are highly sought-after by Chinese investors.

Strategic industries per Chinas twelfth Five-Year Plan Energy conservation and environmental protection Energy reduction Next generation IT Broadband networks, Internet security infrastructure, network convergence Bio-technology/life sciences Drugs and medical devices High-end equipment manufacturing Aerospace and telecom equipment Alternative energy Nuclear, wind, solar Advanced materials Rare earth and high-end semiconductors Clean-energy automobiles

Examples of BC companies in each strategic industry Westport Nexterra Sierra Systems Alpha Technologies Stemcell Technologies QLT Inc. Avcorp Norsat International Sea Breeze Energy Alterra Power Corp Commerce Resources Corp Unit Electrical Engineering Ltd Automotive Fuel Cell Cooperation Ballard

The Chinese government has mandated that the renminbi (RMB) will become an international currency. Through foreign investments in Canadian businesses, they hope to diversify the use of the RMB.
Executive, major Chinese bank

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RMB$1.5 trillion (approximately C$250 billion) is rumored to be invested in the development of the seven strategic industries over the 2011 to 2015 time frame1, through both Chinese domestic development and outbound investment. Encouraging private and public Chinese capital to flow into these strategic industries is a major goal for the Chinese government, who hopes to facilitate both learning opportunities and strategic collaborations with foreign businesses. Chinas top economic planner, the National Development and Reform Commission (NDRC), will also relax rules on overseas investments by Chinese companies. Effective March 2011, the commission exempts non-resource-related overseas investments worth less than US$100 million from obtaining approval from the NDRC. We expect this policy to significantly expedite outbound investments for BC private companies. More recently, China and Canada concluded negotiations on the Foreign Investment Promotion and Protection Agreement during Canadian Prime Minister Stephen Harpers visit to China in February 2012. The agreement urges local governments in China to provide more support for foreign investment.2

Reuters, China mulls $1.5 trillion strategic industries boost: sources, December 2010, http://www.reuters.com/article/2010/12/03/us-china-economy-investment-idUSTRE6B16U920101203 China Daily USA, Chinese investments to maintain fast growth in Canada, April 2012, http://usa.chinadaily.com.cn/business/2012-04/19/content_15086647.htm

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The trend of Chinese capital in BC private companies will only grow as the Chinese government creates incentives to invest in emerging strategic sectors abroad.
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The current marketplace

Global M&A led by Chinese companies
China has been a leading force in global M&A transactions. In the past decade, outbound investment by Chinese buyers increased dramatically, hitting a new peak of US$74.7 billion in 2011.3 Chinas annual foreign direct investment (FDI) increased by nearly 30 times between 2002 and 2011, demonstrating an exploding appetite for foreign investment. Even during the global financial crisis from 2008 to 2010, FDI rose by a robust 32%, at a time when global FDI contracted by 37%.3 These incredible growth rates demonstrate that Chinas need for overseas projects, including resources and technology, is on a steep upward trend. While historical data is encouraging, will this trend continue? Interestingly, although Chinas gross domestic product (GDP) accounts for 10% of world GDP3, the countrys FDI still only accounts for 4.4% of global FDI flows. This mismatch implies that there is room for growth in Chinas FDI.

Chinas Foreign Direct Investment 1983 to 2011

80 70 60 52.2 56.5 4% 68.8 5% 74.7 6%

US$ billions

50 40 30 21.2 22.5 20 10 0

3%

2%

1%

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

0%

Chinas annual FDI ows (Lhs)

Chinas annual FDI ows as % of world total (Rhs)

Source: Chinas Big Bang will revolutionise its financial system, November 2012, HSBC Bank plc.

Impact on BC
A desire to invest in BC companies is both government driven and consumer driven. Earlier, we listed the industries identified by Chinas twelfth Five-Year Plan seven strategic industries that represent investment targets emphasized by the Chinese government. Consumer demand in the East, however, also leads to foreign investment in sectors outside of those named in the twelfth Five-Year Plan. In particular, we see increased activity in BCs food and beverage and agrifood sectors.

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Chinas Big Bang will revolutionise its financial system, November 2012, HSBC Bank plc.,

Case in point: Agrifood

In BC, the agrifood industry has been drawing attention due to the Chinese populations growing awareness of food safety. Known for its quality and cleanliness, BC agrifood products are more in demand than ever. Furthermore, BCs strategic geographic location allows for easy transportation of perishable goods to China. If you operate an agrifood company, ask yourself the following questions: 1. Have I seen the price of my product rise in the last few years due to growing demand? 2. Is my product farmed or cultivated exclusively in Canada? 3. Does my business have the right infrastructure to meet a much larger volume of sales?

Case study: Shellfish Farm

A BC-based aquaculture company that specializes in farming shellfish has recently signed an agreement to sell a minority stake to a Chinese investor. Quality of water has been an ongoing challenge for shellfish farms in China, leading to a huge unmet demand in China for fresh shellfish. Canadian water is widely seen as pristine and unpolluted, and Chinese consumers trust the quality of shellfish farmed in BC. Some shellfish are also indigenous to British Columbia, such as the geoduck clam, which is considered a delicacy by many in China. Geoduck exports from North America have grown rapidly and are estimated to total more than C$100 million each year. 4 The BC aquaculture company was able to benefit from the emerging trend of seafood demand in Asia and tap into resources unique to BC. According to the owner of the company, investors are willing to pay a premium for a stake in this BC company because they understand the rising demand for the product, and the value of the product being backed by a Canadian brand.

Water quality is an issue that cant be fixed in the next 5 to 10 years in China, so we see a big opportunity for us.
Owner, BC aquaculture company

Financial Post, Will Jim Trelvings wallet clam up?, March 2012, http://business.financialpost.com/2012/03/19/will-jim-trelvings-wallet-clam-up/

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Clean energy is the key for the economic transition of China and also one of the key industries in the future. The only place where President Obama mentioned China in his State of the Union Address in 2012 was its shift to clean energy. Our company made significant investments in clean energy overseas and has looked into wind power projects in North America. We believe that wind power has significant potential in both economic and environmental terms.
Executive, large Chinese state-owned enterprise

Case in point: Clean energy

Chinas exploding economy creates a massive appetite for clean energy. Part of Chinas twelfth Five-Year Plan focuses on the development of sustainable and renewable energy, which includes solar, wind and waste water treatment. To support this, the Chinese government is offering incentives for companies in this sector, such as tax breaks and subsidies for land and employee training. If you operate a clean-tech company, ask yourself the following questions: 1. Do I know the Chinese strategic players in the renewable energy sector? 2. Have I consulted any professional firms to set up connections with potential Chinese investors? 3. Do I understand what the Chinese investors want out of a joint venture with me?

Case study: Clean-tech

Deloitte was engaged by a Chinese state-owned enterprise (SOE) who was mandated to invest in wind power projects in BC. The SOE is an equipment manufacturer looking at a wide range of wind power assets, including early-stage greenfield wind projects that have not secured a power purchase agreement. This client was motivated by the prospect of being able to place its turbines on a project being the first to do so before its global competitors enter the BC market. This is an emerging trend in BC that has been evident in Ontario for some time. On July 13, 2012, Longyuan Power Group Corp, a subsidiary of the Big 5 Chinese energy firm SOE Guodian, signed a share purchase agreement with Canadas Farm Owned Power (Melancthon) Ltd. According to Zhu Yongpeng, General Manager and Deputy Secretary of the Leading Party Group of Guodian, this is the first energy project that Guodian has invested in overseas.5

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5 China Guodian, China Longyuan Power Acquires a Canadian Wind Power Project, July 2011, http://www.clypg.com.cn/en/newscenter/headlinenews/268829.shtml

Case in point: Life sciences

With the twelfth Five-Year Plan aiming to modernize Chinas rural economy and improve its health care system, a new business opportunity emerges for Canadian companies in health care services, pharmaceuticals, and medical devices manufacturing. For example, Chinas Ministry of Health indicated that it aims to increase patient visits at private hospitals in China from 8% in 2012 to 20% by 2015. To achieve this, Chinas Foreign Investment Catalog was updated in January 2012 to reflect the encouragement of private investment in public hospitals.6 According to the Asia Pacific Foundation of Canada, the pharmaceutical markets in China have grown more than 16% annually for the past five years, and are forecast to continue double-digit growth rates until at least 2015. In BC, health care innovation makes local companies attractive to Chinese investors who are willing to inject their capital in exchange for a share in the technologys profit potential, especially after scaling up to the larger Chinese market. If you operate a life sciences company, ask yourself the following questions: 1. Am I aware of any competitors in my industry that have established R&D facilities or distributorship arrangements offshore? 2. Does it make sense for my business both financially and strategically to conduct R&D or to license my product in Asia? 3. Have I considered the implications of outsourcing R&D offshore versus partnering with a Chinese company to conduct R&D in-house? 4. Do I know how to go about establishing business partnerships with Asian life sciences companies?

Case study: Welichem

Some BC biotech firms realize the value of partnering with a Chinese company, such as the reduction of drug development cost if clinical trials can be outsourced to Chinese partners. Vancouver-based Welichem Biotech, for example, has a joint venture set up with Chinese pharmaceutical companies Weihe Pharmaceutical of Yuxi and Celestial Pharmaceuticals of Shenzhen. In 2005, Welichem entered into an agreement with the two Chinese companies to construct a research and development (R&D) laboratory in the Yunnan province of China. The facility will focus on developing Welichems technology and explore other innovations for pharmaceutical application. Through Celestial, Welichem is able to expedite the testing process of a cancer drug candidate as well as the filing for clinical trial approval in China. Welichem will also benefit from the Chinese investors planned investment of US$50 million over three years.7

6 CNBC, China Taps Private Hospitals in OverhaulWill It Work?, October 2012, http://www.cnbc.com/id/49250873/China_Taps_Private_Hospitals_in_Overhaul_Will_It_Work 7

TMX Money, Welichem Biotech Inc. (WBI), November 2005, http://tmx.quotemedia.com/article.php?newsid=3267089&qm_symbol=WBI

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While the largest transactions are from the SOEs, I see more and more private companies playing significant roles in overseas investment. The current trend of private companies outbound investment is similar to that of Japanese companies in the mid-1980s, with a double-digit growth rate per year, over at least 10 to 15 years. Private companies from the Jiangsu and Zhejiang provinces are relatively strong in terms of their capital and strategic planning.
Jeff Xu, Tax Partner, Deloitte Shanghai and Eastern China Leader of Deloitte Global Business Tax Services

The evolving face of the chinese investor

Chinese SOEs have traditionally been the driving force of foreign investment. Besides continuously seeking global business opportunities, SOEs are also focusing on doing deals properly with the help of advisors. Greater emphasis is now placed on governance than ever before. The Chinese state-owned Asset Supervision and Administration Commission (SASAC) was established to audit and govern all SOEs, putting more pressure on justifying the use of funds and investment cases. Private companies are already planning to make foreign investments, especially in the key industries emphasized by the Ministry of Commerce. Wang Yusuo, Chairman of

the Xinao Group expressed during his speech at the 2011 Durban International Conference: According to statistics, among Chinese top 500 private companies, more than half have operations related to new energy and clean technologies. During the eleventh Five-Year Plan period, these companies have invested more than RMB$200 billion in the clean technology sector, creating value exceeding RMB$700 billion. This is a great accomplishment. Many Chinese privately owned enterprises have a solid going-out strategy. With private companies already accounting for nearly half of Chinas outbound investment in 2011, they are expected to play a greater role going forward.8

Private enterprises will definitely play a more and more important role in the process of the nations outbound direct investment activities. They will probably surpass state-owned enterprises as the major force of Chinas investment wave.
Shi Ziming, Commercial Counselor at the Department of Outward Investment and Economic Cooperation of the Chinese Ministry of Commerce

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8 Forbes, Get Ready For More China Overseas Investment, October 2012, http://www.forbes.com/sites/jackperkowski/2012/10/03/get-ready-for-more-china-overseas-investment/

Progress in Canada
Japan has traditionally provided the bulk of Asian direct investment dollars in Canada; however, its Canadian FDI growth rate has noticeably declined in comparison to other Asian countries such as China. According to Lin Ning, Deputy Director-General of the Economic Information Department of the China Council for the Promotion of International Trade, China is now the second-largest trade partner of Canada.9 Canadian Inward Foreign Direct Investment from Asia (C$ millions) Japan China South Korea Australia India Taiwan Singapore Hong Kong, SAR Malaysia New Zealand Philippines Thailand Total Asia
Source: Asia Pacific Foundation of Canada (Figures include mergers and acquisitions as well as greenfield investments, or construction of new plants and facilities.)

1980 605 74 51 730

1990 5,222 312 758 19 88 1,374 7,773

2008 12,411 5,665 1,425 5,167 6,514 95 226 64 43 3 31,613

2011 12,789 10,905 6,078 5,617 4,396 134 39 39,958

SOEs are not in the business of taking risks.

Partner, major international law firm

China Daily USA, Chinese investments to maintain fast growth in Canada, April 2012, http://usa.chinadaily.com.cn/business/2012-04/19/content_15086647.htm

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Canada: A safe haven for foreign capital

The reason behind the numbers is not accidental. Canada has long been perceived as a country receptive to FDI, due to its stable and friendly political and investment environment. A large group of non-state-owned Chinese enterprises are attracted to Canada because of advanced Canadian technology, Canadas market access to the US, and a dynamic labour force. Yuen Pau Woo, CEO of the Asia Pacific Foundation

A survey conducted by the Asia Pacific Foundation of Canada on 1,377 Chinese small and medium-sized firms revealed that nearly 56% of those companies intending to invest said that they would like to set up their own distribution and sales channels in Canada, while 22% preferred joint ventures. Another 12% preferred to merge with local companies, while 10% would set up their own wholly owned manufacturing base in Canada. Canada is also consistently ranked among the best in metrics such as protecting investors rights, ease of doing business and low perceived corruption.

Global Country Rankings 2012

Worlds largest economies in 2011 United States China Japan Germany France Brazil United Kingdom Italy Russia India Canada Australia Spain Nominal GDP in billions of US$ 201110 15,075.68 7,298.15 5,866.54 3,607.36 2,778.09 2,492.91 2,431.31 2,198.73 1,850.40 1,826.81 1,738.95 1,486.91 1,479.56 Protecting investors rank 201211 6 100 19 100 82 82 10 49 117 49 4 70 100 Ease of doing business rank 201211 4 91 20 19 29 126 7 87 120 132 13 15 44 Corruption Perceptions Index rank 201212 19 80 17 13 22 69 17 72 133 94 9 7 30

Canada offers the most transparent process and a law system that investors feel they can operate under.
Executive, major Chinese bank

10 11

International Monetary Fund, World Economic Outlook Database

The World Bank, Doing business in a more transparent world, 2012, http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB12-FullReport.pdf

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12 Transparency.org, Corruption Perceptions Index 2012, http://www.transparency.org/cpi2012/results

Our point of view

As the focus on the natural resources and energy sectors shifts, we predict that more Chinese investors will eye BC private companies as a hot target for capital deployment. For BC private companies, this represents the opportunity to access both capital and a growing market.

My concern is that we need to get small and medium-sized businesses much more engaged in the China story or theyll be shut out of the global supply chains. Too many small and medium enterprises are too conservative and too reliant on the United States.
Peter Harder, President of the Canada China Business Council

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I run a BC private company. What opportunities are there for me?

1. Market entry
Through cross-border investment, one of the biggest benefits for BC private companies is gaining a knowledgeable local partner in China. Canadian firms seeking geographic diversification can leverage Chinese investors expertise and connections to gain access to distribution networks, market share and human resources, and to create closer ties to foreign customers, all much faster than organic growth allows.

2. Scaling up to an international audience

Despite Chinas growing presence in the global market, large Chinese enterprises remain challenged to create footprints internationally. To improve their overall competitiveness, Chinese investors are on the lookout to find the next gem abroad. With this mindset, they are driving both deal volume and deal value, with the intent of securing interest in a Canadian company and subsequently assisting the export of its products into the Chinese market. Capitalizing on this trend, BC companies can leverage investments from Chinese companies to create a global footprint of their own. Consider this: there are easily 45 million people in a single Chinese province compared to British Columbias population of 4.5 million.

Case study: Russell Breweries

A leading Western Canada brewer, Russell Breweries brews, markets, sells and distributes a portfolio of award-winning beers produced in BC and Manitoba. In 2012, Russell Breweries and a group of Chinese investors established a joint venture in China to import, produce, package, use, market, sell and distribute Russell-branded beer in China, Hong Kong and Taiwan. If the craft beer business takes off in China and if we have a team on the ground connected to the people in China the financial benefits could be huge, says Russell Breweries CEO Brian Harris, who believes that the Chinese investors extensive knowledge of the local brewery industry, as well as their existing operations team, can make all the difference. The joint ventures plan is to open a flagship brew pub in Anhui province in eastern China, with the possibility of expansion if the venture proves to be successful. Our existing business relationship with one of the largest established local restaurant chains in the city allows us to kick-start the business by leveraging existing customer traffic.

Case study: Film projects hit the jackpot

Wuxi Studios, equipped with capital and ready to invest, was one of three Chinese production companies attending the first China Canada Gateway for Film Script Competition, which was held at the 2012 Whistler Film Festival. The China Film Group, a state-run major distributor of films in China, was also present at the competition as observers. Three projects were chosen for investment by Chinese film studios to access up to C$15 million in much-needed development funding. One of the main concerns for the Chinese film industry is to globalize: not just in getting a market for their films overseas, but also being regarded as having their films up to international quality standards, said Christopher Rea, assistant professor of Chinese literature at the University of British Columbia.13 British Columbia also offers generous tax credits and incentives to encourage business investment in the film production industry, making it financially attractive for foreign Chinese investors. And the deal isnt just one way. For these Canadian filmmakers, not only will they be gaining access to development funding, it is also an opportunity to break into China, potentially exposing their films to a massive audience.

The Opportunity: A Chinese investor can help you hit the ground running in China.

The Opportunity: A Chinese investor brings the opportunity to scale up your business exponentially.
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3. Reputation and brand equity

Dont underestimate the value of a Canadian brand. For BC companies, this is an extremely valuable asset that is not reflected in the books. By investing in a BC company, Chinese investors and partners secure brands whose reputation is difficult to build through organic growth.

4. Technological capabilities
For BC high-tech companies, the motivation to move testing to China is convincing cost-effectiveness. But where do they start? With the help of a Chinese investor, they are able to satisfy foreign certification and regulatory requirements in China with much more ease. Otherwise, it is exceptionally difficult to break into the high-tech industry abroad without existing networks with regulatory authorities.

Case study: White Spot

White Spot is well recognized in BC as a family-friendly casual restaurant a brand that many Canadians grew up with. Warren Erhart, President and CEO of White Spot Ltd., considered whether there was an opportunity for the brand to extend its presence into Asia. First looking at a franchise opportunity in Hong Kong in 2003, Erhart considered that the some 250,000 people living in Hong Kong with Canadian passports would serve as a good entry point for White Spot.14 Partnering with the right franchisee is key. Erharts team performed thorough due diligence on White Spots Chinese partner before selecting them from a group of interested parties. Erhart indicates that it is advantageous to have a local franchisee rather than one based in another country. 15 Today, White Spot has six locations in Hong Kong and two locations in Singapore, and it plans to open 15 locations in China over the next four years.

Case study: Clinical testing in Hong Kong

BC-based Pacific Rim Laboratories recently partnered with Wellab of Hong Kong. In Hong Kong and Italy, we have been successful in partnering with local laboratories to provide specialized services. Our Hong Kong partner has given us the opportunity to work with the Hong Kong Environmental Protection Department on a variety of projects that would not have been possible without a local presence.16 Management, Pacific Rim Laboratories

The Opportunity: BC companies can learn to navigate the intricate policies and delicate regulatory environment in China with the help of a local partner.

The Opportunity: The value of a quality BC brand can be maximized abroad with help from the right Chinese partner.

13 The Globe and Mail, Chinas Canadian casting call: Theyve got the money, weve got the talent, November 2012, http://www. theglobeandmail.com/arts/film/chinas-canadian-casting-call-theyve-got-the-money-weve-got-the-talent/article5774651/ 14 BC Business, Warren Erhart, President and CEO, White Spot, October 2012, http://www.bcbusiness.ca/people/warren-erhart-president-andceo-white-spot 15

Business in Vancouver, White Spot expands into China, July 2012, http://www.biv.com/article/20120731/BIV0106/307319869/-1/BIV/whitespot-expands-into-china The east eyes the west coast 15

16 Industry Canada, Pacific Rim Laboratories, http://www.ic.gc.ca/app/ccc/srch/nvgt.do?sbPrtl=&prtl=1&estblmntNo=234567056056&profile=cmplt Prfl&profileId=501&app=sold&lang=eng

So, this all sounds great, but whats the challenge?

Set the right expectation about the timeline and culture
Head of Vancouver operations, major Chinese bank

While there are enormous growth opportunities, there are also pitfalls that you, as a BC private company owner, need to keep in mind.

3. Fear of politics
There are many doubts and misconceptions regarding collaboration with Chinese investors, specifically about their investment intentions or ties to government. It would require the SOE to sub-optimize its own goals and performance, putting at risk its corporate and financial integrity by undermining the good name and relationships that take decades to establish. These SOEs are contending for global position and leadership. It would entail direct reputational damage among buyers, suppliers and service providers, to say nothing of attracting lawsuits, security investigations, etc. says Margaret Cornish, a Beijing-based former Canadian diplomat now working as a senior advisor to the Canadian law firm Bennett Jones. Officials from the Ministry of Commence, which is responsible for growing Chinese investment around the world, are urging the international business community to be more tolerant and rational toward ambitious Chinese companies seeking to invest overseas. Once national security issues are resolved, China should be treated like any other foreign investor.

1. Be prepared for limited transparency

Before deciding to work with a Chinese investor, one potential challenge will be the low transparency in seeing the counterpartys decision-making. Chinese investors typically have complex corporate structures, with each arm designed for a specific purpose. Therefore, it may be difficult to understand their chain of command, the key approval authorities and, as such, the impact that this will have on the transaction timeline and outcome. This, coupled with unfamiliarity with regards to Chinese intellectual property rules and dispute settlement processes, creates discomfort for many BC companies.

2. Language and culture

In working with Chinese investors, BC companies need to be cognizant that a lot of groundwork has to be done before a transaction can happen. That means its a two-way communication process that will require both parties to compromise over an extended period of time. Over and over again, we heard BC companies who have partnered with Chinese investors tell us how beneficial it is to have someone on their management team familiar with Chinese culture. Its important to ask, Is my team comfortable working with this investor for the long term?

You can hardly make a friend in a year but you can easily offend one in an hour.
Chinese proverb

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At the end of the day, its a relationship business, one that requires a multi-year investment.
Beverley Pao, Partner, Co-leader, Chinese Service Group Canada, Deloitte The east eyes the west coast
17

Key takeways for BC companies

By now, its clear that doing a deal with a Chinese investor is no easy feat. Chinese culture, much like its multifaceted geographic landscape, is complex. In turn, each investor will be different and each transaction must be handled on a case-by-case basis.

Does this make sense for me?

Ask yourself and answer truthfully the following questions: 1. If Im planning to grow or exit the business in a few years, have I started to build Chinese connections? 2. Am I mentally ready to take on the cultural challenges of partnering with Chinese capital? If you answered yes to both of these questions, consider the following: 1. Is my business in a targeted strategic industry or a related subsector? 2. Is my business looking to expand into international markets, particularly into emerging economies? 3. Do I have a proprietary technology or process that is cutting-edge in its field? 4. Is my brand well recognized regionally, or even nationally? 5. Is the current infrastructure of my business ready to handle a large increase in scale? 6. Do I understand the pros and cons, as well as the legal, financial and tax implications, of a joint venture, partnership or other structure?

BC companies must ensure that they have an aggressive growth thesis and drive their business with a global perspective, much like our US counterparts.
David Lam, Partner, Mid-market Corporate Finance Leader of BC, Deloitte

If these questions are ones you have been pondering for some time, Deloitte can help you.

A piece of advice: Dont undersell

The Chinese have an entrepreneurial mindset that Canadians must appreciate to establish a fruitful partnership. Despite cultivating many world-class businesses, Canadians tend to undersell the potential. If your business is in a strategic industry, has strong potential for growth and has a solid reputation in the Canadian market, then its time to think big.

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Deloitte - Let us be your network

We all know that relationships with Chinese investors cannot be built in a day or even over several business trips. This is where Deloitte can help. With 100 years in China, Deloitte has a long-term relationship with Chinese companies large and small, SOEs and private companies building an unparalleled level of trust. We understand that it is difficult to close a deal in China, and that is why we have over 13,000 professionals working in 21 offices in the Greater China Region. Deloittes China Service Group (CSG) serves as the unifying force to help market, facilitate and deliver professional services to multinational corporations investing into China, as well as Chinese companies expanding overseas. Operating as a platform to leverage expertise in China, CSG bridges the cultural gap to ensure that your needs are met, whether you are a Chinese firm investing into Canada or a Canadian firm investing into China. With a wide network of potential investors here in Canada or through our China member firm, we can connect businesses to the right sources of capital. Deloitte professionals have extensive experience in cross-border Mergers and Acquisitions and facilitating outstanding partnerships between Chinese and Canadian companies. Let us be your network.

Special thanks to contributors

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Contact
To learn more about how Deloitte can help you in M&A, please contact our Vancouver Financial Advisory practice:

Co-authors
Beverley Pao Partner, Audit Co-leader, Chinese Service Group Canada 604-640-3179 bepao@deloitte.ca Linda Chew Senior Associate, Mergers & Acquisitions 604-640-4906 lichew@deloitte.ca

Deloitte Contact
David Lam Partner, Corporate Finance Mid-market Corporate Finance Leader, BC 604-640-3249 davilam@deloitte.ca Joyce Lee Partner, Deloitte Tax Law LLP 604-640-3092 joylee@deloitte.ca Ivor Luk Partner, Mergers & Acquisitions Financial Advisory Managing Partner, BC 604-640-3084 ivluk@deloitte.ca

Kanise Lo Senior Manager, Private Company Services 604-640-3300 kalo@deloitte.ca

Danna Zhu Manager, Chinese Service Group Canada 604-640-3123 danzhu@deloitte.ca

www.deloitte.ca
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