CIC Comes to Toronto

It's the first overseas office for China's mega-fund.

January 13, 2011

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351785_cn_tower_series_2Rumors had been swirling for over a year about where the China Investment Corporation’s first overseas office would end up. The odds on favorite had to be London. But New York was also in the mix. And I’d heard a few mentions of Dubai and a smattering of other non-Western locations. Well we can finally put all that guess work to bed, as the results are in. The city selected to host the CIC is…Toronto.

I doubt many people (outside of Canada) had Toronto on their short list for this. But, the more I think about it, the more I realize Toronto makes a lot of sense. Andy Hoffman and Tara Perkins of The Globe and Mail have the story:

“China is preparing to step up its investments in Canada with the opening of a Toronto office for its deep-pocketed sovereign wealth fund, representing the first permanent foreign location for the state-backed institution… China Investment Corp. (CIC), which has recently plowed billions of dollars into the Alberta oil sands and Canadian resource companies, will unveil plans for an office in Canada’s financial capital next week…Felix Chee, a former executive with Manulife Financial Corp., who serves as a special adviser to Mr. Lou, is expected to play a key role in CIC’s new Canadian operations.

So, let’s put our economic geography hats on and think about what differentiated Toronto from other cities in this location decision:

1) Resources: Let’s start with the obvious answer: China remains very interested in Canada’s resource sector. Canada has 175 billion barrels of oil in the ground. To put that in perspective, it makes Canada second only to Saudi Arabia in proven oil reserves. Naturally, this has attracted the attention of China, whose rapid push into Canada’s oil sands has already raised eyebrows. Anyway,  if proximity to resource investments was a priority, London would have been eliminated.

2) Geopolitics: Political criteria probably weighed on this decision. For instance, in justifying the CIC’s decision, Hoffman and Perkins cite a telling interview with CIC president Gao Xiqing:

“There are countries with comparable economic characteristics to Canada, but with a lot less friendly environment…In our dealings with the Canadian government, various parts of the government, with the business people, we feel that it’s a lot more congenial to our investments.”

To be sure, some in US were lobbying hard for the CIC office to be in New York, but many other Americans saw the CIC as a threat. Some in Congress seemed overly focused on the potential negative impacts of the CIC’s rise to prominence. For example, the Congressional Research Service singled out the Chinese SWF in two reports specifically detailing the fund’s exploits. And let’s also not forget the attention from the United States-China Economic and Security Review Commission, which spilled a lot of ink on the fund. (And I think that is probably what eliminated New York). As far as Canada goes, relations have been improving.

3) Collaboration: Canada is widely regarded (and rightly so) as having some of the best governed and managed government funds in the world, such as the Canada Pension Plan, Ontario Teachers, and AIMCo. So it’s reasonable to think the CIC is setting up shop in Canada to facilitate joint-investments and collaboration. As proof of this idea, Hoffman and Perkins cite the CPPIB’s EVP Mark Wiseman:

“We look forward to working with them more closely…We have a good relationship with them. Our office in Hong Kong interacts with them regularly, and them having an office in Toronto will, we think, in the long run further our ability to partner with them in Asia, and for them to partner with us in North America.”

Those are the three reasons that jump to mind first. I’m sure there are many more, but I’ve got a busy day.

This post originally appeared on the Oxford SWF Project website.

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