The Canadian Leadership Congress is proud to announce our Challenge of Change keynote speaker, Stewart Beck, President and CEO of the Asia Pacific Foundation of Canada. In advance of our event which is being held in Vancouver from October 13-15, we talked to Stewart about Joe Biden, human rights, and the opportunities and risks when investing in China.
CLC: What impact do you think the election of Joe Biden as U.S. President will have on US-China relations?
Stewart Beck: This is a question I’ve been asked by a number of different people including the Chinese ambassador. I think the difference between the Biden administration and the Trump administration is the ability to work with like-minded partners more easily. A bilateral trade war is one example of how the US has taken on the geopolitical, geostrategic issues without really consulting with or getting support from their friends and allies.
Much like Biden will bring a larger alliance around climate change, he’ll do the same thing with China by gaining agreement on how you get China to comply with an international rules-based order acceptable to everybody. That will be the big difference I would say.
CLC: What does Biden mean for Canada’s relationship with China?
SB: I think with the Biden administration you’re going to have more cohesion with the current government of Canada. There are more areas of common interest which will make it easier to talk about China-related issues. We still have the elephant in the room, the US’ extradition of Huawei’s Chief Financial Officer, Meng Wanzhou. Until there is a resolution on this issue, we’re stuck in neutral. But, I think, on the whole, it’s going to be much easier for us to come to an aligned approach on dealing with China.
CLC: What are your thoughts on governance in China and the risks, especially from the standpoint of asset owners?
SB: When I was Canada’s Consul General in Shanghai in the early 2000s, it was more of the wild west legal system, particularly for business. It wasn’t sophisticated – the judicial system didn’t really work well when it came to legal disputes. But that’s changed considerably, and Canada should take some credit for providing China – during the days we had a CIDA program in China – with judicial training to improve the legal environment around commercial disputes.
But, you always have to remember you’re dealing on China’s turf and ultimately you can’t ever have 100% faith in the system, despite having a foreign investment protection agreement in place. You have to do your due diligence, like you have to do in any market but, to give some credit to us and China, there are more legal protections in place today than there were 15 years ago.
CLC: One thing that I think hasn’t shifted as much is China’s human rights record at least and how we perceive it in the west. How do you talk to businesses about that aspect of dealing with China?
SB: It is a legitimate reputational risk of doing business with a company that is operating in an environment where there are perceived and real human rights abuses. In our last public opinion poll, released in November last year, we asked Canadians what they think about human rights and China. This is a principal concern for our engagement with Asia and China, in particular. So, if you are CPPIB or OMERS where you manage the public’s money or have public sector board members, you need to be attuned to what’s going on in China and what the reputational risks are if you’re doing business there.
It’s not only China as a country but it is the risk of dealing with companies that are involved in doing business in regions like Xinjiang. These concerns are much more heightened today than 10 years ago; human rights will always be fundamental to Canadian values and Canadian foreign policy.
CLC: What’s the biggest opportunity in China right now from an investor’s standpoint looking in?
SB: The Chinese are doing some remarkable things in technology and in particular with artificial intelligence and other sensitive areas like cybersecurity. I would say there’s opportunity but it’s one that you have to be very careful about given the current security environment and bilateral relationship.
That said, there are other areas of technology with tremendous opportunity and are less sensitive, such as environmental remediation, clean technology and agritech. There is a huge market opportunity within China but there’s also huge opportunity in these sectors in other parts of Asia.
In Canada, there is tremendous strength in machine learning. We develop the algorithms and build the technology, but we don’t have the access to data that allow companies to scale. If you choose the right sectors, particularly in China, such as agritech, you can access large data sets and build out your business model. As a pension fund investor with some background experience in machine learning, you’ll understand where that opportunity will be in non-sensitive sectors in China.
Just take a look at the developments in Canada, understand what we are doing and then apply that thinking to opportunities in China or other Asian markets. If there is an alignment of interest and expertise it facilitates the development of an investment strategy. CPPIB was very smart about its investments in Alibaba. At the time, ecommerce was just coming to the fore and today China leads the world. The same thing is going to happen or is happening around hydrogen fuel cells. We have great expertise and technology in Canada and the opportunity to quickly scale is in China.
As I mentioned, Agritech is a great opportunity and what’s going on in Canada’s protein supercluster has very real application in China. So, take a look at what we’re doing here and ask how it applies in a place like China? You go to where the interest is. If there’s an interest, there’s going to be a great investment opportunity.