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One of Canada’s spy agencies is warning of a “noticeable increase” in economic espionage in this country by hostile foreign intelligence services and their agents, and is flagging the risks from state-owned enterprises attempting to buy companies crucial to the Canadian economy.

Separately, a Parliamentary committee on cybersecurity warned in a report released this week of the risks of relying on technology from China – an opinion that comes as the Trudeau government considers whether to ban China’s Shenzhen-based Huawei Technologies Co. Ltd. from 5G wireless networks in Canada.

The Canadian Security Intelligence Service (CSIS) report to Parliament for 2018 delivered this week does not mention China by name, but Chinese state-owned companies have at times shown a keen interest in taking over Canadian businesses.

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China has been accused of conducting state-sponsored cyber attacks against the Canadian government or military – as it did in 2014, when Chinese hackers broke into the main computers at the National Research Council – and of attempting to gain influence among the Chinese diaspora.

Last year, the Canadian government heeded warnings from national security agencies and rejected a $1.5-billion bid by China’s second largest state-owned construction company to take over Toronto-based construction giant Aecon Group.

“While much of the foreign investment in Canada is carried out in an open and transparent manner, a number of state-owned enterprises (SOEs) and private firms with close ties to their government and/or intelligence services have pursued corporate acquisition bids in Canada, raising national security concerns,” CSIS said in the report.

“Corporate acquisitions by these entities pose potential risks related to vulnerability of critical infrastructure, control over strategic sectors, espionage and foreign influence activities, and illegal transfer of technology and/or expertise.”

The Parliamentary report tabled on June 20 in the Commons raised concerns about Chinese technology.

“Given the difficulty of definitively establishing trust in the devices and software we rely upon, the committee questions the wisdom of using technology produced in China,” said the report on cybersecurity in the financial sector from the House of Commons Public Safety and National Security committee.

In its report, CSIS said it expects that national security concerns related to foreign investments in Canada will persist, “owing to the increasingly prominent role of SOEs and state-linked private entities in the economic strategies of some foreign governments.”

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In 2017, the Trudeau government allowed the takeover of Montreal-based ITF Technologies by a Chinese electronics company, O-Net Communications, which has major shareholders that include state-owned China Electronics Corporation. The Liberals cancelled the Harper government’s order that prevented O-Net from buying ITF, a leader in fibre-laser technology that can be used in directed-energy weapons. The Conservatives had blocked the acquisition after national security agencies warned it would undermine a technological edge Western armed forces have over China.

In recent years, Chinese investors acquired Vancouver-based Norsat International, which sells satellite communications to the North Atlantic Treaty Organization, the U.S. Defence Department and the Canadian Coast Guard. The Trudeau cabinet approved the sale to Chinese telecom giant Hytera Communications without a formal and full-scale national security review.

CSIS expressed concern in the new report – again without mentioning China – about state-sponsored cyberattacks and espionage against Canadian companies even though Beijing promised in 2018 to stop attacks aimed at stealing Canadian private-sector trade secrets and proprietary technology.

“This type of espionage has had ramifications for Canada, including lost jobs, corporate and tax revenues, and a diminished competitive advantage,” CSIS warned. “Canadian commercial interests abroad are also targets of espionage activities, and Canadian entities in some foreign jurisdictions are beholden to intrusive and extensive security requirements.”

U.S. officials say that, for years, Chinese hackers have stolen valuable intellectual property and other secrets from Western high-tech companies, drug makers, financial institutions and other businesses.

Intelligence agencies in Canada and the United States have warned that companies owned or partly owned by the Chinese government pass information or technology to Beijing and make business decisions that could conflict with Canadian interests but serve the agenda of the Communist Party of China.

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CSIS also highlighted the threat of Canadian extremism directed at India. It did not name any group, but some within the Canadian Sikh community advocate the use of violence to obtain a Sikh homeland.

“Within Canada, threat-related activities primarily targeting India and committed by a small number of Canada-based extremists who support violent means to establish an independent state within India have continued, mostly at a low level, since their peak in the mid-1980s,” CSIS said.

“Recently, however, there has been an increase in observed threat activity, wherein Canada is being used as a base to support this view as well as attacks targeting India. These activities constitute a threat to the security of Canada. Canada must contribute to the international community’s efforts to prevent violent attacks from happening in any country.”

A report in December from the Department of Public Safety drew a backlash for saying Sikh extremism is one of the top five extremist threats to the country.

In response, the government agreed to change the language so that the report no longer explicitly mentioned Sikh extremism.

The concerns raised by CSIS and the Public Safety Department echo the views expressed by the Indian government during Mr. Trudeau’s trip to India last year. Mr. Trudeau and Indian Prime Minister Narendra Modi signed an agreement to combat international Sikh extremism.

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During the trip, Mr. Trudeau and Liberal MPs accompanying him were criticized for inviting to receptions a Vancouver Sikh, Jaspal Atwal, who had been convicted of attempting to murder an Indian cabinet minister in the 1980s.

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