Most Canadian firms doing business in China are profitable and want to expand operations there, but they remain concerned about the country's slowing growth and having their intellectual property stolen, according to a new survey.
The Asia Pacific Foundation of Canada, a Vancouver-based organization that promotes Canadian trade with Asia, surveyed 229 Canadian businesses active in China and said 64 per cent were profitable in the last year, while 24 per cent had broken even – and just 1 per cent had suffered a "large loss."
At the same time, many had fears about the potential loss of valuable intellectual property to the murkier corners of the Chinese economy. About 11 per cent of the 149 respondents who answered a question on intellectual property rights (IPR) said they had suffered violations. Nearly one-third said IPR "rules and practices" remained a major hurdle to doing business in China, although this was slightly lower than in 2012, when more than half of those surveyed ranked it as "the most important barrier to doing business in China."
About 43 per cent of businesses surveyed also saw the "increasing risk of economic slowdown" as a key change in China's business environment over the past year – with larger firms of 500-plus employees being more worried about the economy than smaller businesses. China's double digit growth has slowed in recent years as the government tries to orchestrate a shift from exports toward domestic consumption. GDP growth is forecast to be about 7.5 per cent this year.
Yang Guang, president for Asia-Pacific operations for Vancouver-based Westport Innovations Inc., says all this sounds familiar. The clean energy company, which created a joint venture with Chinese manufacturing giant Weichai Power Co. Ltd., saw 100-per-cent growth in its sales of natural gas engines in China between 2012 and 2013, Mr. Yang says. But he now expects growth to be more moderate this year as the Chinese economy slows under efforts by its leaders to priotize more sustainable types of growth.
"In the last two or three decades, people got used to China posting double-digit growth," says Mr. Yang, who previously worked with the German conglomerate Siemens AG. "Realistically, it will be difficult for any country to continue that."
Mr. Yang, during his time at Siemens, says that he saw many small-to-midsized firms strike partnerships with local Chinese companies only to see their intellectual property leaked out – and similar products hit Chinese shelves a few years later. That's why, he says, Westport has patents in Canada, the U.S. and China, and only signs technology license agreements, rather than full-on technology "transfer" contracts. Mr. Yang adds that he looks for Chinese partners with overseas assets – and spells out that any intellectual property dispute will be legally resolved there, rather than in China: Weichai, which provides the industrial heft for Westport's natural gas engine technology in China, is listed in Hong Kong.
"We're confident that this is not a risk," Mr. Yang says. "It would hit their stock price."
Westport's long-term growth in China, however, is not a worry for Mr. Yang. The country is pushing forward on several large construction projects, he says, and he saw an uptick in the demand for heavy vehicle engines in August, as compared to June or July.
In the survey, executives also expressed concern about increasing competition from foreign – meaning non-Chinese – businesses in China, with 42 per cent of firms saying competition was getting more intense.
The survey comes in the wake of major anti-corruption campaigns in China, as well as increased regulatory scrutiny under anti-monopoly laws that have swept up some foreign companies. The U.S. Chamber of Commerce in China, in a separate survey of 164 member companies, said 49 per cent of respondents thought foreign companies were victims of "selective and subjective enforcement" of Chinese laws.