Canada And China Reinvigorate Cross-border Investment

Prime Minister Mark Carney's visit to the People's Republic of China in January 2026 concluded with the release of a joint Economic and Trade Cooperation Roadmap. It includes a reset of the approach to cross-border investments as part of the efforts to reinvigorate the Canada-China bilateral relationship. For Canada, this represents a major step towards the Government's priority objective of significantly diversifying two-way trade and investment flows.

Foreign Direct Investment (FDI) Commitments

The Roadmap outlines numerous steps to promote two-way trade and investment and advance economic cooperation in areas of mutual interest, including four specific investment commitments:

• "The Chinese side welcomes Canadian investments in China and the expansion of investments in service consumption, energy, new materials, aerospace, modern agriculture, advanced manufacturing, and other fields."
• "The Canadian side welcomes Chinese investments in Canada in areas such as energy, agriculture, consumer products, and other sectors."
• "Both sides commit to supporting two-way investments and trade in clean and conventional energy."
• "Both sides commit to further improving the transparency for foreign investments in accordance with their domestic legal frameworks."

The listing of specific sectors in which investments will be welcome is a strong signal that Canada and China are resetting the difficult relationship that has characterized foreign investment reviews for the past several years. The inclusion of energy and agriculture on Canada's "welcome" list is especially significant since they are both strategically important sectors for Canada. The reference to clean energy is also notable, given the Canadian Government's continued focus on supporting this industry. From the Canadian perspective, a key motivation is the need for foreign capital to help finance numerous ambitious projects that are being expedited under the Building Canada Act. See McMillan's prior bulletins on this topic (here, here and here).

The lists of welcoming sectors are not exhaustive. Additional sectors that could be candidates for inbound investment from China include commercial real estate, manufacturing, construction and mining and metals projects that do not involve lithium or other critical minerals, among others.

National Security Reviews

National security reviews under the Investment Canada Act ("ICA") have involved investments from China more than other countries in the last several years. They will continue to be possible within and beyond the listed sectors. However, we expect the Roadmap commitments will lead to reduced frequency and duration of national security reviews. In addition, where national security concerns are identified, we expect there will be greater use of negotiated undertakings or mitigating measures in Ministerial approval notices or Cabinet approval orders, and less use of prohibition, divestiture or wind-up orders.

The ability of the Minister of Industry to negotiate binding undertakings with investors, instead of embedding terms and conditions in a Cabinet approval order, was introduced in amendments to the ICA that took effect in September 2024. This option enables investors and the Government to tailor solutions that can be implemented quickly and effectively. This process also allows changes to be negotiated and implemented, where appropriate, without going through the very burdensome process to amend a Cabinet order. See McMillan's prior bulletin on this topic (here).

The Government's preference for using this new tool is evident in its annual report on the administration of the ICA for the fiscal year ended March 31, 2025. The report notes that the new Ministerial undertakings process follows "international best practices" and "makes the national security review process more flexible". Six national security reviews were resolved with undertakings during the 2024-25 fiscal year, representing almost 40% of the 16 investments that were subject to extended reviews during this period.

One of the highest profile orders under the ICA's national security regime was the November 2024 Cabinet order requiring TikTok to wind up its Canadian subsidiary. While the Government did not publicly disclose the nature of the national security concerns that led to the Cabinet order, the news release referenced its policy statement on foreign investment reviews in the "Interactive Digital Media Sector". That policy statement focuses on concerns raised by state-sponsored or state-influenced actors leveraging interactive digital media to propagate or manipulate information. TikTok's application for judicial review of the Cabinet order was expected to be heard by the Federal Court in 2026. Within a week after Prime Minister Carney's Beijing visit and announcements, the Government agreed to a settlement of the judicial review proceeding in which the Cabinet order was set aside and a new national security review will be conducted that will consider additional information to be submitted by TikTok. While the outcome of that review is not yet known, it is possible that TikTok's Canadian subsidiary could be permitted to continue operating in Canada, with or without negotiated measures to mitigate or address any national security concerns.

State-Owned Enterprises ("SOEs") and Other Investors

SOEs are the most challenging type of investors under Canada's FDI regime and have generated a number of net benefit reviews as well as national security reviews. The 2024 ICA amendments will provide the Minister of Industry with an additional power to initiate reviews of investments by SOEs that fall below the applicable "net benefit" review thresholds from countries without trade agreements with Canada (in addition to the existing national security review regime). See McMillan's prior bulletin on this topic (here). However, the Government's statement regarding investment by foreign SOEs and its national security guidelines leave room for undertakings or terms and conditions in a Cabinet order to be used to mitigate concerns about foreign government influence, particularly when combined with specific security, compliance or other measures.

Investments by publicly-traded companies on stock exchanges with rigorous governance rules are more likely to be allowed (assuming they are not controlled by an SOE), with negotiated undertakings where necessary. Privately-held companies may also be well-positioned for investments into Canada if they are not controlled by an SOE. Joint-venture structures provide additional options for demonstrating a level of Canadian participation that may reinforce other safeguards against foreign government influence.

Sensitive Sectors

Canada is separately proceeding with a new mandatory pre-filing regime for FDI into Canadian businesses that carry on "prescribed business activities". This regime will apply to investments from all countries and is not targeted at China. The draft regulations are likely to be published for consultation with stakeholders in Q2 2026 and be finalized before the end of 2026. The definition of "prescribed business activity" is not yet known, but it is expected to include many advanced technology areas, critical minerals as well as some aspects of critical infrastructure. The pre-filing regime, once enacted, will enable the Canadian government to more quickly identify investments that may raise national security concerns. See our prior bulletin on this topic (here).

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025