Ottawa has ordered three Chinese groups to divest their stakes in Canadian critical mineral companies after a defence and intelligence review concluded that the investments posed a threat to national security.
In a move that reflected a significant hardening of Canada’s stance towards China, the government ordered Sinomine (Hong Kong) Rare Metals Resources to exit its stake in Power Metals, a Canadian lithium miner.
Ottawa also instructed Chengze Lithium International to divest its stake in Lithium Chile and told Zangge Mining Investment (Chengdu) to unwind its investment in Ultra Lithium, another Canadian resource developer.
Industry minister François-Philippe Champagne said Canada welcomed foreign direct investment from companies that “share our interests and values” but would “act decisively when investments threaten our national security and our critical minerals supply chains”.
Roland Paris, a foreign policy expert at the University of Ottawa, said the decision followed an announcement that Canada would allow only state-owned entities to invest in its critical mineral companies on an “exceptional basis”, heralding a tougher approach on Chinese companies.
“Together, these two announcements represent a significant shift in Canadian policy and a recognition that we and our allies will need to secure sources of critical minerals now and in the future,” Paris said.
He noted that Chrystia Freeland, the deputy prime minister, recently spoke in Washington about the need to boost economic ties among democratic allies and stressed Canada’s importance as a supplier of critical minerals.
Nazak Nikakhtar, a former US commerce department official, said the move was significant because it marked “a shift in Canadian national security policy from traditional national security risks to critical supply chain risks”.
She added that Canada was also trying to cement its position as an “excepted foreign state” for the purposes of inbound investment reviews conducted by the Committee on Foreign Investment in the US, the inter-agency panel that vets deals for national security concerns.
Canada is preparing to unveil a critical minerals strategy. In a statement, Champagne said critical minerals were “essential to powering the green digital economy” and that demand for the resources presented Canada with a “generational economic opportunity”.
Neil Beveridge, a Hong Kong-based analyst with research group Bernstein, said the move would not immediately affect Chinese lithium supply since Canada was not a large supplier and the targets were not among China’s biggest lithium miners.
But Beveridge said China and its industry would be worried about the “direction of travel”, which comes as Washington pressures allies’ companies to cut their reliance on Chinese industry. “If this were to happen in Australia, it would be a very, very big story,” he added.
President Joe Biden is trying to cut US reliance on China for the refinement of critical minerals, which are vital to manufacturing everything from weapons such as missiles to green products including electric vehicles.
For years, Chinese companies have been among the most active buyers of access to minerals that underpin the clean tech transition. While only about 13 per cent of global lithium extraction occurs in China — behind Australia and Chile — its refiners process more than half the global supply.
But the race for resources is set to intensify. Global lithium demand will soar more than tenfold over the next two decades, according to the International Energy Association. The growth is driven by a tectonic shift away from fossil fuels to electric vehicles and energy storage.
Canada’s announcement also comes as Ottawa prepares to release its first Indo-Pacific strategy this year. The government is expected to harden its stance on China, particularly after the release of two detained Canadian citizens, known colloquially as “the two Michaels”.
Their detention was retaliation against Canada for arresting Meng Wanzhou, the chief financial officer of Huawei, at Washington’s request.