John Gruetzner, Vice Chairman of Intercedent Ltd., met with Beijing Review reporter Ding Wenlei at his office in Beijing on April 8, to elaborate on his views and share his experiences in promoting Chinese-Canadian cooperation and China's investments overseas especially in Canada.

Beijing Review: Canada was considered the most open country in terms of business and investment environment by many Chinese enterprises, according to a survey conducted by the Asia Pacific Foundation of Canada and China Council for the Promotion of International Trade in 2006. What are the advantages Canada enjoys in attracting foreign direct investment?

John Gruetzner: In Canada, unless it is in a very sensitive sector like communication or energy, the Canadian government largely has a "hands off" policy as long as you are compliant with Canadian labor law and Canadian environmental standards, and you pay your taxes.

The Canadian government generally supports foreign investments not only from China, but also worldwide. As a gateway, Vancouver is a potentially exciting bilingual portal as the city has the closest port connection to China, and a huge bilingual workforce that is comfortable dealing with both China and North America. So they can get engineering, accounting and the technological skills you need to supplement whatever you bring in from China.

But factors such as a relatively small domestic market, and high corporate taxation and capital cost, as well as a low return on investment, were regarded as disadvantages that will discourage Chinese enterprises from investing in Canada. What has the government done to improve the situation?

From my point of view as a businessperson, taxes don't bother me. There were decreases in Canada's taxation in the last few years and Canadian corporate taxation is relatively competitive worldwide. But more importantly, it's a fundamental concept felt by most business people worldwide that if you are paying taxes, you should be happy because it means you are making your money. If a city, whether it is Tianjin or Toronto, is allowing a business environment both in terms of human resources available, the infrastructure, the logistics and the access to capital markets, you shouldn't be over-worried about taxation. It's the whole package of society, government, environment, including resources, electricity, access to skilled labor and social benefits that makes you successful.

Obviously, you can minimize the taxation through legally compliant ways, such as transferring R&D investments overseas, and it's legal. But I don't think you should make business decisions only by taxation. I had that same argument 20 years ago with the Renmin University of China, when I criticized China's foreign investment environment in 1989. One of the PhDs from the university said, "We have the lowest taxation in Asia." My counter argument is: "What does it matter if you aren't making any money?"

The Canadian auto sector, for example, is an excellent place for the Chinese automobile industry to look at, because of the costly labor, because we have a better education and health system. That's why all the Japanese, South Korean and most new investments in automobile lines by the three U.S. automakers have gone to Canada. Canada produces more cars right now than Michigan.

If you look at Southern Montana, for example, the cost of operation systems is pretty competitive, and the actual access to the market under NAFTA (North American Free Trade Agreement) is within trucking distance to most of cities in the center of the United States. It's all relatively tight logistics.

What is the decisive factor, according to you, that led to MinMetal's failure in acquiring Noranda?

The facts were in a mess. For large Chinese projects worldwide, whether it's in Canada, Australia, Mozambique, or the United States, there is a real problem for some of these state-owned enterprise players, because you have to go to the National Development and Reform Commission (NDRC), the State Council, the State Administration of Foreign Exchange, and the Ministry of Commerce. They cannot commit and the deal team has to put in all contracts contingent on governmental approval. During the time when the NDRC was looking at the transaction, the metal price worldwide went up aggressively and the cost of the acquisition of Noranda was becoming more expensive.

Noranda could have been Lenovo, or IBM's ThinkPad of the mining industry, and would have provided Chinese with a very solid management team experienced in international expression, risks management and development. But I don't think they were certain elements that the Canadian political side understood, nor would I say that Noranda and MinMetal probably explained that to the market nodders very well.

When you are in another country, you need to listen to shareholders who speak. It is only one part of the acquisition. But when you are talking to Brascan Corp., Noranda's major shareholder, you also entered into very detailed communication strategies with the media, with the government, with the management team and with the employees.

When you have a transaction that large, you have to have a very effective communication strategy. That's the mindset they have to develop to be successful in all countries outside China. The one benefit of which you call "the harmonious society," is that things have to be balanced, that is a kind of equilibrium. If you cannot satisfy all pieces in a puzzle, then your transaction will get into trouble.

Is there any "lesson in less" for Chinese enterprises that hope to invest in Canada, either by setting up their own branches or seeking strategic partners?

That depends on the size of transaction, the industry, and the province where the transaction is going to happen. It's still possible--the lesson in less. It is possible to get subsidies from the industry in Canada for the right project and for large projects to negotiate provincial tax break, grants, training programs and things like that. I think you should have a good Canadian qualified lawyer, some community engagement strategy and a media strategy. You should talk to the local government. Their ability to control the deal is very small, unless you are asking for money.

Because you are Canadian doesn't mean you understand Canada. Being Canadian does help at the beginning of the whole process, but you have to look at their professional background, are they good at their job? I think that's the biggest mistake that people can make in any country.

You have to make sure you have the right information to make the right decision. You have to make sure your advising team includes lawyers, investment banks and accountants to supplement each other's competitive advantages. Managers have to have people both in the advising team and the partnership to share with the Chinese company the goal of making money, not just strategies.

Still, many Chinese working overseas felt frustrated when they found their experience doesn't help in dealing with local people. What are your advices for them to get over the sense of frustration?

There is a counter selective process in the international business. If you got a good real estate idea in China, you can get 20 real estate companies and they immediately understand it's a good idea and begin to compete. If it's a bad idea, you may go to look for some foreigners because they don't know what you know. The same thing is in New York: I have a good idea, we don't need Chinese, and we go out straight to my buddy. You have to keep watch on whom you are dealing with and why they want to deal with you. Obviously the knowledge of the language is a critical thing.

A lot of foreign companies who were unsuccessful in China in the 1990s didn't have one basic thing: a management team who are bilingual and bicultural. You need somebody who really understands what's to be done in both countries to make the company successful.

If you are a foreign company, it takes time for the people to trust you, because they don't know that you are committed to your side of the transaction. You have no reputation. You may be the best in China, but unless you have done something successful here, no one believes you.

What are the fields Canada encourages cooperation with China?

I think there are at least three areas for potential marriages: One is the government resource (either in Canada or offshore), clothes and metals, and oil and gas. Canadian companies are very good at R&D and product development, but the size of the market in the venture capital environment makes it difficult for companies to reach their potential. If the Chinese manufacturing industry takes advantage of Canadian design capacity, it's a good marriage for Chinese companies to acquire technologies in the next generation, and for Canadian companies to reach their business potential.

How can Chinese enterprises get their corporate culture recognized when they start business in Canada?

Well, I think it's a mixture. It's difficult for you to find the right bounds if foreign companies want to be 100 percent foreign. You wouldn't be successful if you do nothing to improve the corporate culture, because you have no advantages over your local counterparts.

Chinese companies are much more used to making aggressive decisions, even those state enterprises. It is largely because there are always hundreds of companies in one industry in China. You get left behind if you don't move quickly. But that can lead to awesome mistakes if you don't have enough information and make wrong decisions. Canadian companies are relatively conservative because of the smaller market and they have relative good window opportunities, which means you can be slow.