HQ Vancouver’s ‘success stories’ suspect

VANCOUVER — Two years ago, F-Pacific Optical Communications — which describes itself as a “world leader” in making fibre optic components — announced at a press conference it had established a North American headquarters in this city and would build a manufacturing plant employing 200 people.

The company’s arrival was — and continues to be — billed as a major achievement for HQ Vancouver, an initiative formed in early 2015 with provincial and federal backing to entice Asian companies to set up head offices on the West Coast.

But on a recent visit, the manufacturing plant in Surrey, B.C., sat vacant and a For Lease sign stood on the corner. The company’s parent corporation in China appears to be winding down operations amid a probe by Hong Kong’s stock market regulators into its financial statements.

 Douglas Quan / National Post
Douglas Quan / National PostF-Pacific Optical Communications planned manufacturing facility in Surrey, B.C., sits vacant.

A review of all nine companies that HQ Vancouver touted as “success stories” in its two-year progress report late last month reveals F-Pacific is not the only company whose North American expansion plans have sputtered, whose parent corporation has fallen under scrutiny or whose objectives have come under question.

Critics say if millions of public dollars are going to be spent on this sort of outreach, it needs to be accompanied by due diligence.


Many Chinese companies are “immature” first-generation outfits with “murky” ownership structures, said Jeremy Paltiel, a political science professor at Carleton University.

“Are we actually gaining something real?” he said.

HQ Vancouver was established in February 2015 as a three-year pilot project with funding from B.C.’s Ministry of International Trade ($3.3 million), Western Economic Diversification Canada ($1.9 million), and the B.C. Business Council ($1.2 million). Yuen Pau Woo, former head of the Asia-Pacific Foundation, was named president.

Staff attend trade shows and other networking events and pitch Asian companies on the province’s talent pool, proximity to key markets, transportation networks, good schools, low corporate tax rates and diversity.

HQ Vancouver does not dole out cash incentives, but makes companies aware of various federal and provincial tax credits they can apply for. Which companies ultimately receive tax credits is not publicly available.

All the schmoozing seemed to work. In its two-year progress report last month, HQ Vancouver identified nine mostly China-based companies as success stories and made note of three more companies that have signalled their intent to set up main offices in B.C.

One such company is Zhiye Photoelectric Precision Technology of Nanjing, which makes optical parts for telescopes, surgical microscopes and gun sights. In January 2016, the company signed a memorandum of understanding to set up a headquarters in B.C., and committed to put $1 million into a manufacturing facility that would eventually create 100 jobs.

Zhiye has acquired a property in a Burnaby, B.C. business park, and is awaiting approval of a building permit. Access to the North American market was one of many selling points, company representative Huaidao Liu wrote in an email.

“Vancouver is a good international destination,” he wrote. “It is a very Asian city – cultural ties between Vancouver and Asian countries are strong, and business approaches are understood.”

Fan Zhang and Joe Bonar, representatives of Fire-Point Interactive, a mobile gaming company that opened a studio in Burnaby last October, says the big draw for them was the hub of creative talent and access to provincial tax credits.

Fire-Point, a subsidiary of Beijing’s Match-Light Entertainment Technology, has hired 15 employees and recently released two games.

“HQ Vancouver aimed to attract five head offices to B.C. by 2020. I am pleased to say that we are well ahead of schedule,” Teresa Wat, B.C.’s international trade minister, told the legislature in late February.

HQ Vancouver
HQ VancouverTeresa Wat, B.C.’s minister of international trade, at the opening of Poly Culture Group's new art gallery in downtown Vancouver in November 2016.

But a closer examination by the Financial Post reveals that one company trumpeted by HQ Vancouver is the subsidiary of a corporation on the verge of collapse, raising questions about how much vetting these companies undergo.

F-Pacific, a subsidiary of China Fiber Optic Network System Group, announced in May 2015 it had opened a North American headquarters in Vancouver. At the time, it was operating an R&D facility in Richmond, B.C., and said it would also acquire a production facility in Surrey, B.C., that would employ 200 people and generate $100 million in sales by the end of that year.

“The short-term significance is the establishment of a real facility that will employ hundreds of people and produce hundreds of millions of dollars of exports,” Woo was quoted as saying at the time.

But despite getting a development permit in July 2015, the plant has not yet got off the ground and its doors remain shuttered.

During a legislative committee meeting in March 2016, Bruce Ralston, the B.C. NDP trade critic, brought up a report questioning the financial stability of F-Pacific’s parent company and asked Wat what sort of vetting is done before the minister attaches her name to a project.

Wat said at the time the claims against China Fiber Optic were “spurious.”

Then in October, it was reported China Fiber Optic had been directed to stop trading amid a probe by Hong Kong’s Securities and Futures Commission into its financial statements. Bloomberg reported the regulator was looking into whether the company overstated its results.

At the time, the company said it was seeking legal advice on how to resolve the concerns. In a notice to investors on Feb. 20, the company said the trading suspension had “caused an abrupt hit on the group’s operations, and was affecting the group’s normal business development.”

Late last month, another notice informed investors a petition had been received from creditors to wind up the company and a court had appointed provisional liquidators. Trading has not resumed.

F-Pacific staff did not respond to repeated requests for comment.

Woo, who stepped down as HQ Vancouver’s president late last year after Prime Minister Justin Trudeau appointed him to the Senate, declined an interview request.

A spokeswoman for the B.C. ministry of international trade said in an email HQ Vancouver follows a “robust” system for vetting companies.

HQ Vancouver now acknowledges F-Pacific had to retrench “due to unforeseen circumstances.”

Another company that recently set up a head office in Vancouver belongs to a massive Chinese state-run corporation whose activities, critics say, aren’t transparent.

Poly Culture Group is China’s largest arts-and-culture company. Last November, the company, which operates the world’s third-largest auction house, opened a new art gallery in downtown Vancouver showcasing four rare bronze animal heads that had once adorned Beijing’s Old Summer Palace.

HQ Vancouver
HQ VancouverB.C. Premier Christy Clark meets with Xu Niansha, chairman of China Poly Group, in November 2015.

The company has said it plans to use Vancouver as a base to expand its art, cinema and theatre businesses and to facilitate “two-way cultural exchanges” between China and Canada. Premier Christy Clark has said their move to Vancouver will enrich B.C.’s multicultural arts scene.

Poly Culture’s parent company is China Poly Group, one of China’s largest state-owned corporations involved in many sectors, including real estate, defence technology and mining. A New York Times report in 2013 said China experts weren’t quite sure “how Poly functions as a corporation, how power is shared internally, to whom its executives are really accountable or how its revenues and benefits are distributed.”

One of China Poly Group’s other subsidiaries, Poly Technologies, manufactures military hardware, and was sanctioned by the U.S. in 2013 for allegedly violating sections of the Iran, North Korea and Syria Nonproliferation Act — claims the company denied. The sanctions were lifted in 2015.

When Poly Culture Group went public in 2014, its detailed company prospectus told investors there was a “clear delineation” between it and its sister companies and that Poly Technologies had withdrawn its 32 per cent stake in the company. Despite this, “we may be subject to negative media,” investors were warned.

Poly Culture also wrote that it could not assure investors “our internal control system in relation to anti-money laundering and anti-corruption will be effective in preventing our auction operation from being exploited for money laundering or other illegal purposes.”

Provincial and federal officials expect China Poly Group will eventually expand into Canada beyond culture, records obtained by the Financial Post show.

An October 2016 briefing note prepared by Western Economic Diversification Canada said Poly Culture’s presence could pave the way for “possible real estate and other functions.”

A November 2016 briefing note for B.C.’s trade minister said: “B.C. welcomes Poly Group’s business interest in other areas and sectors ranging from technology and innovation to financial asset management.”

Michel Juneau-Katsuya, the former Asia-Pacific bureau chief for the Canadian Security Intelligence Service, says government officials should proceed cautiously. State-owned companies’ actions are driven by the policy of its national government, he said.

“Now for a Western audience that seems to be harmless. But contrary to Canada and most western countries, the PRC has the Central Committee that runs businesses for the country and has a strong influence on all sectors. … It has demonstrated its ability to penetrate and influence the democratic process of many countries,” he said.

In a written statement, Poly Culture North America said it has no business ties to Poly Technologies, has strict internal controls to prevent corruption, and will “uphold Canada’s high standards of business practices.”

The company confirmed China Poly Group looks forward to expanding into Canada in areas of “real estate, culture, trade, finance, as well as in pension, tourism, education, new energy, agricultural products and other extended industries.”

But Poly Culture isn’t the only company touted by HQ Vancouver whose long-term objectives have come under question.

In February 2016 Aikang Capital, a private equity fund company and subsidiary of Beijing Aikang Group, announced it had set up its first international office in Vancouver. Press materials said it would focus on “medical technology, hospital, and health management investment opportunities.” The company said it would invest $500 million over five years and create 100 direct or indirect jobs. It also donated $145,000 to the Vancouver General Hospital.

HQ Vancouver says it understands Aikang has since made an investment in a “significant” piece of real estate in Richmond, B.C., related to health care services, but couldn’t elaborate.

However, a recent job posting suggested Aikang Capital has a broader mandate, describing itself as “one of the biggest real estate fund company (sic) in Metro Vancouver.”

The posting for a General Manager Assistant said: “We have now been in Vancouver Real Estate Market for more than 2 years and have reached over aggregate investment of 1 billion Dollars in the real estate market including residential housing, commercial properties and all types of projects.”

Transcripts show Ralston, the NDP trade critic, was confused last year about what Aikang Capital does, saying at the March 2016 legislative meeting, “it’s not clear … what exactly their business is.”

In an interview, Ralston said it’s not unheard of for companies to use “puffery” to win over government officials, which is why he sought clarity as to what types of investments the company was making. He said he was surprised that Wat, the trade minister, didn’t seem to know much about its activities, even though she had publicly touted the company.

Wat said at the time she understood Aikang was investing in the health and medical sectors, pointing out the “Ai” in Aikang means “love” and “kang” means “health.”

At Aikang’s quiet downtown office, project manager Helen Xu said her responsibilities were in real estate and construction and could only confirm the company had made investments in residential apartments and commercial properties.

Reached by phone, Aikang Capital’s CEO, Iris Zhao, said the company has some investments in private companies — “so far, medical and education” — but she wouldn’t elaborate. She said her company has a diverse portfolio, but the reason the job posting mentioned only real estate was because job seekers can be turned off if a company is too diversified.

The company is on track to invest $500 million over five years, she said.

In March 2016, the gaming world took notice when it was announced Valhalla Game Studio of Tokyo was moving its global headquarters here to take advantage of the city’s “gaming industry cluster.”

But one year later, the company says its relocation is on hold, raising the question whether HQ Vancouver was too hasty to say it had collared the company.

“Valhalla currently does not have a physical presence in Vancouver, but its intent remains to have something established here … sometime in the future,” Sam Yik, the company’s chief financial officer, said in an email. 

HQ Vancouver still touts Valhalla on its website as a success story.

Ralston says he’s never been fully convinced of the need for global companies to have their “hand held” by government.

But, he said, “if the government is going to intervene to assist in attracting companies to B.C., there needs to be some accountability for the spending of that money.”

Paltiel, the political science professor, says he is not opposed to an outreach initiative like HQ Vancouver. But “the question is how effective is it at creating local business opportunities and jobs? And has this venture paid back the public investment that’s been put into it?”

HQ representatives were unable to provide a summary of the net benefits these companies have brought to Canada in terms of jobs and investments. An analysis of their results will take place over the spring and summer, they said.

In the meantime, Greg D’Avignon, the HQ Vancouver chairman and president of the B.C. Business Council, dismisses any suggestion the organization may have been premature in touting companies’ successes in Canada.

“At the end of the day, every business, big or small, has an intention to grow their business and sometimes that intention is met or exceeded … and in some instances it’s not.

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