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There is at least one canal in Penang the Pangolin Canal.  It used to be a river flowing into the sea close to George Town.  Perhaps the mountain/hill in the distance is the Penang Hill.  Could the smoke be from a Steam Locomotive.

I have never been to the orient so I am researching solely by photos and other people's advice. I just looked at the Google Earth view of Georgetown, Penang area and it does look very much like the terrain and also it would explain the more tropical attire of the spectators in my original photo. I think you are correct the more I look at it. I will try to find other photos of the area from that era and of the canal. The stonework along the canal edges looks very much like what is there today.
I think I will concentrate on Malaya now as it feels like a solid lead.

What I know is that this photo was taken in Asia...likely near Hong Kong and the approximate year would be between 1917 and 1922. My mother and grandmother are in the photo. My mother was born in 1911 in Hong Kong and appears to be about 7 years old in this photo. The family moved from Hong Kong, up to Shanghai sometime about 1918-1922 so this photo could have been nearer to Shanghai although from what I've been told, there are no mountains close to Shanghai. Also, the dress of the spectators in the photo is more tropical, men with pith helmets and light colored suits; women with large hats.
  Whatever the event taking place, it was being documented and filmed by at least two if not three movie cameras set up on large tripods along the banks of the canal. The right bank crowd appears to be largely made up of Caucasian spectators whereas the left bank has more Asians. There is a footbridge at the farthest end of the canal and there looks to be a small set of waterfalls near the bridge with bathers sitting or swimming on them. There is one girl swimming in the lower right corner of this picture. There is also a slight view of some thatched structures on the right side and large houses or structures on the hills in the background. There seems to be a patch on the hill which could be a landslide area, or maybe a clearing, but could also be smoke rising somewhere in the distance; its difficult to tell. Any ideas at all would be sincerely appreciated. I have a larger resolution copy that I can send to anyone who thinks it will help but this site doesn't allow it to be posted so I will use what I can for now.
Thanks to all