Seeking a “New Opportunity” or Back to “Canadian Mode”
Justin Trudeau is making a state visit to China followed by a grand appearance at the G20 Summit in Hangzhou. In the lead-up to the week-long visit, there has been much ado about Canada’s relations with the Asian superpower – deepening ties with and latching onto China’s economic coattails pitted against Canadian uninformed and in many instances misplaced anxiety over China’s “human rights” record. However, the Trudeau government, like its predecessor, may not be able avoid succumbing to divided Canadian public opinion and revert to a go-slow pace in Canada’s relations with China.
Take murmurings about Canada-China free trade agreement (FTA) talks. Despite some gung-ho hot air late last year after the election about looking at it closely, the Trudeau government has since decided to back off, intimating that it might not happen for years to come!! While Trudeau et al. may want to avoid the roller coaster ride of the Harper government, it is sending mixed messages to the Chinese who believe there is a “new opportunity” to strengthen ties and “reset” the relationship.
Meanwhile, as Canada twiddles its thumbs over FTA talks, the Kiwis and the Aussies are already miles ahead. Signed and brought into force in 2008, the China-New Zealand Free Trade Agreement is the first FTA between China and a developed country that has brought New Zealand immense profit. To be phased in gradually over 12 years with full implementation in 2019, the FTA has already served to increase especially agricultural exports from NZD2.2 billion (US$1.8 billion) in the first year to NZD8.6 billion, a nearly four-fold increase, four years later. The primary beneficiaries of the FTA are New Zealand’s dairy industry (NZD2.8 billion), wood products (NZD1.2 billion), and meat industries (NZD412 million). In the process, China overtook Australia as New Zealand’s largest export market.
The FTA was deemed so crucial to the New Zealand economy that its Prime Minister sought an upgrade that is expected to be completed by this year end. Not to be outdone, but nonetheless 7 years behind New Zealand, the Aussies signed their own FTA with China in June last year which came into force at year end. Upon full implementation of the agreement, 95% of Australian exports to China will become tariff free including many agricultural products notably beef and dairy. In addition, Australia’s services sector will be more open to private Chinese investment with projects under AD1.078 billion not requiring Foreign Investment Review Board approval.
So, there lies the dilemma for Canada – getting cold feet over fleeting public opinion and returning to slow motion on the importance of a FTA with China and sit on the sidelines as the Kiwis and Aussies reap the benefits of free trade at the expense of Canada. After all, they are direct competitors for many of the products Canada wishes to sell to China such as lumber, seafood, BC fruit and so on.
Yet, all is not lost. If a free trade deal is not in the cards, there is still ample that Canada can do short of one; that is, if Trudeau’s government truly listens to the valuable advice offered by Dominic Barton, managing director of McKinsey & Co. and the chair of the government’s economic growth advisory board. Mr Barton urges the government to move quickly on various fronts including financial and health-care services, the agri-food trade, coaxing more Chinese students to study in Canada, and finding ways for Canadian small and medium-sized companies (SMEs) to tap into China’s vast consumer markets through e-commerce companies like Alibaba and JD.com. Australia, for example, earns $20 billion a year from educating foreigners in its schools, a big segment of who are Chinese students.
Mr Barton’s company projects within a short span of 6 years (by 2022), China’s middle class (not simply the current 730 million urbanites that include working classes and migrants) will balloon to over 550 million. Among them, owing to higher-paying high-tech and services jobs, 54% will have become “upper middle” class that earn between US$16,0000 to $34,000 a year. Meanwhile, a study by consulting competitor Boston Consulting Group expects Chinese consumption to grow by 9% a year through 2020. Overall, the consumer economy is forecast to grow by 55% to US$6.5 trillion, increasing $2.3 billion or the current consumption sum of Germany or the UK. And that projection is based on the very conservative assumption that China’s economy grows by 5.5% a year, much lower than the current 6.5% to 6.7%.
Mr Barton also called on the government to reverse the former Harper government’s shut-down of Chinese investment by making capital investments more politically palatable to the Canadian public than wholesale takeovers of Canadian companies by China’s state-owned enterprises (SOEs). He also sees many aspects of the China trade-investment equation as interconnected – growing food demand from China’s burgeoning middle class over the next few years could lead to the expansion of Canada’s rail network for which China could readily invest in/build related equipment such as rail cars, locomotives, and systems. That, in turn, could tweak Chinese interest to take part in building high-speed rail (HSR) corridors in eastern Canada and elsewhere.
Finally, advisor Barton also wants to promote Canadian research and development through collaboration with Chinese venture capital and other investment as well as Chinese tech firms to establish tech clusters in clean energy for example. As for Canadian concerns about “human rights”, Mr Barton argued compellingly Canada would be better served and wield more influence through the boosting of economic and investment ties. “I think it’s very difficult to admonish people with no relationship because it’s kind of like, ‘Why should I listen to you?’, he reflected. In the void of deepening economic and cultural engagement, Canadian self-righteous utterances only sound hollow and hypocritical and do little to help change mindsets.
From the activities of Canadian ministers over the recent past, there may yet be some hope for more enlightened policy. Finance Minister Bill Morneau indicated Canada may consider relaxing its foreign investment rules, including a more accommodating approach to China’s SOE investment. Asked about reviewing restrictions on SOE acquisitions of Canadian oil assets, Morneau said his government expects to discuss with the Chinese how to spur more investment in Canada.
In a related development, Minister of Immigration John McCallum discussed with Chinese Foreign Affairs and Public Security officials in early August on opening five more visa offices in Chinese second-tier cities Chengdu, Nanjing, Wuhan, Jinan, and Shenyang, to bring the number to 15. This is to smooth the path for more Chinese to study in Canada; place more foreign talent in high-tech jobs; bring in more Chinese investment; as well as more tourists who spend more than other cohorts while in Canada. The government is even studying ways to revamp the investor immigrant program which was cancelled by the Conservatives after it amassed a backlog of about 65,000 applicants, mostly from China, followed by a failed replacement program.