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China remains key to Canada’s economic development

China’s leadership angers Canadians, but Canada’s economy needs Chinese business: report
A Kamloops pulp mill. B.C.’s pulp industry is one of the sectors most reliant on Chinese business, according to a recent CCBC report | Aaron Black/Getty Images/iStock

Recent Canada-China geopolitical frictions have taken a toll on Canadian businesses and increased chatter about reducing trade and investment between the two markets to reduce Beijing’s economic leverage on Ottawa.

But what would a drastically reduced Chinese role in the Canadian economy look like? That is the focus of a recently released Canada China Business Council report aimed, officials say, at giving Canadians an understanding of what Chinese business has meant for Canada’s economic development.

China’s Economic Impact on Canada digs into not only the roles played by trade and investment, but also that of immigration and its related boosts to the Canadian market’s GDP.

It found that China-related interactions generated more than $55 billion of measurable cumulative GDP for Canada in 2018 – the latest year in which all the data was available.

CCBC officials say the report is a direct response to growing calls in Canada to diversify trade away from China since 2018, when Huawei Technologies Co. Ltd. CFO Meng Wanzhou was arrested in Vancouver on a U.S. extradition request while connecting from Hong Kong to Mexico.

The Meng affair, which lasted almost three years before U.S. officials and the Huawei executive reached a deferred prosecution agreement in September, was the central issue in what has been described as the nadir in Canada-China relations during that period.

In addition to Beijing’s retaliatory arrest of two Canadians soon after Meng’s arrest, China imposed import bans on Canadian canola and red meats, which significantly damaged Canada’s agricultural sector.

That raised the temperature on debate over whether Canada should diversify business initiatives away from China and into markets like India and Southeast Asia. But, according to the CCBC report, such a move isn’t realistic given China’s economic importance to Canada, even with the Huawei-induced malaise.

Statistics Canada numbers show that there was $31.7 billion in trade between the two countries in the pandemic year of 2020.

Canadian trade to China has not dipped below $30 billion since 2016. It reached a high of $36.8 billion in 2018 before retreating to $32.6 billion in 2019.

More importantly, the CCBC report estimates that up to 149,227 Canadian jobs were supported by Chinese market demands in 2020.

It added that merchandise exports from Canada to China jumped 7% in 2020, despite the pandemic and Canada-China geopolitical tensions. That number contradicts multiple polls that showed Canadians being increasingly wary of Canada’s trading relationship with China.

“A prior Ipsos poll, released on July 21, 2020, reported that 82% … ‘agree Canada should reduce its reliance on trade with China and diversify to other countries,’” the CCBC said in the report. “This is difficult to reconcile. Political tensions are not always reflected in the economic relationship between two countries and calls for reliance reduction are not easily translated to real outcomes.

“While the idea of pulling back trade with China is often discussed in expert circles, China’s rapid growth, massive consumption of commodities and integration in the global supply chain make it exceedingly difficult for Canada to ‘turn off the taps.’”

CCBC president Graham Shantz noted that paradox – of political friction and confrontation doing nothing to deter trade and business interactions outside of sensitive areas related to national security – is illustrated just south of the border, where the Washington-Beijing rivalry has long been looked upon as a potential powder keg.

But Shantz noted that people would not be able to reach that conclusion if they just look at the trade numbers.

“As our competitors are doing in the United States and in Europe, there needs to be a re-engagement with China on high-level economic issues using existing mechanisms,” he said.

Shantz also reiterated that the recent focus on climate change policy – with the recently concluded COP26 summit – means that cutting out China and its outsized role in global supply chains isn’t possible if the global community wants to achieve real change.

Another analyst – Canada West Foundation Trade and Investment Centre director Carlo Dade – also noted that while public sentiment is in favour of reducing economic ties with China, the actions of the same public appear to contradict that sentiment.

“When Chinese consumers are angered at the behaviour of a country, they organize boycotts,” said Dade in the foundation’s October assessment of the economic reality with China. “Canadian consumers, on the other hand, not only don’t protest, but in the case of China they increase their purchases.… Canadians tell politicians and pollsters one thing, but their spending decisions say something else.”

The contrast between public sentiment and Canada’s trading relationship with China is especially strong in B.C. While opinion polls from researchers like the Asia Pacific Foundation of Canada regularly rank B.C. among the provinces most wary of Chinese investment, the province also contributed 24% of Canada’s merchandise exports to China in 2020, the most of any province.

But the report concluded that the economic impact of trading with China is not limited to the West Coast.

“China’s significance to Canadians and Canadian business extends from coast to coast,” the report said.

“In terms of trade, British Columbia and Saskatchewan are the provinces most reliant on the China market for their exports, while Nova Scotia and Newfoundland and Labrador rank third and fourth. Alberta and Ontario, on the other hand, have the highest and third highest stock of Chinese investment in Canada.

“These are just two of many examples that demonstrate China’s importance to every Canadian province and the need for a comprehensive understanding of China across the country.”

The full report can be found at •