The Canadian-Chinese Trade Relationship

China is now world’s second largest economy. The centre of global manufacturing, China is the world’s largest importer and its second largest exporter. By all economic indicators China has risen, and with sustained double digit growth is indeed still rising.This phenomenal transformation happened as companies across the world raced to relocate production to take advantage of low wages and a potential market of 1.3 billion people, including an emerging middle class that, according to the market research firm Euromonitor, has already reached 80 million and will grow to 700 million by 2020.
China has become an increasingly important trading partner for Canada too. While still dwarfed in volume by the United States, China has become our second biggest import destination (10.9% of imports compared to the US with 51%) and our third biggest export destination (3.1%, compared to the UK with 3.36% and the US with 75%).
In the lead up to the G8 and G20 summit, Premier Hu and Prime Minister Harper pledged to further that relationship and to double bilateral trade by 2015 to $60 billion.
This projected increase may be good for Canada if we get it right. As the recent recession made painfully clear, the American greenback is not infallible and if Canada is going to maintain its economic strength in the 21st century it is going to need to diversify its trade portfolio. With its soaring economy and prospects for the future, it only makes sense that China should play an increasingly larger role in Canada’s future trade strategy.
However, the crucial point is just that: Canada’s trade with China must be managed as a part of a forward-thinking and comprehensive strategy.
At the moment, Canada’s trade relationship with China is one of great imbalance. China sells us cheap consumer goods and electronics and we, almost exclusively, sell them raw resources— agricultural produce, pulp, lumber, oil and gas, coal, minerals, metallic ore. A table of the top ten imports and exports is included at the bottom of the post.
There are several problems with this current trade relationship. First of all, it is problematic from a Canadian point of view because natural resources are inherently unstable. Some natural resources— such as those in agriculture and forestry – produce at the whims of nature. The potential for bad weather, disease, and pests can all lead to sudden unforeseen disaster. More important however, all natural resource exports are unreliable in the sense that they are commodities that lack a unique selling point. Pulp from BC is not much different than pulp from elsewhere in the world, and the same goes for Alberta’s oil, Manitoba’s canola seeds, or Saskatchewan’s potash. If there is a sudden surge of output or a change in demand anywhere in the world, Canadian prices will be affected. Subject to intense competition and the fluctuations of natural systems and the international market, Canada’s current export base is at the mercy of forces well beyond our control.
Another problem with this current relationship is that it is not forward looking. It is representative of a past age, with Canada the hinterland supplying the needs of “metropoles” elsewhere in the world. If Canada’s role in the chain of production remains unchanged, China is merely replacing the United States, and the United Kingdom before that. If Canada wants to remain a global economic player we need to be more creative and much more innovative.
At the moment there is an enormous opportunity in the world for those actively engaged in the development of low-carbon and other “green” technologies. Rising energy costs, increasing resource scarcity, and a growing awareness of the enormous risks from climate-change, offers great potential for technologies and expertise that improve efficiency and reduce our environmental footprint.
According to estimates from a 2009 report by Roland Berger Strategy Consultants Clean Economy, Living Planet clean energy technologies will be the third-largest industrial sector in the world by 2020. The water treatment industry in China alone is projected to be worth $1 trillion by 2025. The global demand for green technologies is already on the rise, and, according to a 2009 report by the Canadian Conference Board, the green tech industry has grown at about 10 per cent each year between 2002 and 2008.
While making strides towards an environmentally sound, economic base, Canada does not have to reinvent itself. Our long history with natural resources and our natural geography give us definitive advantages over other countries, notably in waste management, water treatment, and energy-efficient resource extraction technologies. Canada may also be able to develop strengths in wave and tidal power and the next generations of biofuels.
While the opportunity is there, Canada is largely missing out. From 2002 – 2008, the same time period of global growth in the industry, Canadian trade in the green-tech sector actually shrunk by 2% a year, when adjusted for inflation. Comparatively, from 2000 – 2009 Canada’s oil production increased by 85%. Considering that oil prices will increase as demand rises and supply falls, this liquidation of our energy assets is simply bad business. At the same time, neglect of low-carbon energy— undoubtedly the energy sector of the future— is simply bad long-term economic policy.
The stimulus funding of 2009 presented a great opportunity for Canada to invest in the green economy. In the midst of the recession UN Secretary General Ban Ki-moon called for a “Green New Deal” with investments focused on renewable green energy, green jobs and greater energy efficiency. Many of the world’s most powerful economies responded. South Korea allocated 78% of its stimulus to the green economy, and China 30%, and the US 12%. Canada spent just 8.8% – which placed us 10th in the ranking of the G20.
Furthermore, according to a recent report, nearly half of that 8.8% was slated for funding of profitable oil companies for unproven carbon capture and storage technology.
Unfortunately in the past year not much has changed. According to the same report, entitled Falling Behind: Canada’s Lost Clean Energy Jobs produced by Environmental Defense Canada and United Steel Workers, in 2009 Canada invested just $357 million on renewable energy, compared to the US which spent $27 billion. Even on a per-capita basis the US invested almost 9 times more than Canada. The report estimates that this investment gap already has cost Canada 66,000 direct and indirect jobs, not including the job opportunities lost in greener transportation and energy efficiency.

In stark contrast to the lackluster incentives given to green economic development, the Canadian government gives the oil and gas industries $2 billion a year in subsidies and tax relief, according to the Pembina Institute’s most recent estimate. This is an industry with annual revenue of $80 billion, and while profits have been down since their record highs in 2008, profits posted this quarter indicate a strong come back. In fact, following the catastrophe in the Gulf of Mexico the Albertan oil sands are looking more and more appealing to US buyers and the Canadian industry’s prospects are looking brighter than ever. Subsidies of this scale for an industry that is this profitable are absolutely ridiculous.
Canada’s oil and gas industry simply does not need government support. This is a fully mature industry that is more than capable of standing on its own two feet. Not only that, but those feet are firmly planted where they stand. Unlike other industries, like automotives, there is no risk of flight with the oil patch. The resource is ours and unlike an assembly plant it is not at risk of being moved elsewhere, no matter how much the oil and gas industry blusters.
China is already on board for pursuing a more sustainable path to economic development. They have acknowledged that their current approach simply cannot be maintained. While the West polluted its way to development and managed to put off dealing with its consequences, China cannot do the same. They are already choking on their own growth, reeling from the effects of unprecedented levels of smog, desertification, water contamination, and deforestation, to say nothing of the human costs.
In a nationally televised speech, which opened the annual session of the National People’s Congress in 2007, Premier Wen Jiabao announced:
“We must make conserving energy, protecting the environment and using land efficiently the breakthrough point and main focus for changing the pattern of economic growth.”
China is showing leadership and taking the initiative to chart sustainable economic growth and development. Canada needs to reassess its economic priorities in general, but needs to re-evaluate its relationship with China in particular. China’s economy is going to drive the 21st century, and how Canada relates to that economy is going to determine our future in this new century. We can continue to be hewers of wood and haulers of water or become leaders in the research and development of the technologies and methods which the world needs to ensure a healthy, sustainable, and secure future, as do we.