For many years, Canadians have been proud to underline that Canada and the United States are each other’s largest trade partners. So when it was announced in 2005 that for at least one month, China had surpassed Canada as the United States’ largest trade partner, it was an economic signal for Canadians. It reflected a fundamental paradigm shift in the global economy that forced Canadians to rethink their position in the North American and global economies.
Indeed, Canada-China trade has grown dramatically to the point where, today, China is Canada’s second largest trade partner. However, a central concern is the growing disparity of trade levels. Between 2001 and 2005, our exports to China grew 65%, while our imports from China grew an astonishing 115%. Also of concern is that about 80% of our exports to China consist of resources. The central lesson in dealing with China so far is that, no matter how big or small, every Canadian firm needs a China strategy. It may be active or passive, depending on the company’s resources, but it is absolutely crucial to understand how China is changing the global economy and there is a need to develop an effective response.
Canadian companies also need to recognize that there may be a link between lack of foreign investment in China and Canada’s lagging trade performance there. So much of international trade is now within companies. The new mantra is integrative trade. “Integrative” encompasses all the emerging elements of international business: exports, imports used in exports, FDI, use of foreign affiliates for sales, and globalized production and distribution. Indeed, more than half of Chain’s exports originate from multinational firms operating in China. In an attempt to remain globally competitive, many foreign firms are investing in China so as to integrate China into their global supply chains. But despite an increasingly global economy, the main priority for Canadian companies remains focused on the U.S. market and U.S. customers.
China – The Opportunity
As much as the changes have created new challenges, China has also brought new opportunities. Massive economic reforms and obligations under the WTO, for instance, have created new openings in China. Those that are able to understand these changes and adapt successfully will be well placed to take advantage of these ever-changing circumstances. There is also significant symbiosis between Canada and China. China is a resource-hungry nation, and Canada is well regarded and blessed as a resource country, with both resources to explore and the expertise to do it.
Chinese firms have taken some initial investments in Alberta’s oil patch and it is no secret they are looking for more, as well as to secure sources of other commodities. In addition, major Canadian financial services and insurance companies have long and established histories in China, and have successfully penetrated the Chinese market.
In China, Canada has a strong reputation as a source of environmental technologies and alternative energy sources. Further, we have had notable successes in construction products and services, transportation, infrastructure, and education. Finally, there are also opportunities for Canadian and Chinese companies to work in both directions. Nortel, for example, has secured numerous contracts in China building up its communications infrastructure and at the same time, has tentatively agreed to work on a joint venture based in Canada with Huawei, one of China’s leading global firms.
China’s economic energy and zeal will not be reversed any time soon, nor will its impact on the North American marketplace. Our challenge is to fully understand what the changes mean, and to embrace the new economic opportunities that are being created. Our history in Canada, including our trade history with the U.S., is rich with examples of our nation’s economic resilience and the ability of our private sector leadership to adapt to changing economic forces. I remain hopeful that this spirit of entrepreneurship will continue to shape our future as a country, at a time in our history when China takes its place within the economic elite of the world.