Canada’s evolving economic relationship with China
Late in the summer of 2009, Jim Flaherty, Canada’s then-finance minister, flew to China for a week of meetings with officials.
He was accompanied by a large entourage that included Bank of Canada Governor at the time, Mark Carney, banking regulator Julie Dickson, top officials from his department, and several senior Canadian bank and insurance executives. I was embedded with the group, covering the trip for Bloomberg News.
Ostensibly, the purpose of the visit was to tout Canada’s financial system, which had weathered the great financial crisis. It impressed just about everyone in global policy making circles at the time.
Former Prime Minister Stephen Harper was also trying to warm relations with China, looking for a foil to a new Obama administration that was showing signs of aversion to Canadian oil.
To me, the primary objective for Flaherty appeared to be doing the hard legwork required to open up doors for Canada’s financial businesses in the Asian country. Meetings with mayors, deputy mayors and regional officials, apparently, were just as important as meetings with top officials in Beijing, and Flaherty was prepared to meet them all.
Today, the promise of that visit seems far removed from what’s happening in Ottawa policy and political circles as the Canadian government, egged on by the opposition, repositions China as an adversary with veiled but hardly uncertain language and measures.
The latest move was Innovation Minister Francois-Philippe Champagne’s announcement on Wednesday that Canada would tighten foreign direct investment rules further in “sensitive” sectors.
While there is plenty of debate over how much the needle is really moving with this week’s measures, the message to Beijing is clear: Canada is in the middle of a volte-face in its economic relationship with China — a country that only a decade ago was seen as critical to breaking Canada’s dependency on the U.S. and driving the country’s expansion for the next 50 years.
Flaherty’s 2009 trip was one of many by Conservative ministers that year, culminating in a visit by Harper which also included a public scolding. Harper would travel again to China in 2012 before that relationship would get testy following the Conservative leader’s decision to ban Chinese investment from the oil sands.
Current Prime Minister Justin Trudeau’s Liberals sought to breathe new life into the nation’s economic ties with China and worked hard at it. But the Vancouver arrest of Huawei’s CFO Meng Wanzhou and the subsequent detentions of Michael Kovrig and Michael Spavor in late 2018 put an end to that.
Many Canadians are now seeing that transition to a more adversarial relationship as an inevitable outcome of changing global geopolitics and China’s increasingly assertive diplomacy. According to a Nanos poll released this week, more than 60 per cent of Canadians want to see trade between the two countries decrease.
A closer look at the numbers
One of the most striking things about Canada’s economic ties with China is how little there actually was, at least relative to the political oxygen the relationship has taken up in Ottawa. Though Canadians buy a lot of stuff from China, our businesses have struggled to capitalize.
Canada’s merchandise exports to China over the 12 months through October totaled about $28 billion — about 1.3 times more than when Flaherty made his trip. Still, shipments to China haven’t grown that much faster than overall trade, which also has more than doubled since 2009.
Since 2018, there has been no growth in shipments to China at all. Over the past year, the share of total Canadian exports shipped to the Asian country was still at a very low 3.6 per cent, only slightly better than the 3.2 per cent in 2009.
The investment picture — crucial to fostering bilateral links — doesn’t look impressive either.
Chinese foreign direct investment into Canada has totaled a net $16 billion since 2012, which is just 2.7 per cent of total inflows. Canadian direct investment into China has totaled under C$14 billion over that time, 1.5 per cent of Canada’s total investment abroad.
Chinese exporters have done better, seeing their sales to Canada nearly triple since 2009 to about $69 billion over the past year.
The relatively poorer outcomes for Canada have cultivated a sense in the business community that China hasn't been a particularly reliable trading partner, softening any resistance to stranding decades worth of economic diplomacy.