Canada Country Report 2014

Trade brings two countries closer

Future likely to be full of new opportunities for Canadian exporters, especially in services, writes Nazvi Careem

PUBLISHED : Monday, 24 February, 2014, 4:38pm
UPDATED : Wednesday, 10 June, 2015, 10:51am

Canada's trade and economic relationship with China has changed significantly over the past decade, with both countries keen to expand the range of products and investments needed to satisfy their evolving markets.

Not too long ago, cheap consumer goods, toys and clothing formed the bulk of Chinese exports to Canada. These have since been overtaken by sophisticated hi-tech products, such as electrical machinery, comprising cellphones and wireless network devices and mechanical machinery - particularly computers.

Canada imported C$1.5 billion (HK$10.6 billion) worth of automotive parts from China in 2012, two-thirds of which were vehicle parts and accessories. Vehicle imports from China increased sixfold from 2011 to 2012 to C$133 million, according to data from Canadian statistics agency Statcan.

The data shows that last year, Canada imported close to C$53 billion worth of goods from China, of which C$23.2 billion, or almost 45 per cent, was classified as machinery and mechanical appliances - electrical equipment and parts, sound recorders and reproducers, and related parts.

Domestic exports to China totalled C$20.2 billion last year, with mineral products, such as ores, slag and ash, top of the list at around C$4.8 billion. Bilateral trade came to C$72.9 billion last year compared to C$70.1 billion for 2012, a rise of 4 per cent.

The strong growth in trade relations over the years means that China has now become Canada's second-largest trading partner, behind the United States. Canada is China's 13th largest trading partner.

The Canadian government is expecting the nature of its relationship with China to change in line with the Chinese government's economic reforms.

"Canada's trade relationship with China can be expected to change," said a Canadian State of Trade report for 2013. "Although it will be difficult to predict precisely how. As China's GDP growth slows, and China strives to achieve the goals it set out for itself in its [12th] five-year plan, the types of goods and services Canada trades with China will become increasingly sophisticated and more reliant on support from consumer demand rather than investment.

"China has stated that it will focus on boosting domestic demand by increasing workers' wages, as well as supporting the structure of consumer spending by making available more green products. While China continues to adjust its economy, its demand may decline for some of Canada's resource-based exports yet increase for others. Therefore, Canada-China trade will likely provide new opportunities for Canada's exporters, especially in services."

There is also a strong people-to-people bond between the countries going back generations, especially when it comes to the number of ethnic Chinese who call Canada their home. "As the world's most populous country and second-largest economy, China's impact on Canada is not surprising," says Guy Saint-Jacques, the Canadian ambassador to China. "Chinese culture is also a part of the fabric of the Canadian identity, as more than 1.4 million Canadians are of Chinese ethnic origin and Chinese is the third-most spoken language in Canada after English and French.

"I have the great privilege of serving as ambassador at a time when there is widespread recognition among [the] Canadian government and industry leaders that our country's future prosperity is very much linked to what happens in Asia, and particularly in China."

The people link extends to the education sector, with ties strengthened after Canadian Prime Minister Stephen Harper visited China in February 2012. During the visit, the two sides agreed to make education a strategic priority of their bilateral relationship, vowing to explore ways to expand two-way academic exchanges.

The plan is for at least 100,000 students to study in each other's countries by 2017. In 2012, there were more than 84,000 Chinese students in Canada - almost a third of all international students in the country. The number of Canadian students in China is estimated at less than 4,000.

Since Harper's visit, there has been a number of trade and investment agreements.

The latest is the Canada-China Air Transport Agreement, established in July last year. The agreement boosts interline and codeshare services between major carriers in both countries.

Six new cities in China - Guangzhou, Chengdu, Chongqing, Wuhan and Xi'an to the south and west of Beijing, and Shenyang to the northwest - have been added to the network that already includes Vancouver, Toronto and Beijing.

In terms of investments, Canadian interests ploughed C$9 billion into the Chinese economy during 2012, while the stock of Chinese foreign direct investment to Canada stood at C$38 billion.

The Harper visit also generated the Foreign Investment Promotion and Protection Agreement (FIPA) signed in September 2012, designed to ease investment flows between the two countries.

The agreement, which is in the process of being ratified by the respective governments, is the result of almost 20 years of stop-start negotiations and will give each side privileged status when it comes to investing.

The main purpose of a FIPA is to ensure greater protection to foreign investors in each jurisdiction against discriminatory practices, to provide adequate compensation where necessary and to establish strong and transparent policy frameworks for investors and their investments.



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