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Lin Ai
Economist |
The traditional custom when visiting a Chinese home is that the host will start by serving you some tea. The ‘tea’ that was served to Prime Minister Steven Harper from China was the lifting of the ban on Canadian pork exports, which are valued at $50 million annually for the pork industry.
During the visit as the guest settles in, the host will serve some snacks. The ‘snacks’ that Prime Minister Harper received was China granting approved destination status to Canada. Approved destination status means that it will be much easier for Chinese nationals to visit Canada. In addition, it allows Canadian travel companies to advertise and promote in China. Opening Canada’s tourism industry to 300 million middle class Chinese citizens has the potential to bring millions, if not billions, of dollars to the Canadian tourism industry.
If the host really enjoys your company, then they will ask you to stay for dinner. The ‘dinner’ from a Canada-China perspective should be served as a trade agreement between the two countries. Yet ‘dinner’ was not served during the Prime Minister’s visit. Canada’s strength in natural resources, agri-business, and clean energy technologies would seem to make us a natural trade partner to China. In reality, however, trade between the two countries has not been as strong as it could have been.
For comparison, we can look at the case of Australia, which has a similar economic structure and a large natural resource base comparable to Canada’s. Back in 1996, Canada and Australia had similar values of exports to China. Canada exported $2.2 billion worth of products and Australia exported $2.1 billion. However, in 2008, Australia’s exports to China have reached $27 billion (accounting for 15 per cent of its total export value) while Canada’s exports have grown to only $11 billion, accounting for only 2.4 per cent of the total value of our exports
1. Moreover, China’s economic strength through the current business cycle helped Australia to avoid a technical economic recession.
Why has Australia’s trade performance with China grown so much more than our own, knowing that we produce similar products? Although there is no simple explanation, we do know that Australia has been actively pursuing stronger bilateral trade ties with China. Starting in October 2003, Australia signed framework agreements on trade and economic cooperation with China. Then in April 2005, Australia and China engaged in negotiations on a Free Trade Agreement (FTA). In 2006, the Chinese Premier, Wen Jiabao, signed an agreement with former Australian Prime Minister Howard to import uranium from Australia; whereas coincidently, it should be noted that Canada is the world’s largest uranium producer. Within the first six months of taking office, Australia Prime Minister Kevin Rudd visited China in April 2008. In May of that same year, the Australian Agriculture Minister and Trade Minister visited China to further explore ways to expand cooperation in agriculture and trade.
Traditionally, deals in China are done when a relationship has been first established. Australia has understood this concept and has been actively engaged in confidence-building measures between the two countries, while Canada has often taken a non-chalant attitude toward China. The current global economic crisis has illustrated the weakness in the U.S. economy and serves as a reminder that Canada should not be putting all its eggs in one basket.
China has had the fastest-growing economy in the world for the past 30 years, with an average annual GDP growth rate above 10 per cent
2. It is expected that China will continue to post very strong economic growth into the foreseeable future, with a growing middle class of consumers. In the long term, China will require more natural resources to supply its industrial base, and Canada is ideally situated to become one of China’s largest trade partners. Even though Prime Minister Harper only brought home some small take-aways, there is definitely an opportunity for more. Canada will need to do a lot more work on relationship-building before we are invited for ‘dinner’.
1 UN Comtrade. “United Nations Commodity Trade Statistics Database” [Online]. Website content. Geneva: UN Comtrade [cited December 8, 2009].
http://comtrade.un.org/
2 TradingEconomics Global Economics Research. “China GDP Growth Rate” [Online]. Website content TradingEconomics [cited December 8, 2009].
www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=CNY