Canada waits for China backlash

Payback over Meng Wanzhou ruling

The Canadian business community is watching nervously as tensions with China, a key trading partner accounting for roughly $100 billion in annual activity, continue to deteriorate, prompting expectations of a backlash from the growing superpower.

On Wednesday, a British Columbia Supreme Court judge blocked the latest attempt by Meng Wanzhou, chief financial officer of Chinese telecom giant Huawei Technologies Co. Ltd., to halt her extradition to the U.S., where prosecutors allege she violated Iran sanctions.

In the aftermath of Meng’s arrest in December 2018, China took a number of steps, widely viewed as retaliatory, including imprisoning two Canadians, and erecting tariffs on canola and other products.

Global Affairs Canada also joined the U.S., U.K. and Australia in a joint statement this week that expressed “deep concern” about China’s proposed national security legislation in Hong Kong, that could shift how the region is governed and has drawn protests from residents.

Against this backdrop, several experts who study China said they expect new punitive measures against Canada. They added that past measures, such as tariffs, were strategically plotted around the country’s domestic and political concerns, and it is not entirely clear which Canadian sector could be in the crosshairs now, or when any blow is likely to land.

“They’re not going to impose a general tariff on all Canadian exports that’s for sure,” said Gordon Houlden, director of the China Institute and professor of political science at the University of Alberta. “I’m very confident on that.”

He explained that the trade deficit — most recently estimated at $51 billion in 2019 by Statistics Canada — means that China ultimately has more to lose than Canada from a disruption to the trade.

Instead, Houlden predicted China would respond carefully. It doesn’t want to explicitly link any tariffs to the Meng case, because that could violate World Trade Organization rules and result in collateral consequences.

To understand what it might do, he looked back at what it has already done: For example, China has limited Canadian imports of canola, an area where, Houlden said, China’s own farmers have struggled to compete with international producers.

In March 2019, China suspended export licences for two major Canadian canola producers due to the alleged discovery of pests, but which Houlden and others have suggested was more likely the result of tensions. As of March, the two company’s licences remains suspended, and canola seed exports remain down 30 per cent, according to a report by Houlden’s China Institute.

“They pick their targets and take care in doing so to minimize the damage to their own economy and maybe shield some domestic industry,” said Houlden.

Nor have the headlines always conveyed the trend of trade between the two countries, which continues to rise.

In 2019, for example, China subjected Canadian pork and beef producers to a four-month ban, beginning in late June after Chinese authorities said they discovered false export certificates. But pork and beef exports rose in 2019, 11 per cent and 20 per cent, respectively.

Similarly, exports from the Maritime provinces plus Newfoundland and Labrador rose 17.7 per cent in 2019, with the value of lobster trade rising 77 per cent to $456.7 million, the China Institute report noted.

Still, the political chill between China and Canada could erode the ability and desire for companies to strike deals.

Sarah Kutulakos, executive director of the Canada China Business Council, said that in a recent survey of her members, 43 per cent said their business with Chinese partners declined in 2019, and they are expecting the trend to continue in 2020.

“A year ago, there was still optimism for the future, although a lot of caution,” said Kutulakos. “This year, the optimism is slightly reduced, not across the board, but certainly there’s a wariness.”

She described it as being caught in a “U.S.-China sandwich,” since it is U.S. prosecutors who want to charge Meng, and because the U.S.China trade war appears to have created tensions that have spilled over into Canada.

Of course, even amid rising diplomatic tensions and as the total value of Canadian exports to China fell by 16 per cent in 2019, it remains one of the country’s top trading partners — it accounted for 12 per cent of merchandise imports in Canada in 2019, according to the China Institute.

Earlier this month, Shandong Gold Mining Co. Ltd., a Chinese state-controlled gold company, even announced a $207-million deal to purchase TMAC Resources Ltd, which operates a gold mine in Nunavut. That transaction has been flagged for review under the Canada Investment Act, which means the Canadian government could halt it if it concludes it’s not in the country’s best interest.

The uncertainty surrounding the coronavirus pandemic also make China’s response more unpredictable. In the past, it has reacted swiftly when tensions mounted with Canada, but it has also taken its time.

Months passed after Meng’s arrest before it enacted some tariffs, but within nine days of her arrest, China had detained former diplomat Michael Kovring and businessman Michael Spavor. Both remain in detention.

Reza Hasmath, a professor of political science at the University of Alberta, said he was supposed to meet with Kovring, a friend of more than a decade, days before he was arrested.

Hasmath insisted both arrests were political — part of a broader strategy by Chinese authorities to stoke nationalistic sentiment that it is being “bullied” by foreign powers.

“You have to remember who their audiences are,” he said. “Most people (in China) support the government’s stance towards Canada. Meng is seen as an individual and (Huawei) a company that is being targeted unfairly by the West.”

Hasmath predicted that in the end, China would be reluctant to issue any tariffs or enact any policies that would seriously undermine its economy, and instead would use the situation to bolster its own position in the country.

THE OPTIMISM IS SLIGHTLY REDUCED, NOT ACROSS THE BOARD, BUT CERTAINLY THERE’S A WARINESS.

TODD KOROL / REUTERS FILES In March 2019, China suspended export licences for two major Canadian canola producers due to the alleged discovery of pests, but which Prof. Gordon Houlden and others have suggested was more likely the result of tensions.