National Post (National Edition)
Dealing with China calls for deft touch
Economic relationship has intensified
An analysis of Canadian news stories about China over the past year would almost certainly conclude that the relationship between our country and the world’s second-largest economy is hopeless.
That’s because we emphasize the negative in this business.
You’re likely well informed about the issues related to the unjust imprisonment of Michael Kovrig and Michael Spavor by Chinese authorities, and you’ve probably read enough to wonder if the persecution of Uighurs in Xinjiang province “fits into the definition of genocide in the (United Nations) genocide convention,” as Bob Rae, Canada’s ambassador to the UN, put it in an interview with the CBC’s Rosemary Barton in November.
But you might not know that as these “geopolitical tensions” have intensified, so, too, has Canada’s economic relationship with China, at least as measured by Chinese demand for Canadian goods that the former can’t easily procure elsewhere.
“Nothing has changed,” Gordon McKenzie, chief executive of Saskatoon-based potash exporter Canpotex Ltd., said in an interview in late November. “Potash is as important to China as it is to us here in Canada, so our relationships have been strong. We’re on track for another strong year in 2020,” he added. “Fortunately, we’re not involved in any of those (geopolitical) challenges.”
Statistics Canada’s tally of what McKenzie would have been seeing in real time at the end of last year shows that economic gravity is an equal match to the negative energy generated by diplomatic spats and political posturing.
Trade in goods has been an unexpected source of strength, helping to lug Canada’s economy from the depths of the COVID-19 recession despite lacklustre oil prices. Much of that is thanks to China, which for a while was essentially generating global demand on its own. The International Monetary Fund reckons it will be the only major economy that posted growth in 2020.
China's influence on the global economy is obvious in Canada's trade flows. Exports to China represented 4.6 per cent of the total in November, compared with 3.6 per cent a year earlier, according to new trade data released on Thursday by Statistics Canada. That figure was about seven per cent in April and May, the highest level recorded in data going back to 1997, and has hovered around five per cent since, compared with a monthly average of 4.1 per cent in 2019.
Like it or not, Chinese demand has helped offset the negative effects of a terrible recession for the second time in two decades.
China's economic power isn't a reason to ignore what is happening in Xinjiang, nor should it stand in the way of doing whatever it takes to liberate innocent Canadian citizens from arbitrary confinement. But it does demand respect, arguing in favour of a sophisticated diplomatic strategy that involves other countries, rather than the diplomatic equivalent of kamikaze strikes that would hurt Canada more than they would China.
“Canada and its allies have woken up to China's bullying tactics and coercive diplomacy, and together should seek to impress on China that their use will threaten its access to markets,” Guy Saint-Jacques, a former Canadian ambassador to China, said in a commentary published by the C.D. Howe Institute on Wednesday.
At the same time, Canada should continue to work on “concrete areas of co-operation … to lay stronger economic foundations in anticipation of days when current tensions clear,” said Saint-Jacques, citing the environment as one challenge that transcends current diplomatic troubles and represents an economic opportunity that Canada and China can maximize by helping each other.
Canpotex makes Saint-Jacques' point.
The climate-change debate tends to focus on fossil fuels, but there is also an important agricultural component. Renewable energy and electric vehicles will flatten the demand curve for oil, but an increasingly wealthier global population will consume more food, so farmers will be under pressure to produce more on the land that's currently available. That likely means increased demand for potash and other fertilizers, which explains why Canpotex was on pace for its one its best years ever despite the pandemic.
“It's the food story,” McKenzie said. “When the economics work, they use more of our products.”
To be sure, China's government has shown it is willing to stomp on its supply chains to send a political message. There are about eight significant producers of potash, including Russia, and Canpotex's Chinese customers could conceivably go elsewhere if an order came to do so.
That's another argument for working in concert with other countries rather than taking on China alone. The Canpotex experience shows businesses will find a way to keep trade going, even through the most unusual conditions.
“The biggest change this year was traditionally our negotiations in the Chinese market are face to face,” McKenzie said. “This year, we did it over a Zoom-like call, miles away, over our computers, with translators. A unique negotiation. It worked. We were able to come to an agreement and continue shipping our product.”