Canada’s Liberals Vow to Fix Damaged China Trade Ties

— June 18, 2015rte

G-7 Average Annual Growth Rate in Total Trade with China

The Liberal Party would open more of Canada’s economy to Chinese investment and ease restrictions on the sale of oil companies if it wins the fall election.

Developing Canada’s natural resources will require massive foreign investment and the federal government should do everything it can to foster ties with potential international partners, Liberal members of Parliament Scott Brison and Chrystia Freeland said Tuesday at Bloomberg’s Ottawa office.

Instead Prime Minister Stephen Harper’s clampdown on foreign takeovers after the saleof Nexen Inc. to China’s Cnooc Ltd. have chilled foreign investment in the country, said the lawmakers, who co-chair their party’s economic council of advisers. Canada has suffered a setback in Chinese relations while the effect of poor global engagement has scuttled pipelines and major mining projects, they say.

“We are more open to foreign investment in Canada than the Harper government,” said Brison, the Liberal finance critic. “The ambiguity created by the government’s announcement is not helping.”

Harper has failed to build support for foreign investment and major infrastructure projects, while at the same time remaining cool to new institutions such as the Asian Infrastructure Investment Bank, said Freeland, the Liberal trade critic.

“We have to have a seat at the table with these new institutions,” she said. “More broadly on trade, this is a place where as a Canadian I am really worried.”

Three-Way Race

The Conservative government dismissed the Liberal criticism. Its foreign-investment reforms ensure “Canada’s strategic assets and entire sectors of our economy are not entirely owned and operated by foreign governments,” Harper spokesman Stephen Lecce said Wednesday in an e-mail.

Canada’s current Parliament will adjourn for summer no later than next week and lawmakers won’t return until after a federal election scheduled for Oct. 19. Polls show the Liberals, whom Harper unseated to become Prime Minister in 2006, in a three-way race with the Conservatives and the main opposition New Democratic Party.

The Liberals are rolling out their platform for the campaign. Earlier Tuesday, Leader Justin Trudeau unveiled a plan for democratic reform. Another plank is to cut middle class taxes, raise levies on those earning more than C$200,000 ($163,000) and distribute benefits to those with lower incomes.

Freeland argued the higher tax rate won’t harm the ability of firms to recruit top talent. “This is about creating inclusive prosperity in a society where people want to live,” she said. “I’m with Henry Ford on this. You have to have a strong middle class so there’s someone to buy the goods being produced by your entrepreneurs.”

The Liberals will soon unveil plans for boosting jobs, spurring growth and building infrastructure, the lawmakers said, without elaborating.

Trade Ties

Harper approved Cnooc’s bid for Nexen in 2012, while placing new restrictions on takeovers -- particularly those of oil-sands companies by foreign state-owned enterprises. Fifty-eight percent of Canadians wanted the government to block the Nexen takeover at the time, according to an online poll of 1,000 people taken by Angus Reid Public Opinion.

Those restrictions are hurting ties even as trade deals have been signed worldwide, Brison said. Although Harper has regularly celebrated the Conservative government’s record on forging free trade pacts, its biggest -- with the European Union -- has yet to be implemented, Brison said.

“Signing agreements, that’s one thing,” he said. “Building the kinds of relationships that are essential to defend Canada’s economic interest is equally important.”

Chinese ‘Chill’

Brison cited Canada’s ties with China in particular. “The current government has really damaged that relationship. If you look at the reputation we have as a place for Chinese investment, post-Cnooc-Nexen, there is a chill.”

Canada has shown “cultural condescension” by barring takeovers by state-owned enterprises, Brison added. “We don’t get to pick their economic model.”

Data compiled by Bloomberg show both Chinese investment in Canada and bilateral trade have surged under Harper. China’s direct investment totaled C$25.1 billion in 2014, up from less than $1 billion from 2005, the year before Harper took office. Canadian investment in China, meanwhile, was C$6.8 billion in 2014, up from $1.8 billion a decade before.

Canada has fallen behind other countries in total trade with China, ranking 14th in 2014, down from ninth a decade earlier. However, its average annual growth rate since 2005 was the second-highest among Group of Seven countries.

Misplaced Fear

Federal, provincial and municipal governments control several aspects of natural resource production, such as royalties and labor standards, and Canadians shouldn’t fear foreign takeovers, Brison said, adding he’s more “concerned” about deals involving information technology firms.

“On the natural resources side, I think it’s fairly clear cut that we want foreign investment, particularly during these times,” the finance critic said. “Right now is a good time to build the kind of infrastructure we need for market access for our natural resources.”

Poor global ties have hurt TransCanada Corp.’s proposed Keystone XL pipeline as well as domestic projects including Quebec’s Plan Nord and Ontario’s Ring of Fire, Brison said.