Gary Lamphier: Trudeau's China visit offers chance to get cosier
China’s outbound investment was north of $100 billion US in just the first seven months of this year. That’s a torrent of money. They’ve got $4 trillion of foreign exchange reserves which they can deploy either from state enterprises, private companies or individuals. So to say we’re not going to touch Chinese investment is like tying one hand behind your back.
GARY LAMPHIER, EDMONTON JOURNAL
Justin Trudeau is set to depart Tuesday for China, where he will take part in a two-day G20 leaders’ summit in Hangzhou, beginning Sept. 4. His week long tour also includes stops in Beijing, Shanghai and Hong Kong.
Trudeau’s first visit to China as prime minister is viewed as a key opportunity for Canada, committing to stronger ties with the world’s second-largest economy and biggest Communist state. To set the stage, I asked Gordon Houlden, director of the University of Alberta’s China Institute, to illuminate some of the key issues.
With Jia Wang
Deputy Director, China Institute at University of Alberta
Here is the fool...
Some highlights:
Q: Gordon, what is Canada’s current trade relationship with China? How much is it worth in dollar terms?
A: In 2015, Canada’s merchandise exports to China were worth almost $20 billion — that’s just goods, not services — and our merchandise imports were over $65 billion.
Q: And what are Canada’s top exports to China now?
A: Commodities like canola, pulp and paper, and wood products of all sorts. We’ve also sold some aircraft and Bombardier has had a long relationship with China on the rail side. We also do quite well on services. Companies like Sun Life and Manulife are doing a booming business in China.
Q: So where does China rank in terms of world trade now?
A: It’s the No. 1 trading nation on Earth, the No. 1 exporting nation and the No. 1 importer of commodities. For goods like copper, iron ore, lead or zinc, they import over half. They are the world’s factory.
Q: During the Harper years, Canada had an ambivalent view of China. We ran either hot or cold. What will Trudeau’s main objective be as he tries to reset the relationship?
A: Only Trudeau can answer that, but we’ll have an opportunity to hear his words directly next week. But my own take is, he wants a relationship that facilitates the pursuit of Canadian interests, particularly economic interests. It’s a country where relationships matter a lot.
Q: As you know, about $2 billion of Canadian canola exports to China are at risk, ostensibly due to China’s concern about the possible spread of blackleg disease. Is this just a bargaining tactic by the Chinese?
A: The Chinese claim this is all science based. But China has domestic production both in milling and growing canola. We can grow it more efficiently and get it to them more cheaply, which is a challenge for their domestic market. So I probably would side with the more calculated option.
Q: What might the Chinese want in return then?
A: They really want to open negotiations with Canada for a free-trade agreement. They put a lot of value on symbolism and an FTA is sort of the gold standard. So that is something they want. And they want more investment flexibility as well.
Q: CNOOC, China’s state-owned oil company, has had a rough ride since it acquired Nexen for over $15 billion back in 2013. Is China still interested in acquiring oilsands assets?
A: China is the world’s largest importer of oil and they’re heavily dependent on the Middle East, so they have strategic concerns. They’ve also been burned elsewhere. They invested heavily in southern Sudan, but the country broke up and it’s now in a state of semi-civil war. They got burned in Libya, too. By comparison, Canada is bedrock stable and we have a lot of oil.
Q: But with no new pipelines, all our oil exports are still limited to the U.S.
A: They’ve been disappointed, to say the least, regarding the lack of progress on oil exports. China’s hope had been that with some pipelines we could export some of our oil. What they want is import source diversification, so there is a natural symbiosis between our two countries. In terms of stability, there would be huge advantages to them, and in my opinion, to us.
Q: The Trudeau government will have an opportunity to rectify that by December when it rules on Kinder Morgan’s proposed TransMountain pipeline expansion to Burnaby. Will it be approved or rejected?
A: He’s certainly going to hear from the Chinese about the need and desire for Canada to be able to export its oil to markets other than the U.S., and I think that might strengthen his resolve to approve it. I’d like to think, and I’m prepared to believe, it might go forward.
Q: Although Harper’s government approved the CNOOC takeover of Nexen, it ruled out any further acquisitions by state-owned companies in the oilsands. So where does that leave China now?
A: The Nexen decision was and is controversial. China has a lot of baggage in this country and for good reasons — sometimes deserved and sometimes not. We have over 70 per cent of China’s investment in Canada in this province, but it’s growing very slowly. Globally, however, Chinese investment increased by over 50 per cent in the first six months of this year.
Q: And what do those numbers look like?
A: China’s outbound investment was north of $100 billion US in just the first seven months of this year. That’s a torrent of money. They’ve got $4 trillion of foreign exchange reserves which they can deploy either from state enterprises, private companies or individuals. So to say we’re not going to touch Chinese investment is like tying one hand behind your back.
Q: What sectors are they investing in?
A: China’s investment in the U.K. now touches on things like power, railways and water works. In the U.S., they own a tremendous amount of commercial real estate. China National Chemical Corp. is also in the process of acquiring Syngenta, the big Swiss pesticide and seed company. It is a $43-billion-US deal, triple the size of the Nexen deal.
Q: What is the Chinese government’s view of the new 15-per-cent tax on foreign homebuyers in Vancouver?
A: They have mixed views. I don’t actually believe this will be a huge issue during Trudeau’s visit. Some say that’s hot money that wasn’t legitimately earned that’s getting out of China. But a lot of it is just increasingly affluent Chinese. There are now more millionaires and billionaires in China than anywhere on Earth, including the U.S., and a huge middle class. These folks like the idea of having some money abroad.
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