Ever since the spark of enthusiasm from Prime Minister Stephen Harper’s visit in February, 2012, Canada’s relations with China seem to be running on idle. There is clearly some ambivalence about China within the cabinet and the government caucus. The FIPA (Foreign Investment Protection Agreement) stands unratified. The welcome mat for Chinese investment is uncertain and there has been little traction on a broad-gauged economic partnership. While President Xi Jinping has visited both the U.S. and Mexico, along with several other countries since assuming power, there has been no high-level Chinese visit to Canada.
Given the persistent rebuff of the Keystone pipeline by our neighbour, it would seem both prudent and timely for Canada to be more creative and more consistent in forging economic links with the dynamic economies of Asia, notably China. We should have learned by now the risk of relying exclusively on one market for any export. That is why there are compelling strategic and economic reasons to pursue closer co-operation, especially on oil and LNG exports, which, like all commodities, do not require special trade deals to be sold in global markets. Not only would an enhanced economic partnership with China serve Canada’s national interest, it would also inspire more mature attention from Washington.
There is good reason to move into high gear. Mr. Xi has consolidated his power in less than two years and is already being touted as the strongest and most capable leader since Deng Xiaoping. He is shrewdly guiding China to great power status, driving economic and social reforms at home while asserting a global role more in line with its burgeoning economic and military weight.
At the party plenary session in November, 2013, Mr. Xi stressed the need for reforms to reshape China’s economy, liberalizing the financial sector and targeting domestic consumption rather than exports as the engine for growth.
Little thought is being given to political reform and this may be a reason for Canada’s reticence, but Mr. Xi obviously sees little need to fix what is working well and draws no inspiration from the economic and fiscal performance of western countries.
Due to the unwinding of macro stimulus spending and weakening exports, China’s GDP growth slowed to 7.6 per cent last year. However, China’s GDP has spiralled from $500-billion (U.S.) in 1982 to more than $9-trillion in 2013 – and its massive trade and investment footprint continues to increase. Capital spending in 2012 was 27 per cent of the G20 total – $3.9-trillion v. $2.5-trillion by the United States. China is now the world’s largest manufacturing nation, producing twice as many cars as the U.S., 75 per cent of all mobile phones; 87 per cent of computers, 52 per cent of colour TVs and half the world’s semi-conductor outputs. Some predict that China’s economy will surpass that of the U.S. within ten years.
To bolster this growth, China’s demand for natural resources remains strong – 45 per cent of the world’s lead; 43 per cent of zinc; 40 per cent of aluminum; and 60 per cent of seaborne iron ore. These, together with an increasing demand for energy, are among the reasons why China should be more central to Canada’s economic and trade agenda. But we cannot assume that the Chinese are waiting for us to get our act together. Global competition to sell resources is intensifying with new commodity producers in Central Asia and Africa. Regrettably, Canada is lagging on many fronts. We cannot diversify energy exports if we remain land-locked.
The challenges arising from China’s dramatic ascendancy are as daunting as its achievements. Corruption is endemic, the environment has been a major casualty of rapid growth and health and educational standards are cracking under the strain of massive movements of people from rural to urban areas. An aging population of 1.3 billion has already obliged the authorities to relax the “one child” policy in order to offset an emerging labour shortage.
Territorial disputes with most of China’s neighbours are raising tensions in East Asia. The U.S. is tacking nimbly between security commitments with its allies in the region and the avoidance of overt provocation. Already China has the world’s 2nd largest defence budget ($162-billion in 2012 vs $682.5-billion in the U.S.). The United States is on a downward trajectory that will see its defence expenditures drop to 2.6 per cent of GDP by 2023 – the lowest since 1940.
The combination of a rising China and a waning America poses the most serious foreign policy challenge of all and how the two choose to reconcile their conflicting agendas will determine the prospects for fundamental stability and prosperity.
Given that China has $1.3-trillion in U.S. securities and is, therefore, the largest shareholder of U.S. debt, a stronger role at the IMF, the World Bank and with the G20 would be a more appropriate and welcome ambition. So too could be a closer relationship with trading and investment partners like Canada.
Given the global power re-alignment underway, there are both pragmatic and strategic reasons why China should command a clearer and more urgent priority. The real issue should be how much we want to sell and on what terms. Neglect is not an option.