Summary Report

National Forum on Chinese Investment in Canada: A New Era of Canada China Trade Relations

By Ron MacIntosh, Senior Fellow, China Institute, University of Alberta
With appreciation to notes provided by Dr. Lu Wang, Postdoctoral Research Fellow, China Institute, University of Alberta

On May 12-13 2017, the China Institute of the University of Alberta convened its 7th Annual Forum on Chinese Investment in Canada. The 2017 Forum was designed to look at the current context of Canada China economic ties in turbulent times and of the proposed Canada-China free trade agreement.

To this end, the Forum brought together business representatives from a number of sectors, present and former senior federal and provincial government officials, and members of the academic and research community including distinguished scholars from China, the US and the UK.

The Forum also benefited from keynote addresses by the Honourable John McCallum, Canada's new Ambassador in Beijing, and by China's new Ambassador to Canada, His Excellency Lu Shaye. Both envoys highlighted both the opportunity and the sense of urgency in Canada and China moving ahead together, as mainstream partners, notably though not exclusively through the FTA talks.

Organized around a series of four panels, the Forum looked at recent developments in China's international economic and trade activities, the response of China's major trade partners in the context of the current and evolving international environment, and the appropriate focus and strategy for Canada on an FTA, taking account of both specific and broader objectives with China.

The topics covered by the first panel "China's Rise in International Investment and Trade: A New Globalization Leader?" were partly inspired by the much commented upon remarks of Chinese President Xi Jinping at Davos early in 2017 that China was ready to assume the role of free trade champion amid the post-Brexit, post-US election uncertainties facing the world today.

Panelists called attention to the far more active role of the Chinese leadership in travelling the globe and in asserting at once a willingness to lead but also an insistence on equality with major players. Inasmuch as China continues to attach value to harmony and as clashes of business models are occasionally exaggerated, it is clear China has indeed become more assertive.

This development may or may not be a "shock" but it is an adjustment. Today's China, and President Xi in particular, are less content to become "rule takers" and more inclined to established its own way forward. China is now involved in starting "clubs" rather than only joining them - Asian Infrastructure Investment Bank, One Belt One Road, etc. - and launching its own FTA negotiations even as others falter - bilaterally, for e.g., with Australia, Korea, and Switzerland as well as to pursuing regional alternatives such as the Regional Comprehensive Economic Partnership (RCEP). Some say these initiatives, while impressive, are less ambitious in content than the now-discarded TPP and that this in itself registers a point over the agreement model preferred by the Chinese.

Chinese investors abroad remain rather risk averse yet, in line with preoccupations and priorities domestically, there is more diversification beyond resources to innovative technologies for instance, in building technology, clean energy, environmental services or health care. Vancouver, it was noted, offers a gateway to North America of value and a hub for economic ties in both directions.

The second panel, "Reassessing Canada's Economic Partnerships: The US, China and Beyond", took this discussion further with a focus on Canada's options in the present, challenging setting - and the place of China in strategies to consider and pursue. Clearly, and as panelists observed, this is clearly a period of challenge for Canada with the uncertain outlook for our North American platform having lent, in the eyes of some, added urgency in moving ahead with China.

Panelists acknowledged that the US has been and remains central to Canada and that care needs to be taken in the near future with this relationship. Canada's business community, while diverse, is increasingly of the view that China is important on its own merits and should be approached on that basis. Nevertheless with NAFTA and a number of Canadian sectors at specific and serious risk given the new administration's rhetoric - and in some cases, its actions, the case for diversification has become stronger and is likely to animate Canada-China FTA talks.

Yet attitudes to China remain ambivalent or outright problematic - on trade and non-trade files. In the US case, expanded trade with China is associated with loss of high quality manufacturing jobs. This view, which is not unknown in Canada, is very much part of the public discourse despite data and analysis, either dated or questionable.

One clear and enabling perspective is the greater openness of Canadians to a FTA with China according to recent polling by the Asia Pacific Foundation of Canada. Reservations continue in relation to investment by Chinese state-owned enterprises (SOEs) but support for a FTA has risen markedly from 36 to 55 percent just over the past two years - and this survey was taken before recent threats by the new US administration to withdraw from NAFTA.

Moving more closely to the focus and content of an accord with China, the third panel was entitled "Approaching the Free Trade Agreement with China: Policy Perspectives". Panelists and audience members looked at how comprehensive such a FTA could be and should be, for example, in the wake of the China Australia example and of above-noted apparent failure of TPP. They considered Canada's priorities in light of the needs and capacities of Canada's regions and specific industry sectors.

As distinct from the transactional, deal-by-deal approach of the US administration - which can sideswipe Canada as a recent deal on beef shows, our approach to China must remain fresh and "strategic":

  • Canada's North American connection is valuable to China - and to Canada as leverage.It offset the risk that Canada over the years has become less crucial to China;
  • The diversification agenda is strong, for example in energy, agrifood, and services - where Canadian regulatory and delivery "models", for example in social service sectors, are attractive in China;
  • In investment, we need to think beyond capital to the market development options provided by value chain networks of which Chinese SOEs and other firms are part; and at a broader level,
  • Our approach must respond to China's changing global economic role and to rapid shifts inside China, economic and social.It is clear China is becoming a less trade dependent, more technologically sophisticated, continentally-integrated industrial structure, along with a pace-setting e-commerce reality and a more RMB-denominated presence in currency markets.

Notwithstanding Canadians' greater open-ness to a China deal, the government is making extensive efforts to consult with Canadian business and with the public on their priorities and ongoing concerns as the exploratory talks progress. Participants were assured that tariffs, seen by at least one panelist as less of an issue, are not the solitary focus and that non-tariff and regulatory questions are key including quality restrictions, intellectual property, environment, labour, SMEs and government procurement, the latter of special importance given urbanization and perhaps One Belt One Road opportunities. There are lessons from Australia's experience, notably on post-agreement enforcement practices.

These considerations were further addressed in the fourth panel "Market Access and Reciprocity: Industry Perspectives". The discussion here focused on how the development of two-way trade and investment ties with China, though a FTA as well as through other means, can advance specific economic objectives of Canadians at home.

Expectations of Canadian business of this process will be high. Processes to safeguard against unfair trade practices or uneven capital access must be retained or even strengthened. Protections of intellectual property have improved but how well remains unclear. The outcome will have to include enhanced opportunity for value added access to the Chinese market.

It was agreed that investment conditions in both directions are pertinent. The FIPA notwithstanding, restrictions on investment in China including issues of national treatment remain of concern, as do issues of requirements for joint ventures and for technology transfer. In Canada, panelists questioned whether our investment, infrastructure or other policies were fully tuned to the imperatives of competing for Chinese markets and capital. Project approvals take "too long" it was feared.

In market development, there is room for upgraded effort. As one example, amid all the troubles facing us in the US, the Chinese wood market has grown 600 percent since 2010 and, with Chinese logging bans in place, building code changes underway, and special markets such as in tourism accommodation showing potential, the wood market growth is promising.

Summarizing and reflecting on the day's program, perhaps the major takeaway was a widely-shared optimism that Canada can move ahead with China and that indeed, "stars are aligned" at present. This favours the diversification that China represents and the FTA as a key vehicle in that path. This perspective will help sustain our efforts to advance and protect our interests through inevitably long, complex FTA talks. There is a sense of opportunity not to be missed in positioning Canada in the dynamic Chinese market and in highlighting Canada as an attractive destination for investment and as an economic partner in a rising variety of valued added sectors, both in goods and increasingly in services.

This account attempts to reflect the major themes of discussion as well as, where possible, areas of consensus offered by the Forum on Canada-China trade and investment relations going forward. In the interests of brevity, it does not pretend to cover all the excellent presentations of our high quality panelists and the many thoughtful and topical questions and comments from assembled participants.

Revised May 29, 2017