Summary Report

By Tom Alton, Policy Research Assistant, China Institute, University of Alberta

On May 24, 2019, the China Institute at the University of Alberta hosted its Ninth National Forum on Canada-China Relations at the Omni, King Edward Hotel in Toronto. The theme of the 2019 Forum was "Navigating Economic Engagement through Troubled Waters". Comprised of four panel-style discussions and a lunchtime keynote address, it convened a number of prominent current and former government officials, distinguished members of the academic/research community, and private-sector business representatives. This report recounts the Forum's main themes, ideas, and areas of discussion.

The first panel, Assessing Current State of Canada-China Relations - Are we in a Deep Freeze?, occurred against the backdrop of comments made by Lu Shaye, the Chinese Ambassador to Canada. On May 23, Ambassador Lu stated that relations between Canada and China were at "rock bottom" and had reached a "freezing point." Aptly titled, this panel explored the many complex factors, harsh realities, and potential future pathways of the Canada-China relationship.

Panelists noted that, just six months ago, the Canada-China relationship was viewed as relatively strong. The escalating U.S.-China trade war had opened up opportunities for increased Canadian exports and there were indications that both sides would look to pursue a trade agreement, in some form. Now, a deep chill (and maybe a deep freeze) has swept over the relationship with no end in sight and ongoing suffering for the Canadians detained in China.

Panelists largely concurred with the view that China is incredibly complex and dynamic - and that observers should never view it, or its policies, as singular or monolithic. This is especially relevant for Canada as it attempts to manage the ripple effects of Meng Wanzhou's arrest at the request of U.S. authorities. Meng's arrest, and the subsequent Chinese retaliation, quickly became both a political and economic issue. Although Canada has dealt with similar crises in the past and is raising concerns with the Chinese authorities, the government has made little headway, in part due to limited access to senior Chinese officials.

To this end, Huawei and Meng were frequent topics of discussion amongst the panelists. Huawei was seen as being closely related to China's core national interests. PRC leadership has long maintained close ties with the powerful company and Chinese public support is strong for Huawei. One panelist noted that Huawei attracts many, if not most, of the top graduates from key faculties at China's highest-ranked universities. Huawei is likely strong enough to survive a full on "tech decoupling" from the United States and other western countries. Attendees were left to ponder this question: if we can't beat Huawei, can we reform it?

Given that both the Chinese and American economies are performing well (at least on the surface), both sides are content to play "hardball." Both sides need a trade deal, but a lack of dialogue and hostile attitudes are driving both sides apart. With current tensions driving both sides to a Cold War-like impasse, does Canada want to be on one side or the other? This depends on your perspective, one person commented.

Canada, it was said, must make every effort to rally international support, raise the issue at every multilateral meeting/institution, engage in high-level dialogue with China, and work closely with allies in the United States. One panelist, however, was quick to point out that this is a complicated and uncertain path forward - there is little indication that China will be open to tangible dialogue while Meng Wanzhou remains detained in Canada. Canada cannot appear subservient to the United States - although the modern mentality of Canada is rooted in alignment with our American and European allies, boxing ourselves into traditional geopolitical alliances may not benefit Canada in the end. Attempting to turn "enemies into opportunities" could prove to be a more fruitful approach.

The second panel, Managing Economic Engagement in the Face of Cooling Relations, moved this conversation further, albeit with a more business-focused perspective. Panelists and audience members discussed the current China-Canada trade/investment relationship through the lens of current geopolitical tensions. As experienced members of the Canadian business community, the panelists provided relevant and compelling perspectives on the current crisis.

One thing is certain - current tensions are having an impact on Canadian companies operating in China according to recent polling conducted by the Canada China Business Council. According to the survey, almost half of Canadian companies have or may cancel or postpone business to China. Changes have also been observed in people-to-people exchanges, regulatory/visa approvals, the Canadian "brand", and general business confidence.

While noting that China under President Xi is more authoritarian, aggressive, and less open to dialogue than it once was, panelists generally agreed on the need for continued engagement between China and Canada. Chinese trade, investment (both inbound and outbound), tourism, and outgoing international students play a substantial role in the Canadian economy. One panelist stated that while trade and investment in certain areas (such as Canola) with China will undoubtedly suffer in the short term, companies may ultimately benefit from keeping their heads down, maintaining a low profile, and "doubling down" on China.

Yet, Canada's economic future with China is still unknown. One panelist stated that, in their estimation, the chill in relations will eventually subside and business interests will prevail. However, we live in a political world. The Canadian federal election in October 2019 will lead to complications. The incumbent Liberals have no room to slip and the Conservatives, if elected, may not present a better (or different) approach to China.

The outcome of external variables - namely the aforementioned Meng Wanzhou extradition proceeding, U.S. China trade war (including terms within the prospective trade agreement), and the terms of the new USMCA - will also determine the future of this relationship. Panelists acknowledged the potential complications for Canada arising from an unfavourable, one-sided U.S.-China trade deal. President Trump had the power to get allies to sign off on key issues, but instead chose to pick a fight and advance largely American interests.

The Forum also benefited from a lunchtime Keynote address by Dr. William Overholt, Senior Research Fellow, Harvard University China Centre. Dr. Overholt, speaking from the perspective of a scholar and policy advisor based in the U.S., greatly contributed to the overall context of current Canada-China relations. This may be a turning point in world history given the current collision course (and ongoing dispute) between a rising China and the established U.S. - both guided by Presidents with uniquely unprecedented leadership styles. Dr. Overholt emphasized that the "cold war mentality" advanced by the United States promotes a zero-sum game. Current axioms of power should not be assumed - China is likely on the verge of generational change. He stressed that the U.S. must accept the geopolitical reality of an equal power (in China), and China must decide if it is a great power or a victim. Continued engagement and reform, from both sides, should define future U.S.-China relations.

Building on an ongoing theme of the Forum, the third panel - Between the Two Global Powers - Implications of USMCA & Trade Frictions Between U.S. and China - explored American dimensions of the Canada-China relationship. How is Canada maintaining foreign policy independent of U.S. pressure? How will the U.S. constrain Canadian foreign policy moving forward? With these questions in mind, the panel explored the following:

• Geopolitical issues are increasingly framed in a binary sense, where countries are encouraged to align one with one "side" or the other. Should Canada hitch its wagon to one side, or attempt to move ahead of both? Countries may forgo economies of scale when they split into "two camps." Canada will likely be expected to show unbridled support for the U.S., but is this in the Canadian interest? Canada may not pick sides, and instead apply selective pressure where necessary.
• Conversely, it is may be important, given Canada-China tensions, for our government to disseminate Canadian views (in the U.S.) and advocate for American decision-making that does not negatively affect Canada. Canada, after all, is in a deep freeze because of the U.S. A clean resolution of the Meng Wanzhou debacle may require the U.S. giving Canada a "break" - and this may require working more closely with our American counterparts.
• The prospective U.S.-China trade deal, it was stated, is really a commodity purchase agreement from China with various commitments (from both sides) to remove tariffs and conduct some structural reforms. It involves a great deal of window-dressing and is oriented to the 2020 U.S. presidential election.
• Section 32.10 of the USMCA, which raises questions over Canada's ability to pursue a future trade deal with China, was described as being punitive towards Canada, even creating the notion that Canada is subservient to the U.S. One panelist stated that although this section may not be as bad as we think, it represents the new U.S. policy stance against China. American policymakers, namely President Trump and U.S. Trade Representative Robert Lighthizer, are now weaponizing instruments of international trade. Beginning in Trans-Pacific Partnership negotiations, China was framed as an adversary by the U.S. Although the U.S. used to divide geopolitical issues from trade issues, the new reality is far from this.

The fourth panel, Managing Opportunities and Risks - Technology and Security, shifted discussion to a more nuanced, but equally important, topic. Accelerated developments in the technology and security space work to complicate (and underscore) political and economic tensions. To this end, managing the multitude of risks (and opportunities) in this space, namely Chinese technology and investment, has become a timely issue in Canada.

It was noted that China invests heavily in R&D (with strong developments in indigenous innovation) and has moved up fast in the Global Innovation index, making it an enticing market for Canadian firms. Panelists acknowledged that while Chinese technology is cutting-edge, it carries a negative label in Western circles. Security breaches are a real concern, and to adopt and permit Chinese technology means may mean extra risk. Further, Canadian firms operating in China may fall prey to inadequate intellectual property protections and forced technology transfers.

Canada possesses a robust national security review process for foreign investment, yet elements of the process are opaque. National security risk determination is often subjective, as illustrated in the sale of Montreal-based ITF Technologies to China's O-Net. The current shift from "national security" towards "economic security" was deemed a critical and dynamic concept for Canada moving forward. Consumer, government, and military technology, once delineated, are now blending together, increasing security concerns. China is shifting the way we view economic security and Huawei is a critical test case. Future doctrines and policies should be global, strategic, and predictive.

Data is also a crucial issue that policymakers are beginning to grapple with. Although our applications for data are still underutilized and evolving, data has taken on a powerful role in the technology and security space. We are increasingly less able to control where our data flows, or how to manage/reconcile the intersection of investment and data. Data is currently not mentioned in the Canadian national security guidelines, while critical infrastructure and sensitive technologies are listed.

Huawei remained a popular topic of conversation amongst the panelists, as its connection to 5G development in Canada is an ongoing issue. Where will Canada's 5G infrastructure come from? Although a Huawei "ban" is on the table, the door is still technically open for Huawei to operate in Canada. Could the Chinese state ask Huawei to conduct intelligence gathering? Would Canada be denied intelligence by Five Eyes partners because we possess Huawei 5G technology? China has been caught rerouting Canadian internet traffic - would they take over our critical infrastructure? These questions remain unanswered. It was stated that "while no one wants a doomsday scenario, it is sensible to be cautionary"

Given the current state of Canada-China diplomatic relations, the Forum provided a timely platform for expert-level discussion and dialogue on relevant policy issues. While Canada and China have a long history of diplomatic, people-to-people, and business ties, recent political developments have shifted the relationship into uncharted and volatile waters. Open dialogue and debate is crucial, given the many moving parts of the relationship. This summary does not attempt to capture every question, point, or argument made throughout the day. Rather, it highlights the forum's principle themes, concepts, and threads of discussion.