Canada-China Trade: Q3 2022

Q3 2022 saw a rebound in Canadian exports to China and further growth in imports from China into Canada. Overall, imports increased more than exports, which caused the Canada-China trade imbalance to widen. However, the return of year over year (YoY) export growth in Q3 2022, signals some recovery from the disrupted export activity that took place during the first half of 2022, in which exports fell YoY. This brings 2022 Canada-China trade more in line with previous years after an outlier first half of the year, in which exports were falling compared to previous years.

The following data is gathered from Statistics Canada for goods (merchandise) trade with China, presented on an unadjusted customs basis in Canadian dollars (CAD). The relevant HS 4-digit identification code is used to identify product groups. All values are in Canadian dollars (CAD).[1]

Canada-China Trade: 2022 YTD
Source: Trade Data Online (Statistics Canada – Customs Data)

Exports:

Canadian exports to China began rebounding in Q3, however the overall year to date (YTD) total is still 7.90% less over the same time period in 2021. However, the total value of exports was greater than it was in the first 9 months of 2020 and if the current trend of increased export growth seen between July – September continues, there may be positive growth by year’s end. In relation to overall trade, exports still lagged compared to the 28.47% growth in other trading partners and remains an outlier when compared to the overall 26.83% in Canada’s total exports.

Source: Trade Data Online (Statistics Canada – Customs Data)

Exports to China were up all three months of Q3 with continued growth month over month: beginning with marginal growth in July (0.8% YoY) followed by more modest growth in August (4.9% YoY) and followed by a large jump in September (16.9%).

Continuing the trends from the first six months of 2022, Canada’s top export category (by value) to China from January to September was Coal and Solid Fuels Manufactured from Coal ($2.92 billion, +40.46% YoY). The second and third top exports, Iron Ores and Concentrates ($1.55 billion, -26.67% YoY) and Chemical Woodpulp ($1.54 billion, -15.33% YoY), both contracted year over year (YoY). However, the fourth and fifth top exports saw growth, with tremendous growth in Potassic Fertilizers ($1.17 billion, 331.60% YoY) and minor growth in Copper Ores and Concentrates ($975.35 million, 2.81% YoY).

Imports:
Source: Trade Data Online (Statistics Canada – Customs Data)

Continuing with year over year trends, imports from China between January and September of 2022 grew 21.93% compared to the same time period in 2021. This growth was only slightly lower than the growth in imports from other trading partners of 22.76% (YoY) and the overall growth of all imports of 22.65% (YoY).

Source: Trade Data Online (Statistics Canada – Customs Data)

All three months of Q3 saw significant year-over-year increases in imports from China, with July being the highest of year so far (29.4%, YoY) and with comparatively smaller but still substantive growth in both August (26.4%, YoY) and September (20.1%, YoY).

Keeping in line with the first six months of 2022, the top import group was Telephone and Communication Technology ($6.28 billion, 12.17% YoY) and Automatic Data Processing Machines ($6.09 billion, 6.05% YoY). However, in Q3 these imports swapped positions for top spot with the former overtaking the latter. All top five imports saw growth, including Motor Vehicle Parts ($1.73 billion, 23.44%) which was the third largest import category and had the highest growth of the top imports. Furniture ($1.47 billion. 5.88% YoY) and Seats ($1.37 billion, 3.30% YoY), were fourth and fifth, respectively. 

Canada-China Trade: Last 24 months 

Source: Trade Data Online (Statistics Canada – Customs Data)

Q3 2022 Canada-China Trade: By Province/Territory

Source: Trade Data Online (Statistics Canada – Customs Data)

Trends & Topics in Canada-China Trade

China Sticks to Covid-Zero Despite Mounting Domestic Problems

One of the largest factors in understanding Q3 Canada-China trade was the COVID-Zero policy China continued to implement for the entirety of Q3. While the policy has since changed dramatically in November and December 2022, during Q3 the policy remained in full force. Our next update will go into the protests and China’s evolving approach to COVID-Zero in-depth, but the seeds of discontent around COVID-Zero can be found in Q3 2022. 

Much like the first six months of 2022, Q3 saw major COVID-Zero lockdowns all over China. Lockdowns were so strict that despite a 6.8 magnitude earthquake occurring nearby, entire cities such as Chengdu continued to be locked down, with residents being prevented from leaving their homes. In Xinjiang, residents waited in long lines to buy food as some regions faced tight restrictions on how frequently residents could buy groceries. During China’s mid-autumn festival in September, an estimated 65 million people were under lockdown. These restrictions also meant that less people were eating out and buying other goods, thus broadly slowing domestic economic activity. 

Throughout Q3, growth predictions kept getting downgraded not only by major banks and global financial institutions, but also by the CCP itself. COVID-Zero was not the only driver of decreased economic activity, though undoubtedly it was a dominant factor. Other critical issues in China’s domestic economy continued to hold back growth, chief among them being housing development and youth unemployment. While Q3 saw some much-needed regulatory and stimulus measures by the government to contain the housing crisis, a housing bubble still looms in China. Citizens have become so discontent that many have taken to boycotting mortgage payments until development resumes on promised homes. Adding to the concerns of affordability of housing to average citizens is the soaring youth unemployment, which not only puts home ownership out of reach but in many cases makes employment itself unattainable too. In July, youth unemployment hit 19.9%, a record high, leaving many citizens pessimistic about their economic future, further debasing consumption. 

Finally, and perhaps most relevant to Canada-China trade, were lockdowns in major industrial hubs such as Shenzhen where many of China’s tech hubs were locked down. While many factories have “closed loop” strategies where workers live on-site at factories, even these were not enough to prevent contractions in factory activity. In July, manufacturing activity contracted, indicating that despite their best efforts, COVID-Zero restrictions still affected factory output. However, both August and September saw a rebound in manufacturing activity with expansion rather than contraction. These trends in factory manufacturing also mirror those in exports to China, which grew YoY in Q3. Interestingly, imports from China into Canada saw constant growth indicating that these factory contractions and lockdowns did not necessarily affect Chinese goods heading to Canada. Overall, COVID-Zero continued to have a negative effect on Canada-China trade in Q3, however with less impact than previous quarters as consumption and factory activity picked up in September. 

Taiwan and Global Tensions Strain Canada-China Relations

On August 2^nd 2022, then-Speaker Nancy Pelosi arrived in Taiwan. As Speaker of the House of Representatives, she was the highest-ranking US official to travel to the island since 1997, when then-Speaker Newt Gingrich visited. Pelosi met with Taiwanese president Tsai Ing-wen during her visit, where Pelosi stated “Again, our delegation came here to send an unequivocal message: America stands with Taiwan.” The visit drew immediate condemnation from the People’s Republic of China (PRC) who viewed the visit as a violation of their sovereignty. Shortly after the visit, the People's Liberation Army (PLA) conducted live fire military exercises around the island. In addition, the PRC also imposed fruit and fish sanctions upon Taiwan. In regards to the US, China cut off dialogue on climate action with the US and reiterated that the US should not intervene in its domestic affairs.  

Pelosi’s visit was not contained to a bilateral spat between the US and China, and soon the global community began taking sides, including Canada. Foreign Minister Melanie Joly called upon China to de-escalate the situation and said that diplomatic visits “cannot be used as a justification for heightened tensions or a pretext". Later in August, it was revealed that Canadian Members of Parliament planned a trip to Taiwan for October to which China responded that it would take “forceful measures” if Canada interfered in Taiwan. While the Canadian Parliamentary delegation arrived and left Taiwan without any incident, the anticipation of the trip further chilled China-Canada relations in Q3 after a contentious few years. 

In addition to Taiwan, China’s position on other global issues of concern, specifically the war in Ukraine, have further strained Canada-China relations. While China has begun to distance itself from its previously stated “No Limits” relationship with Russia, the continued close relationship between the two countries has strained Canada-China relations. A September meeting between Xi and Putin, along with joint military exercises, have contributed to the narrative that China and Russia are becoming an anti-western alliance which in return fuels anti-Chinese sentiment in Western countries. Adding to this narrative is Russia’s increasing reliance on China as a trade partner as Western sanctions continue to bite. Many of these trade products, such as agriculture and coal, are in direct competition with Canadian exports, but are often offered by Russia at a large discount due to its inability to trade with many western countries. As the war in Ukraine stretched on into Q3, it continued the trend of increased tension in the China-Canada relationship as China is perceived as an increasingly disruptive and challenging global power. 

Domestically in Canada, public sentiment towards China has soured to historic levels, with 74% of Canadians shown to have an unfavorable view of China in recent Pew polling. News in late September that China was operating “police stations” in Canada has done little to increase favourability among Canadians. Not only does the general sentiment of Canadians towards China have a direct impact on Canadian consumers’ preferences for Chinese goods and branding, more importantly it also impacts what stances politicians feel they can hold towards China. Over the course of Q3, Canadian politicians have taken an increasingly hawkish stance towards China. Critically these trends are not only seen in the Liberal party but members of both the NDP and Conservative parties have called for tougher stances on China, specifically as it relates to their treatment of the Uyghurs. Even the appointment of Jennifer May as the new ambassador to China with a mandate to ease relations did little to thaw tensions. 

While the direct impacts on Canada-China trade were limited in Q3 (though freight costs through the Taiwan Strait went up), the tensions around Taiwan point to growing tensions between Canada and China in general. Increased tensions between China and US allies have hurt investor confidence on both sides of the pacific, as the potential for conflict over Taiwan increases the riskiness of any investment. A general sentiment in both Canadian and Chinese media is that investment into the other country is becoming riskier. Furthermore, fears of politically-motivated investment barriers actualized in November when Canada ordered three Chinese firms to divest from select rare mineral projects. Further analysis of this and Canada’s newly announced Indo-Pacific Strategy can be found in the next update. 

[1] Please note that some sums and percentage points may not add up perfectly on tables and graphs due to rounding.