B.C. exporters feel chill in Canada-China freeze

Seafood, wine and other sectors vulnerable in escalation of Ottawa-Beijing dispute

A seafood market in Qingdao, China. About 80% of B.C. wild seafood exports are bought by Chinese consumers, says BC Seafood Alliance executive director Christina Burridge | Pataporn Kuanui/Shutterstock

For some of B.C.’s largest export sectors, a potential disruption of trade with China – the spectre of which has risen after the arrest of Huawei Technologies Co. Ltd. CFO Meng Wanzhou last December – would be severe if not catastrophic.

That is the view from several B.C. officials in industries such as forestry, seafood, wine and international education, where efforts to diversify their markets beyond the United States, as promoted by Ottawa and the provincial government in the last decade, have helped build deep links with China’s economy as the latter grew to become Canada’s second-largest trade partner.

“I think that would entirely be the case,” said BC Seafood Alliance executive director Christina Burridge on China being an almost irreplaceable export market for local producers. “The reason why China has replaced Japan as the No. 2 market for seafood in B.C. is because China is prepared to pay higher prices. It’s not just losing a market, but losing a market that’s willing to pay top market price to get a product.”

According to Statistics Canada, total monthly merchandise exports from B.C. reached $4.27 billion in August 2018, with $2.27 billion going to the United States. China accounted for $604 million during that same month.

But exports in certain sectors typically are much more dominated by the Chinese market beyond China’s typical 15% to 25% share of B.C. exports. China, for example, accounted for 20% of total B.C. seafood exports in 2017 (valued at $257 million), but that number leaps to 60% to 70% if one item – farmed salmon, sold predominantly along the I-5 corridor along the West Coast – is taken out of the equation.

“China takes up around 80% of B.C. wild seafood exports, maybe more,” Burridge said, noting that the proliferation of direct flights from Vancouver to secondary Chinese cities like Qingdao, Hangzhou and Kunming has opened vast portions of China’s previously inaccessible interior to B.C. products. “Geoduck exports were up 50% in 2017 over 2016. Sablefish was up 24%. And a lot of that is China-driven. Export of crabs from B.C. was $131 million, and much of that was from China.”

The Chinese market is also equally vital to B.C. wines. According to the British Columbia Wine Institute, about 84% of the province’s $9.3 million bottled wine exports went to China in 2015. The reason, said international trade adviser and wine industry expert Allison Boulton, is that China has a large and growing consumer base that’s willing to pay the average price of $30 per bottle for Canadian wine – and local winemakers have done a good job cultivating Canada’s brand to attract business.

“B.C. wine is premium, and that’s where our future lies,” Boulton said. “That’s good for our economy, because we are not going to compete on price…. People in the U.S. have been drinking wines for decades, and I think while there are places in the U.S. where there are people moving away from spirits and into wine, we double down on China because you get both an increase in population and an upswing on trend.”

But Boulton added that the 84% number makes observers like her “nervous.” She noted that the current trade war between Washington and Beijing has resulted in California wines being heavily hit by Chinese import tariffs, and trade situations can change very quickly – especially if geopolitical factors arise.

That’s why, Boulton said, B.C. wine producers should consider exploring markets like Great Britain, the European Union, Australia, New Zealand, Singapore and Japan if extra wine is available beyond the stock committed to the Chinese market, since developing a new export destination from scratch will take at least six months – and likely more.

“There’s a lot of eggs in one basket,” she said. “That’s why the Canadian government is doing so many trade deals, because over 70% of our exports go over to the U.S., and we need to diversify.”

The situation is similar with the international education sector, where BC Council for International Education executive director Randall Martin said Chinese students account for about 30% to 40% of B.C.’s $4 billion industry.

“So we might be in the ballpark of over $1.5 billion of direct economic impact to British Columbia from Chinese students,” Martin said. “There will never in our lifetimes be another China.”

Official federal figures show there were 143,000 Chinese student permit holders in Canada at the end of 2018, with about 48,000 in B.C. as of 2017. Martin noted, however, that those numbers are likely conservative, as Chinese students – unlike those from India, another major origin market – are spread evenly over a wide age range, from K-12 to post-secondary and graduate studies.

As for one of B.C.’s biggest exporters to China, the forest products sector, a top official said she remains optimistic despite the risk of Ottawa’s relationship with Beijing deteriorating as the Meng extradition case to the United States progresses.

“It’s not the only place where we have, from time to time, difficult trading issues,” said Susan Yurkovich, president and CEO of the Council of Forest Industries. “I mean, we’ve had trade issues with the U.S., too. It’s part of being in an export industry in an export country, and you are going to run into complications from time to time. We have to find a way to work through them.”

China is again the second--largest destination for B.C. wood-product exports, taking up about 25% of the total (export values reached $326 million in August 2018, compared with $693 million to the United States during that same period). But Yurkovich said the country’s demand for higher-density and institutional wood buildings, and a renewed focus on green housing, means that B.C.’s forest sector will continue to treat China as a priority market.

“We really started in China with low-grade [exports],” she noted.  “It was to find a home for a lot of the wood impacted by the mountain pine beetle. What we are doing now is moving up the value chain, putting wood into manufacturing and different applications, and we are seeing that market mature. It’s still a price-sensitive market, especially when you see the depreciation of the ruble, which made [Russia’s] products relatively cheaper, and of course that’s an issue. But we are really trying to move up the value chain and looking at other applications, which are different than what we had in the beginning.

“I know there’s lots of stuff happening between Canada and China, but what we see is that we’ve built strong customer relationships in China, and we are committed to that market. We are going to continue to focus on that market moving forward, no question.”