Canada should have clear China strategy - no matter what it is: CCBC

Despite what appears to be growing animosity in the West towards Beijing over the handling of the COVID-19 outbreak, Canadian companies “should be poised to make the best” of new opportunities in the Chinese market as China gets back online.

That is the finding of a business-impact survey issued Friday by the Canada China Business Council, whose members are urging Ottawa to issue a specific strategy to provide industry with a clear direction of how to grow markets in China for Canadian firms.

“Canada remains a long-term non-political supplier of high-quality goods and services to China,” said CCBC president Graham Shantz in a statement. “China is a key, growing market to diversify Canada’s economic interests. China’s government is currently working on its next five-year plan… Canadian companies, educational institutions and governments need to be ready.”

The poll was conducted in conjunction with the Rotman Institute for International Business in Toronto from Feb. 20 to March 14 among 282 respondents, including some companies with CCBC membership. Canadian firms comprise 87% of the respondents, while Chinese firms made up the other 13%.

And while the results unsurprisingly pointed to COVID-19 being a “significant impediment” to business with China in early 2020, the survey also found that significant headwinds were already developing prior to the pandemic. CCBC executive director Sarah Kutulakos said results showed 43% of respondents said business was down after a record year in 2018, while 79% said the ongoing political situation between Canada and China has impacted their operations in some way.

“In 2018, we have had this great situation,” Kutulakos said. “Exports were flourishing, bilateral relations were going great, we had an economic and strategic dialogue in November 2018, and I think everybody would have agreed that relations were the best they have been in a decade. And then, all of a sudden in December, everything changed.”

On December 1, 2018, Huawei Technologies Co. Ltd. CFO Meng Wanzhou was arrested at Vancouver International Airport on a U.S. extradition request, triggering a deep freeze in Canada-China relations - including the arrests of Canadians Michael Korvig and Michael Spavor, as well as bans to Canada canola and red-meat exports, both of which have been interpreted widely as Beijing’s retaliation for Meng’s detention.

Kutulakos said members reported “an overall greater cancellation and postponement of travel, disruption to business development, interruptions to signing deals and contracts,” as well as decreasing demand for products and services in some cases. About 51% of respondents saw Chinese deals postponed, and 40% saw deals cancelled outright.

Worse yet, the COVID outbreak has essentially stopped all travel between the two countries, meaning new business development discussions - especially in a Chinese culture where personal interaction is key - are now almost impossible to conduct.

“People have said they’ve put off negotiating deals with Chinese companies because they couldn’t travel to do it - in a culture where face-to-face interaction is so important,” Kutulakos said. “We’ve had members in 2019 that said they weren’t travelling to China until [the Meng incident] is resolved: ‘I don’t like the fact people are being arbitrarily detained, and I’m concerned about my own welfare. I’m not going.’

“Now, with the COVID issue, even if people want to go, they can’t.”  

The challenges have lead to 33% of respondents - all Canadian companies - saying they will put China on low-priority in their global plans. That’s despite 43% of respondents continuing to say they are optimistic about their business endeavours in China in the future. The hardest hit sectors are travel/tourism, government/non-profit, professional services and transportation/aerospace/automotive.

But despite the overall gloomy picture, the poll also showed only 5% of responding companies plan to replace the Chinese market with that of another country. That, Kutulakos said, reflects the reality of what the Chinese market is.

“When you look at [Canadian] exports to China versus every other Asian country, we had Indian exports at about 1/10 of Chinese export levels in 2015,” she said. “That was when our exports to China was smaller; the fact is, you have to add up a lot of small Asian countries to reach the potential that China brings. And some of China’s supply chains are extremely sophisticated.”

Kutulakos added that - since China has reopened its economy sooner than much of the West after COVID-19 - that Chinese business opportunities may now be more attractive to Canadian companies looking for economic recovery.

She acknowledge that how to deal with China moving forward is a highly divisive topic; even members are evenly divided between those who want closer ties and those who want to take a stronger stance against Beijing. What would help from Ottawa, Kutulakos said, is a clear message of what Canada’s China strategy is.

“A lot of people are very concerned and offended by some of the things that the Chinese government has done,” she said. “And then we’ve had Chinese partners ask if Canada is just part of the U.S., or do we have our own sovereign strategy. So the call is for something clearer, even if it ends up being something that business doesn’t like, because the lack of clarity leads to uncertainty - and that makes it hard to do business.”

China remains Canada’s second-largest trade partner.