Canada-China relations enter uncharted waters

Opinions differ as to what happens now in the wake of Meng Wanzhou’s release

Huawei CFO Meng Wanzhou leaves her Vancouver residence September 24 shortly before her extradition case was discharged | Chuck Chiang

So the Meng Wanzhou saga is over. What now?

That is the question that many Canadians are pondering, now that the Huawei Technologies CFO has returned to China after reaching a deferred prosecution agreement with U.S. authorities that ended a three-year extradition fight in Vancouver and Michael Kovrig and Michael Spavor – the two Canadians held by Chinese authorities since Meng’s December 1, 2018, arrest – are back in Canada.

BIV spoke to three experts – all with extensive experience doing business with, and in, China over the past few decades. The only agreement, it seems, is that Canada’s fractured relationship with its second largest trading partner will not magically revert to pre-2017 levels overnight. Beyond that, the experts expressed dramatically different views of how Meng’s release affects the future path of Canada-China ties.

Sarah Kutulakos, executive director and COO, Canada China Business Council

The speed at which the Meng case resolved itself on September 24 caught most observers off guard, including Kutulakos.

While she agreed that there will not be an immediate bounceback of Canada-China relations following the nadir that has been the last three years, she noted that the Canada China Business Council’s (CCBC) membership is optimistic about the development and what it means for the business community.

“It is fabulous news because it opens the door to the resumption of normal economic and trade – as well as just bilateral – relations,” Kutulakos said. “Not everything stopped while this dispute was in play; however, anything that had links to positive bilateral relations – whether you need government support or for a Chinese business partner to be assured about working with a Canadian company – that did get affected.”

Kutulakos is especially hopeful that, with the Meng case out of the way, Ottawa and Beijing can discuss the export restrictions facing canola in the Chinese market. Meanwhile, she noted that longer-term planning for how to engage the Chinese market, which had been derailed by the Meng case, can now resume without the uncertainty caused by the detainment.

Kutulakos acknowledged that Canadians’ opinion of China has soured since the Meng case started because of the arbitrary arrests of the two Michaels. But she also noted that a large number of Canadian businesses have big stakes in the Chinese market, whether as exporters or importers. For those companies, the resolution of the Meng extradition is good news regardless of the scale of immediate impact.

“What we have found was, if you are in line with China’s policies – whether it’s the Five-Year Plan, Healthy China 2025, and the increased consumption – you are feeling pretty good about China,” Kutulakos said. “A lot of people’s business in 2020 shrank because of COVID, but their China business did not because that market kept growing.”

Margaret McCuaig-Johnston, former member, Canada-China Joint Committee on Science and Technology

The CCBC’s optimism isn’t shared by another veteran of Canada-China affairs. McCuaig-Johnston has worked on the China-Canada tech sector file since 1979 and was a self-described “friend of China” before Beijing’s policies under current president Xi Jinping became more aggressive, including Huawei’s push onto the global 5G stage.

For McCuaig-Johnston, the resolution of the Meng case clarified Beijing’s position of using hostage diplomacy to resolve disputes – demonstrated in China’s decision to release the two Michaels almost immediately after Meng’s case was dismissed.

“What China has done is it sent a message to every country in the world that, yes, this is a hostage-taking,” McCuaig-Johnston said. “Every other country is now on notice that, if they step out of line from what Beijing wants, their citizens could be detained in the same way. That’s a very serious message to be sending, and that makes it even more important for all like-minded countries … to collaborate and come up with ways to confronting China so they can’t get away with this.”

On whether Meng’s return means a temporary thaw of Canada-China ties, McCuaig-Johnston was equally blunt.

“It will never go back to where it was before. Canadians will never forget what Beijing did in taking innocent Canadians hostage. I personally will never go back there, and I’ve been a friend of China since 1979; this kind of behaviour is unacceptable from a country in 2021.”

She also noted that the arrest of the two Michaels in late 2018 has created a massive chill in the ecosystem of Canadian executives living in China.

The Canadian Chamber of Commerce in Shanghai, for example, was unable to hold board meetings in the wake of the arrests because so many top-level executives and board members packed up and returned to Canada. With COVID restrictions now in place, most of those executives continue to do business remotely from the safety of their Canadian homes, McCuaig-Johnston said.

With Ottawa now likely to rule on Huawei’s role in Canada’s 5G network development in the coming weeks, McCuaig-Johnston said she supports the ideas being introduced by the likes of former Canadian ambassador to China Guy Saint-Jacques. They include the creation of trade alliances among democratic countries to fend off economic punishments dished out by Beijing as priorities for Canada’s trade policy towards China.

Hugh Stephens, senior fellow at the Asia Pacific Foundation of Canada

For Stephens, the talk of completely shutting off – or even dramatically reducing – links to China in favour of engaging new partners in the wake of the Meng saga isn’t realistic.

“China continues to play an outsized role in global supply chains, and it continues to be an important export market for certain commodities. Neither of those roles are easily replaced.”

Perhaps surprisingly, Canada-China trade has increased since the pandemic started while the shadow of the Meng case persisted. Statistics Canada data shows Canadian exports to China spiked by 37.8% in 2021’s first quarter, while imports also rose 32.3%.

That contrasts sharply with the slow growth or decline seen in trade with other markets.

Stephens noted China has its own economic concerns, including recent reports of widespread power outages stemming from a shortage of coal and growing capacity bottlenecks in facilities like ports.

But it does not mean China’s economic scale will not continue to play a crucial role in global economics, he added, and it is unlikely any market – on its own or in a collective – can replace it.

“I don’t think anyone believes China is beyond the laws of gravity when it comes to economics, but you can’t just suddenly displace an economy the size of China with a multiplicity of trade agreements with smaller partners,” Stephens said. “We have to find a working relationship.

“That’s the million-dollar question: How do you balance our values and the economic impact?

“That involves taking into account the removal of this irritant [the Meng case], but also everything that has happened in the last three years. That’s not something you can just wish away; it’s there, it’s real, and it has had a huge impact on Canadian businesses and public opinion.”

Stephens doesn’t see any significant resumption of relations between Canada and China in the near future.

“I think the way I’d put it is, the logjam has now been removed, but that doesn’t mean the water will begin to flow rapidly or smoothly anytime soon.”  •