Following the June 2010 meeting between Canadian Prime Minister Stephen Harper and Chinese President Hu Jintao in Canada, officials from both countries jointly undertook a study to provide an analytical basis to evaluate potential bilateral economic complementarities in a selected range of sectors. Economic complementarities are defined as the interests and requirements of one country that can be matched with a capacity to supply in the other country.
The study’s completion helps to set the stage for the two countries to launch exploratory discussions on further deepening our trade and economic relations, as announced by the two leaders during Prime Minister Harper’s most recent visit to China in February 2012.
Canada and China are strong trading nations. For both, external trade is integral to past and future economic growth. Today, China is Canada’s second-largest trading partner, while Canada ranks 13th among China’s trading partners.
In addition to increasing two-way trade in goods, services and investment, people-to-people ties have never been stronger, with substantial annual increases in the number of visitors and students to each other’s country. Extensive government-to-government cooperation is also reflected across a broad range of priority areas.
The study covers seven sectors—reflecting specific interests on one side or the other—in which growth opportunities appear to be strong. While not exhaustive in scope, the study provides a broad basis of analysis on bilateral economic complementarities. As with any comprehensive trading relationship, Canada-China trade and investment relations can be enhanced. The study therefore also examines barriers and challenges to growth in these sectors.
Key findings of the study are:
Agriculture and agri-food (including fish and seafood)
Canada and China are both significant producers and exporters of agriculture and agri-food products, with distinct supply and demand profiles. Growth opportunities extend well beyond two-way trade in goods and investment. Government and industry on both sides are increasingly cooperating on technical and scientific exchanges to assist China in addressing domestic challenges and to advance third-market opportunities for both countries. On the challenges side, trade barriers include tariffs, regulatory measures (e.g. sanitary and phytosanitary measures) and delays in resolving market access issues arising from administrative capacity constraints.
Clean technology and environmental goods and services
The clean technology sector is an innovative and rapidly growing sector globally. The Canadian side is dominated by small and medium-sized enterprises (SMEs), which, despite their technological innovations and commercially viable solutions, often face challenges related to their relatively small size, such as access to capital and concerns regarding intellectual property rights protection. China has a keen interest in this sector, highlighting in its most recent Five Year Plan the role of clean technology in addressing growing domestic environmental challenges. In addition to bilateral trade in clean technology goods and services, Canadian and Chinese partnerships could help meet the increasing worldwide demand for cleantech solutions.
Machinery and equipment
Two-way trade in this sector has exhibited strong growth over the last decade. Canadian technology and know-how complements Chinese production needs and demand, especially in the area of agricultural and mining equipment as well as related services. Advancing cooperation in this sector would offer Canadian companies increased export opportunities. Concerns about intellectual property protection, standards and certification requirements, and remaining applied tariffs may be hindering growth in bilateral trade in this sector.
Natural resources and derived products
Canada and China have abundant natural resources and are leading global traders in this sector. China is facing supply-side pressures when it comes to certain commodities, making it difficult to meet the demands of its rapidly growing economy. Canada is well positioned as a reliable supplier to meet China’s needs and to provide innovative solutions for the sustainable use and efficient management of China’s natural resources. In Canada, China’s growing interest in natural resources is adding to the diversity of investment sources available to develop capital-intensive Canadian natural resources projects. To take advantage of complementarities in this sector, further improvements could be made to the clarity, efficiency and predictability of inward investment-related regulations, the compatibility of certification systems and the expediency of approval processes on goods such as equipment.
Services are an important and growing component of the Canadian and Chinese economies. They represent an essential source of growth in a competitive, knowledge-based world market. While the scope of services trade between the two countries is significant, there is potential for this relationship to grow even further. China’s steady economic growth and projected infrastructure expansion will likely lead to strong demand for key services sectors in which Canada has leading expertise. China’s services sector is growing rapidly, and Canada is able to export best practices that would be helpful to such a developing industry. Furthermore, the people-to-people connections that already exist between Canada and China will further facilitate bilateral trade in services.
Textiles and related products
Canadian textile and apparel manufacturers are increasingly focusing on high value-added products and depend on sales to export markets to remain viable. China has made significant advancements in the textile and apparel industries over recent years, becoming a world leader in some subsectors. China’s current Five Year Plan highlights the importance of continued textile industry development. Canada and China have complementary capacities in textiles, each producing goods for different market segments. Specifically, Canada’s strength in engineered textiles can be incorporated into China’s value chains to serve both its domestic market and global markets, while Canadian branded and technical apparel product offerings can serve China’s increasingly discerning customers. Similarly, China’s wide variety of textiles and apparel can be used to meet Canadian demand in sectors where there are no longer Canadian manufacturers.
Transportation infrastructure and aerospace
These two sectors occupy a strategic place in the two countries’ economies, not least because of the critical role they play in facilitating the movement of goods and people. Opportunities exist for Canada and China to collaborate on the development of safer systems for China’s growing transportation infrastructure networks. Given their complementary expertise, Canada and China could also cooperate on infrastructure projects in third-country markets. Canada is a world leader in aerospace technology and research and development capacity. These strengths, combined with the Canadian industry’s diversified manufacturing and internationally recognized regulations, are assets that can complement Chinese needs and goals to develop world-class aerospace products.
Since Prime Minister Stephen Harper and President Hu Jintao met in June 2010, the bilateral economic relationship has continued to gain momentum, with trade and investment expanding rapidly. Robust growth in bilateral merchandise trade was sustained throughout the recent global economic crisis. The stock of foreign direct investment into Canada from China reached approximately US$10.7 billion at the end of 2011, representing a 36-fold increase in the last 10 years. Chinese statistics put the stock of Canadian foreign direct investment in China at approximately US$8.3 billion in 2011.
Notwithstanding these impressive gains, bilateral trade and investment represent a surprisingly small proportion of each country’s total international activity. There is room for much growth. This study provides a starting point for bilateral discussions on getting there.