Canada’s $2.3B Asia strategy leaves businesses room to deal with China

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Prime Minister Justin Trudeau’s long-awaited Asia strategy will allow Canadian companies to continue to engage with China, alleviating fears in some corners of the business community that the West’s decision to go on the offensive against Beijing could force multi-national companies to abandon an economy that is on track to supplant the United States as the world’s biggest market.

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“I will continue to support businesses that are operating in China, but we also want to diversify our supply chains,” Trade Minister Mary Ng said after she and three other cabinet ministers unveiled Canada’s first-ever Indo-Pacific Strategy at the Port of Vancouver on Nov. 27.

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Ng added that the government would be “focused on making sure that Canadian businesses get the right advice about doing business in China.”

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The 26-page document, which has been in the works for at least two years, comes amid growing tensions between the United States and its democratic allies and President Xi Jinping’s regime, which has adopted a more authoritarian stance, the opposite of what Western powers expected when they cleared a path for China to join the World Trade Organization in 2001.

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The Trudeau government said it will spend $2.3 billion over the next five years to deepen its ties with a region that’s expected to host a third of the world’s middle-income population by 2030 and half of the global gross domestic product by 2040. The biggest chunk of that money will fund defence and security initiatives, including $493 million so the Canadian navy has adequate resources to participate in regional military exercises.

Some $180 million was set aside for various trade initiatives, including $45 million to revive the Team Canada trade missions that were a feature of Jean Chrétien’s trade policy in the 1990s, and $32 million to create an Indo-Pacific Agriculture and Agri-Food Office that will have a mandate to get Canadian food into more markets.

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The government aims to “increase the impact of Canadian businesses” in the region and support them in an “aggressive way,” Ng said.

An ‘A’ on China

While the document talks about engaging with the region’s 40 nations, a major portion of the strategy focuses on how Canada will negotiate with China, the largest trade partner for most of the countries in the region, at a time when the U.S., the bigger European economies and Canada are looking to shift their industries’ supply chains away from the Asian giant and towards friendlier nations.

The strategy states that China’s rise, “enabled by the same international rules and norms that it now increasingly disregards” has had an enormous impact on the region. But the country’s size and influence make “co-operation necessary” to address issues like climate change, biodiversity loss, global health and nuclear proliferation,” the document added.

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Goldy Hyder, president of the Business Council of Canada, a lobby group made up of the leaders of the country’s biggest companies, said he was glad the government didn’t ask the business community to avoid specific nations. “That would have been counterproductive and harmful to our customers,” he said.

During the lead up to the Indo-Pacific strategy, Ottawa ordered three Chinese companies to divest their investments in three Canadian junior lithium miners, after the federal government raised the bar foreigners must clear to join Canada’s critical minerals industry under the Investment Canada Act.

Those decisions followed a a high-profile speech by Deputy Prime Minister Chrystia Freeland, in which she endorsed “friendshoring,” a concept introduced by U.S. Treasury Secretary Janet Yellen that would see democratic nations attempt to isolate countries such as China and Russia by using trade agreements and regulation to realign supply chains in favourable directions.

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The Indo-Pacific Strategy states that Canada will “continue to strengthen” its defence against “foreign interference” while continuing dialogue with China, but “friendshoring” doesn’t appear.

Carlo Dade, trade director at the Canada West Foundation, a think-tank, said the government did the right thing by keeping China in the “centre” of its Asia strategy.

Even if you try to run away from China, you run into China

Carlo Dade, trade director, Canada West Foundation

“I would give them an ‘A’ on China,” Dade said. “The point about China is, even if you try to run away from China, you run into China,” Dade said. “China is the dominant economic influence, so you have to understand how its policies impact the countries you are trying to trade with.”

Dade added: “It’s not about trying to sell stuff to China but it’s about trying to survive in a region where China is the dominant economic influence.”

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‘Big miss’ on energy

Hyder, who is currently in India for a series of business events, wondered whether the Trudeau government had done enough to make a serious impression. He said countries such as India, South Korea and Japan need natural gas and the absence of Canada’s liquefied natural gas projects from the strategy was a “big miss.”

“The prime minister and deputy prime minister both have said that they need to identify and expedite projects to get resources to markets to help other countries decarbonize and get off autocratic oil and gas,” Hyder said. “This was a chance to send that message and it failed to do so.”

While the strategy does include a $13.5-million investment over five years to expand its natural resource ties with the region, Hyder called the amount “a rain drop falling in the ocean.”

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Eric Miller, president of the strategy firm Rideau Potomac Strategy Group, a consultancy based in Washington, D.C., echoed Hyder’s sentiment. He said it appears the Canadian government is wary of having to face environmental groups and tell them “we don’t have enough renewables in place” to offset Asia’s use of coal in the short term.

Natural gas is considered cleaner than coal because of its relatively low carbon emissions, and many in the oilpatch argue that Canada is missing out on an opportunity to supply Asia’s transition to renewables. Ng defended the strategy’s approach to energy, calling it “comprehensive” and focused on “Canadian strengths” when it comes to supplying clean energy.

Still, she said she was open to discussions on the issue with stakeholders.

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‘Government has much more sway’

Chrétien’s first Team Canada mission of politicians and executives was to China in 1994. He would lead half a dozen more before the idea lost its original appeal, in part because the missions had come to be seen by critics as boondoggles that achieved little.

However, Hyder welcomed their return, noting that in many Asian countries, “the government has much more sway,” so politicians can open doors that executives and entrepreneurs can’t.

The Indo-Pacific Strategy contains a number of other initiatives aimed at helping Canadian businesses navigate a notoriously complex region, including an “India desk” and $24.1 million over five years to establish a “Canadian trade gateway” in Singapore.

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“We want to make sure that Canadian businesses that are looking to access that market have a base to operate from in Southeast Asia,” said Ng.

While analysts described the strategy as a positive start, they were wary of the government’s willingness to see it through. Chrétien and former prime minister Stephen Harper both were inconsistent in their commitment to the region. Trudeau declared on the night he was elected in 2015 that Canada would return to the world stage, but when former president Donald Trump threatened to end the North American Free Trade Agreement, Ottawa focused on little else for two years.

“Our reputation globally is like Casper the annoying ghost: we show up and disappear,” said Dade. “For this strategy to be taken seriously, there has to be an indication that they will outlast changes in government at the provincial and federal level.”

In a similar vein, Miller said an attempt to do more trade with Asia was good, but there needs to be more “experimentation” about what will work. “It’s not just about trade missions and financial trade agreements,” he said.

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