Re-focusing the debate over trade with China

Canadians are missing the point in their debate over increased trade with China, according to one Canadian foreign policy expert.

"The debate that Canadians need to have, and the debate we’re really not having," according to Kim Nossal, director of Queen’s University’s Centre for International and Defence Policy, is on where we will fit as relations between the U.S. and China change.

The proposed $15.1 billion US bid by state-owned China National Offshore Oil Corp. (CNOOC) for Calgary-based Nexen and Enbridge’s bid to build a pipeline to carry Alberta oilsands crude to the west coast has led to much discussion about the bilateral relationship.

But what we should be talking about, Nossal says, are "the implications for us, as a small country that has relations with both the United States and with the People’s Republic of China, as the relations between those two great powers begin to shift and change in the next decade or so."

Nossal has a unique perspective, having being born in Australia and spent time in Beijing and Hong Kong beginning in the 1960s.

He continues to do research on Australia’s foreign and defence policy. And he’s watched the surge in China’s trade with Australia –an economy very similar to Canada’s in terms of its weighting in commodity exports — especially in the last decade.

China-Australia trade worth $85B

The two-way merchandise trade between China and Australia has soared from $113 million Australian dollars in 1973, just after the two opened diplomatic relations, to $78.2 billion in 2009, making China Australia's largest trading partner.

Add in services, and the total trade in 2009 was worth $85.1 billion, up 15.1 per cent over the year earlier.

In 2010, Canada’s bilateral merchandise trade with China totalled $57.7 billion.

Martin Jacques, in his book When China Rules the World, describes China’s growing economic power over the last decade as exercising a "mesmerizing" effect on Australia.

Quoting London’s Financial Times, Jacques says "increasingly, Australian financial markets follow signals from China rather than the U.S., while the correlation between the value of equities in Shanghai and Sydney has strengthened every year since 2004."

Notwithstanding that Canada and the U.S. have the most integrated economies in the world, it seems likely that Canada will follow in Australia’s footsteps, Nossal says, including in the area of long-term Chinese investment in the energy and resource sectors.

"Unless we do something that seeks to close the process down, I mean a series of decisions by regulators in Canada that basically say that Canada’s not open for business, we’re going to see a process by which state-owned enterprises of China are going to be hunting out appropriate markets for investment," Nossal told CBC News.

"That’s what we’ve seen in Australia, it’s what we’ve seen in Africa, in Latin America and so absolutely in Canada as well."

From November 2007 to May 2010, the Australian government has approved more than 160 proposals for Chinese investment in Australian business, with a total value of $60 billion.

Former federal cabinet minister Jim Prentice, now an executive vice president of CIBC, agrees ties will grow.

"Asia is where the growth of today is, and where the growth of tomorrow will be," Prentice said in a speech to the Canadian American Business Council Monday.

"So that's where we need to be."

And, at the same time, Prentice warned that growing trade with Asia would have implications for our relationship with the U.S.

"We would be naïve" to think otherwise, he said.

One Australian trade expert has warned that Beijing will start to lean on its trading partners to align themselves more closely with its interests.

Mark Thirlwell, the director of the international economy programme at an Australian economic think tank, the Lowy Institute for International Policy, has warned that commodity-exporting countries targeting the Chinese market should "not make the mistake" of thinking that such a relationship would be "confined to taking Beijing’s money and shipping product."

In a commentary entitled The High Price of Feeding the Hungry Dragon, published in The Financial Times, Thirlwell said China has not been shy in linking economic ties with broader strategic objectives.

The Australian government has learned to play that game, he said, citing the Australian government’s signal to the U.S. that it will no longer automatically fall into line on issues where Washington and Beijing differ, from exchange rate policy to Taiwan.

"China has great power aspirations," Thirlwell said, "and superpowers, even prospective ones, tend to view their relationships with suppliers in a much broader perspective than in purely commercial terms."

Nossal doesn’t buy that argument.

"There’s no doubt that state-owned enterprises are state-owned and all that that entails," he says.

"However, that state-owned enterprise is also essentially a capitalist enterprise that will look for best return and in that sense a dollar of Chinese capital is going to behave just like a dollar of Spanish capital."

"Those who argue that Chinese state-owned enterprises are fundamentally different because they are Chinese end up selling short the autonomy of many of these enterprises," Nossal says.

"The other thing that is important to recognize is that the Chinese state may be authoritarian, but its capacity to control is not as robustly singular as many of those who make this argument would suggest."

Nossal says the reality is that there are many countries, even in the Asia Pacific area, with economically robust relations with China that simply aren’t lining up with China on a number of issues.

There are good reasons to assume that Canada will form closer bonds with China.

For one thing, there’s the prospect of badly-needed capital. China’s overseas investment has been surging across the globe.

According to The Economist, China’s overseas direct investment around the world has grown at 55 per cent annually since 2003, reaching $56.53 billion US in 2009.

China might be biggest economy by 2016

For another, it’s likely inevitable. On Nov. 9, the Organization for Economic Co-operation and Development released a report predicting that China would overtake the U.S. as the world’s biggest economy as early as 2016.

Add to that the fact that we may be only eight years away from losing the number one customer for our leading commodity export, oil.

The International Energy Agency suggested earlier this month that the U.S. will become basically self-sufficient by around 2020 in energy production.If closer ties with China are in the future, Nossal suggests Canadians would be wise to follow the example of the Australians in another respect.

In September last year, Prime Minister Julia Gillard’s government commissioned a study which resulted in a white paper entitled Australia in the Asian Century, a plan outlining how Australia can capitalize on the expected surge in economic growth not only in China and India, but elsewhere in East Asia.

Nossal says it would be well for Canadians to have a similar debate, with a particular focus on what form our role should be as China’s economic clout grows and whether that results in increased great power rivalry.

But it’s a discussion he sees little likelihood of ever happening.

Given the complacency shown by both the government and the opposition in our security relationship with the United States, he says, there’s little prospect of having a serious discussion about Sino-American relations.

"So we don’t even think about what the possibility might be of being in a situation where the relationship between the People’s Republic of China and the United States begins to deteriorate."