Canadian companies have a lot to lose if China puts security before economy, experts say

China’s lackluster economic growth, coupled with neglect of the issue at the recent 20th National Congress of the Communist Party of China, has raised concerns about the country’s lack of attention to economic policy.

This disregard for the world’s second largest economy could have a detrimental impact on Canadian businesses and beyond, say experts.

China announced on Monday that its gross domestic product had increased 3.9% in the third quarter compared to the same period a year earlier. The number fell below Beijing’s 5.5% growth target and well below the 8% that experts believe is needed to support future population and economic growth in China.

Beijing had delayed releasing its GDP data on October 18, the second day of the party congress. It’s likely that Beijing wanted to keep economic growth and its consequences out of the headlines at the congress, which ended Oct. 22, said John Gruetzner, co-founder of business consultancy Intercedent. Asia-focused and member of Canadian Global Affairs. Institute.

The week-long party congress, held twice a decade to appoint new leaders, assess the constitution and affirm China’s ideological orientation, is perhaps the most important event on the Chinese Communist Party’s calendar. It ended with President Xi Jinping wins unprecedented third term as party leader, presiding over a cabinet loyal to his ambitions of consolidating power, deterring opposition and extending terms of office.

A man standing in front of a public window reads media coverage of the 20th Communist Party Congress on Monday in Beijing. The week-long party congress, held twice a decade, is perhaps the most important event on the party calendar. (Thomas Peter/Reuters)

Canada’s exports to China increased in 2021

The retention of data as important to trade relations as GDP was “nearly unprecedented for a major trading nation,” said Charles Burton, senior fellow at the Macdonald-Laurier Institute, former counselor at the Canadian embassy. in China and Associate Professor of Chinese and Comparative Politics at Brock University in St. Catharines, Ont., until 2020.

“I don’t know what signal China is sending to global trading partners by not providing us with the kind of normal interaction that we expect, which would be a statement of China’s economic outlook,” Burton said ahead of the release of the report. GDP.

China’s 3.9% growth in the third quarter rebounded from the spring’s meager 0.4% growth. Ultimately, “the number came back stronger than many had expected, including us,” said Andrew Hencic, senior economist at TD Bank. Its economists had estimated growth at 2.8%.

New vehicles ready for export are parked at a shipyard in Yantai, east China’s Shandong province on Oct. 13. (Chinatopix/Associated Press)

“Looking ahead, we’ll see how well this moment can be sustained,” Hencic said. This is especially true as countries around the world, including Canada, are eager to see whether, to their detriment, Xi will put national security and politics ahead of economic performance.

“It’s clear that over a period of time, one-party states eventually tend to hit a wall,” Gruetzner said. “If you don’t have multiple inputs in your economic and social policy, you’re ultimately going to have a problem with economic growth.”

Canada considers China its third most valuable trading partner, behind the United States and the European Union, but second if EU countries were counted individually. Canada’s exports to China increased steadily throughout 2021 to $28.8 billionaccording to the University of Alberta – the highest amount since before the COVID-19 pandemic and $10 billion more than was exported in 2016.

The agriculture, meat, paper and mining industries, which boost Canadian exports to Chinashould be aware of the impact GDP slowdowns could have on their investments in the Chinese economy, Gruetzner said.

Miners work underground at Vale’s Thompson mine in northern Manitoba. Along with the mining industry, agriculture, meat and paper are the drivers of Canadian exports to China. Canada considers China its third most valuable trading partner, behind the United States and the European Union. (Katie Nicholson/CBC)

Prices for iron ore, oil, coal and copper, in particular, react “very, very quickly” to changes in China’s GDP growth, he said. “There is a whole part of the Canadian economy that needs China to have demand. Certainly in the western provinces.”

The shares of Canadian fertilizer company Nutrien, based in Saskatoon, and Teck Resources Ltd., a developer of agricultural feeds and a metals company headquartered in Vancouver, both fell to the Toronto Stock Exchange on the day of the Chinese GDP release ($113.07 to $108.33 and $48.05). at $46.95, respectively).

China’s GDP growth faces obstacles

China’s zero-COVID policy and housing crisis continued to prevent the world’s second-largest economy from a full economic recovery from the pandemic, Burton said. Both will likely impact China’s export-driven economy and “could be quite worrisome for Canadian businesses and the global economy in general,” he said.

Although Beijing’s zero COVID policy has kept the country’s total infections to 1.4 billion just over a millionhe has hampered the efficiency of China’s ports, disabled half of its highways and instituted a total shutdown of cities that together account for 40% of China’s GDP, according to a report by Alicia Garcia Herrerochief economist for Asia-Pacific of the French investment bank Natixis.

China stepped up its commitment to the zero-COVID policy this week, sealing buildings, closing neighborhoods and placing millions of people in their homes, as the country reported on Friday. More than 1,000 cases for three consecutive days.

People wearing face masks line up at a COVID-19 testing site in Beijing on October 12. Although China’s zero COVID policy has kept cases relatively low in the country of 1.4 billion people, it has come at the expense of the economy. (Mark Schiefelbein/Associated Press)

China the housing sector is also in crisis. A lack of government funds led to several delays in housing construction, and Chinese borrowers who prepaid for their homes found themselves without their investment, Burton said. Local governments in China traditionally fund operations through land auctions and have felt the consequences in their coffers.

If China’s economic growth remained below 8%, there would be consequences for the country’s ability to service its debts of over US$9 trillion, as well as youth unemployment, Gruetzner said.

In 2020, the Chinese Ministry of Education reported that almost a quarter of university graduates could not find workafter years of plentiful jobs thanks to strong economic growth over the past two decades.

Reports from the 20th Congress of the Communist Party of China suggest that the government will nevertheless prioritize national security and military growth in the face of US competition before focusing its attention on the economy for itself and that of its partners. commercial, Burton said.

WATCH | Chinese leader calls for military growth at Communist Party Congress:

Xi kicks off Communist Party Congress, calls for China’s military growth

The Chinese Communist Party has launched its 20th Congress in Beijing, with President Xi Jinping calling for faster military growth. Xi also touted his government’s COVID-19 policies and refused to rule out the use of force against Taiwan.

China has publicly said it wants to redirect agricultural and commodity imports from Western suppliers to those in South America and Africa, Gruetzner said.

Burton said both should be a consideration for Canada as it openly re-evaluates trade relations in the region.

Charles Burton is a senior fellow at the Macdonald-Laurier Institute, a former counselor at the Canadian Embassy in China, and an associate professor of Chinese and comparative politics at Brock University in St. Catharines, Ontario until 2020. (Submitted by Charles Burton)

Canada plans to publish its Indo-Pacific policy

During a speech in Washington, DC, on October 12, Deputy Prime Minister Chrystia Freeland suggested that Western democratic countries prioritize free trade with each other and limit opportunities for states actively working against their values. Governance in Russia and China, for example, has become increasingly consolidated and autocratic.

These considerations could feature in the next Indo-Pacific policy statement, which Canadian Foreign Minister Melanie Joly said would be released after the Chinese Party Congress and before the end of the year.

Canadian Foreign Minister Melanie Joly, right, and US Secretary of State Antony Blinken speak Thursday at the official federal government guest house in Ottawa. Joly announced that Canada is considering becoming a member of the Indo-Pacific Economic Framework for Prosperity. (Blair Gable/Pool/Associated Press)

“Over the coming decades, developments in the Indo-Pacific region will have a profound impact on the lives of Canadians from coast to coast,” Joly said in a press release, adding that Canada has committed to strengthening its presence in the region.

On Thursday, during a visit to Ottawa by US Secretary of State Antony Blinken, Joly announced that Canada plans to become a member of the Indo-Pacific Economic Framework for Prosperity to boost economic cooperation.

“There will be a significant section on implications for the economy” in the next policy statement, Burton said. “A lot of companies would like to see what the government’s intentions are before considering their choices for investing in China.”

Workers wearing face masks ride tricycle carts loaded with goods in Beijing last month. China’s zero-COVID policy and housing crisis have continued to prevent the world’s second-largest economy from a full economic recovery from the pandemic, an analyst has said. (Andy Wong/Associated Press)

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