Trudeau Heads to China to Woo Trade Amid Weak Canada Growth

Opportunities for Canadian Firms in China's E-Commerce
  • Prime minister departs Monday on 10-day trip including G-20
  • China’s investment in oil-sands plunged after 2012 rule change

Prime Minister Justin Trudeau is heading for his first official visit to China, seeking to reset relations and boost economic ties with Canada’s second-largest trading partner.

Trudeau departs Monday on a 10-day trip to Beijing, Shanghai, Hong Kong and Hangzhou, where he’ll attend the Group of 20 summit. He’ll meet with Premier Li Keqiang, Alibaba Group Holding Ltd.’s Jack Ma and Hong Kong billionaire Li Ka-Shing, controlling shareholder in Calgary-based Husky Energy Inc.

It’s a good time to be out of the country. While the prime minister is away, Statistics Canada is expected to report the economy shrank 1.5 percent in the second quarter. All the more reason for Trudeau to tackle issues such as the decline of Chinese investment in Canada’s energy sector. 

“What actually we need with China is to reset the relationship a little bit,” Trudeau told reporters Friday, the same day his predecessor, Stephen Harper, announced he was resigning from politics.

It was Harper in 2012 who introduced rules restricting takeovers in the oil sands by state-owned companies. The measures were designed to prevent foreign governments from gaining too much influence over Canadian oil.

Since reaching a record $21.3 billion that year, including Cnooc Ltd.’s $15.1 billion acquisition of Nexen Inc., Chinese investments in Canada’s oil and gas sector have cooled to $2.19 billion this year, according to data compiled by Bloomberg. Purchases slumped to $343 million in 2013, the year after Harper imposed the new rules.

Open to Easing

Finance Minister Bill Morneau, who will accompany Trudeau on the trip, hinted on Aug. 21 the government was open to easing the 2012 restrictions. The Liberal government is focused on “ways we can enhance the Canadian economy,” Morneau said. “In that light, we seek to encourage investment in Canada and that’ll be something we’ll be bringing forward in meetings in China as we will in bilateral meetings with all the countries we meet.”

Trudeau echoed that five days later, saying the issue of oil-sands investment was one “that we’re certainly going to lean into” on the trip. He also said Canada would press against a change that would restrict China’s market to Canadian canola exporters.

China hopes Trudeau’s visit can bring fresh impetus to ties, Foreign Ministry spokeswoman Hua Chunying said Monday at a daily briefing. Asked about the possibility of progress toward a free trade pact, she said China hopes it “can reach more mutually beneficial and win-win results with Canada.”

Trudeau will draw on his family connection with China, which dates back to his father, who established ties while Prime Minister. The younger Trudeau has tried to balance courtship and admonition of Beijing, pursuing trade while also speaking out -- joining Group of Seven leaders in expressing concern about China’s assertions in the disputed South China Sea, admonishing a senior Chinese official for his treatment of a Canadian reporter, and citing the country’s human rights record.

That said, Canada has sent mixed messages to China recently. British Columbia instituted a tax on foreign real estate buyers, a move aimed almost exclusively at wealthy Chinese driving up the Vancouver housing market, while Trudeau’s government has moved to collect more data on foreign home ownership.

China’s AIIB

Canada complained earlier this year after China’s foreign minister, Wang Yi, lashed out at a Canadian journalist during a visit to Ottawa for questioning China’s human rights record. Trudeau also hosted Wang in Ottawa on the heels of the G-7 summit that riled China, one Trudeau preceded with a state visit to Japan, a regional rival.

China will view the visit as a chance to repair ties with Canada, said Shi Yinhong, director of the Center on American Studies at Renmin University in Beijing and an adviser to the State Council. Trudeau "can’t be worse than his predecessor Harper,” Shi said. “China blames his predecessor for the current poor relations but still believes Trudeau could bring changes."

One potential move would be to coax Canada into joining the China-led Asian Infrastructure Investment Bank, an entity the U.S. has declined to be part of. “It’s very important for China to win over Canada to join the AIIB, which would be a clever way for Beijing to isolate its competitor, the U.S.," Shi said.

Governance Issues

In an interview published last week with the China Youth Daily, Canada’s ambassador to China, Guy Saint-Jacques, said joining the AIIB was under “active consideration.”

"We had some questions early on about the governance issues related, but we have been reassured," he said in the video interview.

At the G-20 meeting, Canada will be engaging European states to press for ratification of a trade deal with the European Union. International Trade Minister Chrystia Freeland, who will accompany Trudeau on the trip, appointed a new envoy last week to help ratify the pact, while saying the G-20 talks overall will focus on ways to spur growth.

Still, if Trudeau is going to diversify trade and spur economic growth, China will be a crucial partner.

This year’s oil investment figures were driven in part by a $1.3 billion purchase of a stake in some of Husky Energy’s pipelines and storage tanks in Alberta and Saskatchewan by companies controlled by Li.

Although merchandise trade between Canada and China totaled $75 billion in 2015, up 20 percent from 2010, that’s only an eighth of the value of total trade between Canada and the U.S. Trudeau’s call for a “more balanced” relationship evokes data that show Canada’s imports from China are worth almost double that of its exports to the country.

“We need to ensure that access to markets for our producers is there,” Trudeau said Friday. “These are the interests we are going to be strongly and carefully balancing as we engage with the economic powerhouse that is China.”

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