Shipping containers stacked up at the port in Qingdao, China, stand as testament that business between China and Canada is still booming despite economic downturn.Reuters
Canada's business community is counting on Justin Trudeau's charisma and family history to help beef up commercial ties with China during his first trip there as Prime Minister next week, even if few concrete gains are made during the visit.
Mr. Trudeau will be in China from Aug. 30 to Sept. 6, travelling to Beijing, Shanghai and Hong Kong, as well as attending the G20 summit in Hangzhou. The Prime Minister himself played down the possibility of a major move on free-trade talks, saying his goal is to put relations between Canada and China "on the right path for the coming years."
Business leaders who have operations in China see the visit as a chance to renew a relationship that suffered during Stephen Harper's term in office, and perhaps to get back to the heady days when Mr. Trudeau's father, Pierre Trudeau, was breaking ground with Canada's early moves to recognize the communist Chinese government.
"With that heritage, it's a wonderful opportunity for Justin Trudeau to re-establish a very strong relationship with China," said Donald Guloien, chief executive officer of Manulife Financial Corp. He noted that the deep ties between the countries go back even further. "Canada has a unique status in China going back to the days of Dr. Norman Bethune, who every Chinese schoolchild is taught about." Dr. Bethune died a communist hero after serving in Mao Zedong's army in the late 1930s.
Like other business leaders who have made inroads into the Chinese domestic market, Mr. Guloien played down the irritants between the two countries, which include China's threat to stop importing Canadian canola, Canada's recently imposed tariffs on Chinese-made solar panels, and the restrictions set by the former Conservative government on investments in Canada by China's state-owned enterprises.
Manulife has joint ventures in China that sell insurance and asset management services, and Asia has become an increasingly important source of revenue for the company in recent years. While ownership restrictions prevent the company from holding 100 per cent of its Chinese operations, something Mr. Guloien would like to see changed, "we happen to be blessed with great partners," he said.
Many other large Canadian companies operate in China, including the big banks, Sun Life Financial Inc., train and aircraft maker Bombardier Inc., engineering firm SNC-Lavalin Group Inc., and dozens of smaller firms.
Bank of Montreal has had business relationships in China since the 1800s, and it now has a broad range of operations and offices there, and a full banking licence. Chief executive officer William Downe said the Prime Minister has a "real statesmanship opportunity" to start a new and constructive relationship with China. "There was a chilling in the initial years of the Conservative government towards China," Mr. Downe said, and now there's a chance for "positive change." The value of the trip will not be in the publicity surrounding it, he said, but the personal relationships that are formed at the high levels of government. But that will take multiple trips before they are solidified, he added.
One thing that needs to be impressed on the top levels of China's government, Mr. Downe said, is the notion that competition from foreign firms will actually make their domestic companies better. That "subtle mind shift" has not yet sunk in, he said, and Mr. Trudeau may be able to help get the idea across in his dealings with Chinese leaders.
Joe Lombard, global managing director for metals at Canadian-based consulting and engineering firm Hatch Ltd., which has been active in China for more than 40 years, said the importance of Pierre Trudeau and Norman Bethune in China's consciousness can't be discounted. "People buy into that story," he said, and it helps open doors for Canadian business.
At the same time, he noted, so much business in China is done through state-owned enterprises that developing strong government-to-government relations with the current leadership is crucial.
Sarah Kutulakos, executive director of the Canada China Business Council, which represents companies active in both countries, said the business community is looking for the Prime Minister's visit to set a new tone in the two country's dealings with each other, rather than achieving specific gains in trade or investment. The top issue between Canada and China is "how good is the relationship," she said, and that is determined by the two countries' leaders. "If things are going well at the top, a lot of business just goes on unimpeded."
China has a lot of countries "chasing it down," she noted, and if there is tension between leaders, "Canada tends to fall towards the bottom of the pack."
From an investment perspective, the key issue is whether Chinese investors feel welcome in Canada, making it a favoured destination. Ms. Kutulakos said she was encouraged by federal Finance Minister Bill Morneau's recent comments that he may consider relaxing the foreign investment rules established by the Harper government that put restrictions on state-owned Chinese companies' investments in Canada.
Any changes in China that would allow Canadian companies to invest more broadly or to take larger stakes in Chinese companies would also be very welcome, she said.
Ms. Kutulakos expects the Prime Minister's visit could produce an announcement of the start of preliminary free-trade negotiations, and perhaps word that Canada will join the Asian Infrastructure Investment Bank – a China-led body established last year that the Conservative government decided not to join. International Trade Minister Chrystia Freeland said in a speech earlier this year that Canada's decision not to participate was a "lost opportunity of the previous government."
There is also a possibility that China will announce an expansion in the number of cities where Chinese citizens can apply for Canadian visas, something the travel industry wants as a means to boost Chinese tourism here.
Nicholas Thadaney, CEO for global equity capital markets at TMX Group Ltd., said Mr. Trudeau's international appeal is real, and companies wanting to expand in China should take advantage of that.
TMX Group, which operates the Toronto Stock Exchange, has an office in Beijing and has attracted about 30 Chinese companies to list on the TSX. It wants to get more on board, so Mr. Trudeau's visit is a good starting point, Mr. Thadaney said, but companies must follow up and take advantage of the raised awareness.
Indeed, many members of the business community underappreciate the importance of high-level government-to-government contact, especially in China, said Stephen Bowman, head of the China group at law firm Bennett Jones in Toronto.
"[Chinese] business takes signals from government, in terms of where priorities are and where relationships are," he said, and the top-level talks will also influence bureaucrats and others who make specific policy decisions. The previous government's relations with China had an "up-and-down quality to it," Mr. Bowman said, and that was transmitted through the bureaucracy and business community. Now there is a chance to create a more positive dialogue at all levels.
Jayson Myers, president of Canadian Manufacturers & Exporters, said there are "tons of issues" between Canada and China that need to be dealt with, including intellectual property protection, restrictions on investment, and regulatory barriers to Canadian products getting into China. "There are all sorts of protective measures dressed up as regulation," he said.
In addition, "there are a lot products being dumped into the marketplace, and a lot of subsidization going on," Mr. Myers said, because of the current overcapacity of the Chinese economy. All these issues will need to be tackled before, or during, any free-trade talks, he said. If Mr. Trudeau's visit sets the groundwork for high-level contact to deal with these issues, that will make it a success, he said.
It is not just large companies operating in China that will be watching the Prime Minister's trip closely.
"We have some high expectations for this," said Iain McColl, CEO of Richmond Hill, Ont.-based industrial automation firm Hibar Systems Ltd., which builds machinery that manufacturers use to make consumer goods. One of its current clients is China's second-biggest battery manufacturer, where Hibar has installed machines that make 600 alkaline batteries a minute.
"I think the relationship between our countries has been rather cold in the last little while … so we are all looking to new beginnings," Mr. McColl said. "We're really hopeful that with the visit, we can at least warm up the relationship [and that will] segue into getting into some discussions on free trade."
One key issue is the unwieldy system for Chinese customers to convert foreign currency, he said. Another is the lack of protection for intellectual property rights.
It is hard to say what concrete progress will come out of Mr. Trudeau's first visit to China, Mr. McColl said, but "I'm really optimistic that this is going to be a definitive step in the right direction."