Relations between Canada and China under former prime minister Stephen Harper’s government were marked by the strong development of economic ties. How should we look for the new government of Justin Trudeau to behave, especially given China’s economic decline, which mainstream business newspapers have already begun to acknowledge?
Under Harper in 2014, the bilateral Foreign Investment Promotion and Protection Act (FIPA) entered into force, guaranteeing rights and obligations for investors notably including Canadian natural-resources firms operating in China.
Earlier this decade, when Chinese state-owned enterprises were on a worldwide hunt for energy and other natural-resource companies to buy, they invested about one-third of their acquisition budget in Canada, mainly in gas, including shale gas.
The purchase of Nexen in 2012, for example, for over US$15 billion was the largest foreign acquisition by a Chinese company ever. To gain approval the buyer, oil and gas producer CNOOC, made a number of promises which it has already failed to keep, such as employee retention.
The days of eight per cent annual growth in the Chinese economy, a centrally-planned inflated statistic anyway, are over. The economy has been keeping pace with job creation for some time. And the big problem is insolvent domestic banks carrying enormous debt that is very poorly collateralized.
In January, Justin Trudeau said he looked forward to a free-trade deal with China that would inevitably seek to build upon the foundation laid by Harper’s FIPA.
There are reports that his government is conducting a major internal review of bilateral relations. A G-20 summit scheduled to be held in China in September. Any new China policy would likely take shape by then.
It is unlikely that the increasingly heavy-handed authoritarianism of Chinese premier Xi Jinping will deter the deepening of bilateral economic relations. But Ottawa’s stance regarding China’s aggressive territorial claims, including the militarizing of artificially created islands, in the South China Sea.
A World Court decision on this is expected soon to go against China. One supposes that Canada, in keeping with its general profile advocating respect for international law, will at least give lip-service to that.
But will this keep Canada from co-operating with the new Chinese-led Asian Infrastructure Investment Bank, a “soft-power” vehicle for the expansion of Chinese economic and political influence in Asia that both Japan and the U.S. have declined to join? Earlier this year Trudeau seemed to look favourably on the idea, although he seems to have hedged his bets a little since being elected.
The decline in Chinese demand for natural resource imports from Canada is a potentially important domestic political problem here, especially if the new government in Ottawa follows through on its declared intention to run important budget deficits. It means that those deficits may be significantly larger than already projected.
And will the Trudeau government publicly insist on respect for human rights in China, thus marking itself off from Harper’s more “quiet diplomacy” approach? Historically the Liberal Party has very strong relations with China and members of its ruling party, going back decades to the time of the current Canadian prime minister’s father. So maybe not. In the end, Trudeau’s China policy may not be so different from Harper’s except perhaps for being, as one might expect, a bit flashier.