Canadian companies brace for China’s next move

While domestic observers fret over whether China will zero in on other Canadian export commodities after targeting canola, there are already other sectors quietly reporting difficulties in exporting to China in recent months, says an analyst.

Didier Culat, senior associate at BCF Business Law in Quebec and a B.C. native, said that while public attention has been focused on canola because two major exporters – Richardson International and Viterra Inc. – were barred from China in March, other Canadian sectors have suffered the same fate but have yet to come forward publicly.

article continues below

“I’m not privy to tell you who, but I have personal knowledge of products not being accepted into China,” Culat said. “What I can tell you is that anything that needs a permit to be imported into China is at risk. Canola is an easy example because they went public; but you think of anything that needs a permit to be imported, and you run down that list [against] what we are selling. Anything like that is at risk.”

Canada’s top exports to China include vegetable-based food products (oilseeds, soybeans and starch); meat; mineral products (metallic and fuel); wood products; and some manufactured goods like aircraft from Bombardier Inc.

Among the items on the list, many agricultural goods can be listed as products requiring “additional monitoring” and could also slip into the same restricted category as canola on reasons of “health risk.” (Beijing has contended that contaminants in Canadian canola are the main reasons for the import ban.)

Also, items like coal could be singled out as a product that damages the ozone layer. With this sector, there is a precedent. In February, after a two-year deterioration of relations between China and Australia, the Chinese port of Dalian banned imports of Australian coal indefinitely while capping all imports to 12 million tonnes for the rest of the year. Other Chinese ports, Reuters reported, were prolonging Australian coal clearance times to 40 days or more.

The Australia-China tensions are not dissimilar to the Ottawa-Beijing row. Canberra has complained about Beijing interfering in Australian domestic affairs and in January revoked the visa of a well-known Chinese businessman. Canberra also banned Huawei Technologies Co. Ltd. from selling equipment into Australia for the development of the country’s 5G network last year.

Lynette Ong, associate professor at the Asian Institute of University of Toronto’s Munk School of Global Affairs and Public Policy, noted that Norway also suffered the same reaction in 2010 after the Nobel Peace Prize that year was awarded to the late Chinese human-rights activist Liu Xiaobo. That year, China sharply curtailed its salmon imports from Norway, ostensibly because of potential threat to Chinese fisheries from fish-borne viruses. Salmon is Norway’s second-largest export next to oil and gas. Trade was restored in 2018.

Considering that Beijing’s anger with Canada stems from the very high-profile arrest of Huawei executive Meng Wanzhou last December on an extradition order from the United States, the dispute may be even longer-lasting, Ong said.

“Yes, I believe the Huawei fallout has changed the bilateral relations fundamentally [between Canada and China],” she said, but added that as a smaller economy, Canada has very few options in the short term.

“I expect bilateral relations to remain tense for the short to medium terms. This means the government needs to think about how to deal with China strategically in the long run.”

Another precedent that Ottawa can look to is China’s economic retaliation against South Korea in 2016, when Seoul agreed with Washington to deploy an anti-missile defence system to counter rising tensions with North Korea. The deployment angered Beijing because the missiles could potentially cross into Chinese airspace, and China promptly cracked down on several South Korean companies and industries – while also suspending package tours to restrict the number of Chinese tourists visiting the Korean Peninsula.

Yves Tiberghien, director emeritus at the University of British Columbia’s Institute of Asian Research, said the Korean example may be the most relevant to Canada, since both cases saw a smaller country caught between the United States and China as the two sides continue to butt heads on a global geopolitical scale.

Tiberghien said some of China’s thinking behind how to hit back can be seen in its chosen targets against South Korea. In the Korean case, South Korean conglomerate Lotte Group offered up its Lotte Skyhill Country Club golf course to host the U.S. missiles. The company had operated a number of department stores in China, invested $9 billion in the market since 2004 and saw 25 per cent of its overseas revenue coming from China in 2016.

In Lotte’s case, the company was quickly accused of a number of fire-safety violations at its department stores in China, and most locations were forced to suspend operations. As China finally lifted its sanctions on Lotte in China this year after more than two years, the damage was readily apparent. The company is now reportedly ready to bow out of China after never having recovered, with a reported operating loss from the second half of 2016 to the end of 2017 totalling one trillion won ($1.13 billion).

Tiberghien noted that Beijing also heavily targeted Korean pop culture imports, banning or curtailing things such as Korea’s famous K-pop music, television dramas and other cultural exports – something Seoul has prided itself on for the last two decades as a key sign of South Korea’s growing global soft power – as a symbolic demonstration of the anger felt by Chinese authorities.

That, Tiberghien added, is likely why Beijing targeted a former Canadian diplomat, Michael Kovrig, as one of the two men arrested in China in response to Meng’s arrest, as there were no clear corporate targets involved.

“In the Korean case, Lotte was clearly identifiable,” he said. “With Canada, no companies acted first; it was the state. So they go for whichever target they find, and because it was the [Canadian] state, they ended up picking a former diplomat. It got personal by the people making the arrests.” 

Read Related Topics

© Richmond News

Read more from the Business in Vancouver