By Keith Norbury
In the last decade, China has solidified its position as Canada’s second largest trading partner, according to Industry Canada trade data.
Exports from China to Canada reached $48.15 billion in 2011. That was four times the level of $16 billion in 2002. Meanwhile, 2011 U.S. exports to Canada totaled $220.8 billion, almost the same level as the $218.5 billion in 2002.
“Everybody keeps talking about diversifying Canadian trade,” said Dr. Keith Head, HSBC Professor of Asian Commerce at UBC’s Sauder School of Business. “It’s happening. Canadian trade is diversifying. That is an important fact.”
As for Canadian exports, China has vaulted past Japan in the last few years into third place behind the U.S. and the U.K. With $16.8 billion in exports from Canada in 2011, China is gaining on second place U.K., which received $18.8 billion in Canadian exports. But both remain far behind the U.S., to which Canada exported $330 billion of products in 2011 (see Tables on pages 8 and 9).
The U.S. accounted for 73.7 per cent of Canadian exports in 2011. That was a drop of 13.4 percentage points from the 87.1 per cent share the U.S. commanded in 2002. Several countries, China among them, have chipped away at U.S. dominance in the Canadian export market.
When it comes to trade balance, Canada’s imbalance with China, which tilts toward imports, has widened over the last decade. However, while that deficit tripled from 2002 to 2011, to $31.4 billion from $11.9 billion, both Chinese imports and exports quadrupled. That trend has picked up steam since 2008, during the recession, when Canada’s trade deficit with China reached a peak of $32.2 billion.
Exports to China growing faster than imports
So, while both imports from and exports to China have continued to grow in recent years, the export side has been growing slightly faster. There’s an interesting twist to that trend. While China’s share of Canadian imports rose from 4.6 per cent in 2002 to 11 per cent in 2010, it dipped slightly to 10.8 per cent in 2011. Meanwhile, China’s share of Canada’s export trade kept growing in 2011, although it still accounted for only 3.75 per cent of Canada’s total exports.
On the import side, China is the source of many of the consumer products that fill the shelves of Canada’s stores. That includes electronics, toys, furniture, bedding, clothing, and footwear, as well as big-ticket items like industrial machinery. Exports to China are dominated by natural resources, such as coal, potash, and grain, in addition to food products like pork, poultry, and fish.
“We are no different than any one of the other 20-plus container shipping companies whose business profile has changed from years ago, Japan, to the new era, China,” said Dave Bedwell, Vice-President of China Ocean Shipping Company, or COSCO (Canada), which is headquartered in Vancouver and also has offices in Montreal and Toronto.
He confirmed from his experience that there’s a lot of truth in media reports about the boom in Canada-China trade.
“And that truth has turned into what we call westbound or export cargo opportunities for not just COSCO, but for all ocean carriers, including breakbulk and conventional carriers,” Mr. Bedwell said. “So from your resource products of coal and potash and grain to all the forest products that don’t find their way into containers, they find their way into breakbulk form. Everybody is running at capacity.”
Mr. Bedwell noted that the majority of outbound cargo from Vancouver originates from Western Canada, whereas most of the cargo landing on the West Coast from China is bound for Eastern Canada. “So there is an imbalance of where it’s going to and where it’s coming from,” he said.
Resource markets keep on growing
The market for raw materials in China remains strong, said Philip Davies, principal of Davies Transportation Consulting Inc.
“Obviously, the issues around energy relate more to our ability to get it to the coast and onto a vessel, rather than whether or not there’s a market available for it, at this point,” Mr. Davies said. That was a reference to the proposed, and controversial, Enbridge Northern Gateway pipeline that would bring oil sands crude from Alberta to Kitimat, B.C.
Mr. Davies recently prepared reports for the B.C. government to look at “export opportunities for forest products and to examine their supply chain competitiveness.” While he was not at liberty to discuss details of the reports, he did speak generally about them.
“There’s a great deal going into China in terms of the lumber markets, which has helped lift the industry to some degree last year. And it’s leading to increasing exports in both logs and lumber products,” he said.
Mr. Davies also completed two studies on port competitiveness that he presented at conferences in 2011. One of those studies examined concerns by U.S. ports about Canadian competition. He found that there was little diversion of China-bound U.S. exports to Canadian ports.
“Because of the way railway rates are structured, inbound containers loaded with imports arriving at one port tend to depart from the same port, carrying the exports,” Mr. Davies said.
Pork exports show dramatic increase
Dr. Barry Prentice, a professor in the Supply Chain Management department of Asper School of Business at University of Manitoba, said Asia is the biggest potential market for agri-exports “because they’ve got the people, but not enough land.”
“In the case of the Chinese, they’ve been trying to raise more pigs themselves, for example,” said Dr. Prentice, who is also with the University’s Transport Institute. “But we still export a lot of stuff to them, which is typically the things that we don’t particularly want.”
That includes items like chicken feet, heads and offal, he noted. “This is a tremendous benefit to us because these products would otherwise get ground into sausages or something.”
China is “emerging as an important market” for Canadian pork, said Gary Stordy, Public Relations Manager of the Canadian Pork Council.
For example, pork exports to China for the first three quarters of 2011 were 103,000 tonnes, a 42 per cent increase over the same period in 2010. “That is certainly a dramatic increase,” Mr. Stordy said.
Even at that, China ranked well behind the U.S. (228,000 tonnes) and Japan (158,000 tonnes). Canada exports over one million tonnes of pork annually to 140 countries.
Both coasts hook into seafood demand
Seafood exports to China have also become significant on both sides of Canada. For Lions Gate Fisheries Ltd. in the Vancouver suburb of Ladner, China is a new market, but only from an export point of view. B.C. has imported seafood, such as prawns, from China going back 50 years when Lions Gate CEO Jack Waterfield started in the business.
“As you well know, the economy in China has changed dramatically in the past 10 years,” Mr. Waterfield said. “And they are a large consumer of seafood. So, it is growing, and it is growing very rapidly.”
In the last three or four years, the main trend has been exports of chum and pink salmon, the two less expensive of the five Pacific salmon species. But the Chinese are also buying hake, pollock and rockfish.
“And that will be a market that will be developed in the next year or two at quite substantial volumes,” Mr. Waterfield said.
Those are all shipped frozen by sea. There is a market for fresh, farmed-raised chinook salmon, or kings, as Mr. Waterfield calls them. However, those are shipped by air.
“We have also shipped three or four containers of frozen farmed kings into China,” he said.
China also has a huge appetite for live geoducks, crabs and mussels from Canada’s West Coast, although Lions Gate doesn’t partake in that, Mr. Waterfield said.
His company is a medium-size player on the B.C. fishery scene, which is dominated, like much of B.C. commerce, by enterprises owned by Jim Pattison.
Even so, Lions Gate shipped about 1.5 million pounds of pink salmon, about 90 per cent of its pink production, to China last year.
“There’s a limited amount for local consumption (in China),” Mr. Waterfield said. “They’re for reprocessing and exporting back to North America or to Europe.”
That’s right, the fish are thawed in China, cut into steaks and fillets, refrozen and then shipped all the way back across the Pacific Ocean, primarily to the U.S. or Europe.
“That will be slowing down because the labour force in China is getting more sophisticated, and also the cost of processing in China, labour costs, are going up substantially,” Mr. Waterfield said. “I could foresee in the relatively near future where more of that type of business would be done in Thailand, Vietnam, and maybe even Cambodia.”
On Canada’s East Coast, Greg Sheaves, Manager and Co-Founder of Atlantica Worldwide Logistics, is finding that demand from China’s growing middle class is for more diversified products.
“We’re actually producing product right now, like sea cucumber and whelk, in larger volumes to supply that market because their demand is past their capabilities to supply it themselves,” said Mr. Sheaves, whose company is based in Dartmouth, N.S.
Chinese demand has also led to exports of hagfish and monkfish tails for which there is no domestic market.
“The seafood industry has become very diversified in the use of its product where it’s sold right down to the eyeball now,” said Mr. Sheaves, who was also a commercial fisherman. “There’s no more throwing out heads and frames for lobster bait because now we ship container loads of heads for soups and stews.”
Seafood, such as tilapia, also comes to the Maritimes from China, although Mr. Sheaves doesn’t handle that himself.
China gives lift to lumber market
Diversity is also the name of the game for Canadian National Railway and its business with China. CN moved about $750 million of products to and from China on its railroads in 2011, said Jean-Jacques Ruest, CN’s Executive Vice-President and Chief of Marketing Officer. That represented about eight per cent of CN’s total $9 billion in revenue that year.
“Last year, the revenue we derived from either import or export activities with China, the revenue growth was $100 million,” Mr. Ruest said.
Those exports to China included a diverse range of commodities, such as coal, lumber, pulp, potash, canola seeds, wheat, copper, sulphur, pork and beef. Meanwhile, imports were even more diverse: “Anything that consumers buy,” Mr. Ruest said.
CN recently built an intermodal terminal in Prince George, B.C., and another terminal in Vancouver to handle growing exports of lumber and forest products to China. The company also signed a deal with state-owned China National Building Materials to transport lumber.
“Lumber from B.C. sold to China has just grown from nothing at all four years ago to a very significant portion of CN’s business,” Mr. Ruest said. It has also been a boon for CN customers such as Canfor and West Fraser. “It requires a lot of empty containers to generate that trade.”
CN now hauls 1,900 to 2,000 carloads of lumber weekly, which has bolstered its lumber totals for the last two years, despite the stagnant U.S. housing market. China now accounts for about 20 to 25 per cent of CN’s lumber volumes, Mr. Ruest said.
“There used to be a time when the Canadian lumber industry was totally dependent on U.S. housing starts,” he said. “That’s not true any more.”
Chinese customers are also buying lower-grade lumber, such as wood damaged by B.C.’s infamous pine beetle infestations, for use primarily in making concrete forms or other rough construction.
“I don’t want to overemphasize lumber exports to China,” Ruest said, stressing that lumber represents only a small piece of CN’s business.
Dr. David Fung, Chairman and CEO of the ACDEG Group of companies and a former senior fellow of the Asia Pacific Foundation, can’t stress the importance of B.C. lumber exports to China enough.
“B.C. is now exporting more lumber in volume and value to China than to the United States,” Dr. Fung said.
A huge hunger for Canada’s exports
A search of Industry Canada’s Trade Data Online website for two main product codes for lumber revealed that B.C. exports of those products to China grew from almost nothing, 0.5 per cent of the total in 2002, to 27.8 per cent in 2011. The value of those B.C. lumber exports to China in 2011 exceeded $1 billion, up from $33 million in 2002. Meanwhile, exports to the U.S. dropped to $1.66 billion in 2011 from $4.84 billion in 2002.
“The impact on British Columbia would be huge if the U.S. housing market ever comes back because British Columbia is no longer dependent on the U.S.,” Dr. Fung said.
The consensus is that China will continue have a large appetite for Canada’s other natural resources as well. Even UBC’s Dr. Head, who is loath to make predictions, is comfortable making that one.
“Our exports are going to grow,” Dr. Head said. “And on the import side, everybody is importing from China. It’s not unique to Canada. But there’s no reason to think Canada would be an exception.”