By Keith Norbury
Even if China’s economic growth slows down appreciably over the next decade, its economy is becoming so huge that its demands for Canadian goods will only increase, says a senior executive with Canadian National Railway.
There’s no reason why we can’t keep up and benefit from that growing economy. Canada, especially Western Canada, has huge natural resources the Chinese need and want,” said Jean-Jacques Ruest, CN’s Executive Vice-President and Chief Marketing Officer.
Dr. Barry Prentice, a professor in the Supply Chain Management department of University of Manitoba’s Asper School of Business, said increased trade between Canada and China is inevitable simply because China is able to produce an array of consumer and industrial goods at low cost, and Canada has the natural resources that China needs.
As the Chinese become more affluent, however, their consumer desires, if not their needs, are changing.
David Howse, a Calgary-based marketing consultant, said he has noticed on his recent visits to China that a “health craze” is taking hold. He attributes it to rising disposable incomes enabling people to buy vitamins, facial creams and related products – at inflated prices.
“The cost of a bottle of vitamin C over there worked out to approximately twenty dollars,” Mr. Howse said. “I just couldn’t believe it. I’m like ‘Are you insane?’ But then, it’s a new industry over there.”
New appetite for Canadian foods
On his recent visits to China, Jack Waterfield, CEO of Lions Gate Fisheries Ltd. near Vancouver, said he has noticed a trend toward more Western-style restaurants in the major cities.
“If that continues, then we expect stronger demand for both seafood and other products from North America,” said Mr. Waterfield, who has been to China six times. “And of course, expendable income in China is growing exponentially.”
As Dr. Prentice noted, China has 1.4 billion people and not much land. As their standards of living rise and they demand and can afford more and better food, there’s not enough land to grow it.
Chinese authorities will have to decide whether to allow more protein into the country or import more grain to feed its own livestock. Dr. Prentice called the latter “not really very good economics” because of the shipping costs. On top of that, China’s upward mobility is starting to result in shortages of people who will work for low wages, he said.
Labour peace bodes well for West Coast trade
Labour contracts ratified recently for Vancouver ports are going to be “critical” to the future of trade with China, said Ruth Snowden, Executive Director of Canadian International Freight Forwarders Association. Those agreements between the B.C. Maritime Employers Association and two unions – Longshore Foreman Local 514 and the International Longshore and Warehouse Union Canada – don’t expire until March 2018.
“In order for freight forwarders to conduct business, and for the support of this China trade, we need labour stability on our West Coast ports,” Ms. Snowden said. “Or that cargo is going to go over to the United States.”
New opportunities envisioned for energy and resources
Canada is making other efforts to bolster trade with China, noted Dr. David Fung, Chairman and CEO of the ACDEG Group of companies and a former senior fellow of the Asia Pacific Foundation.
“For the Prime Minister to make the announcement after the Keystone XL pipeline delay that we want to sell our oil to China, pleased the Chinese extremely,” Dr. Fung said.
A proposed pipeline to carry oil sands crude to Kitimat, however, has become a flash point of controversy. Environmentalists and First Nations along the proposed route oppose the pipeline, not only because of fears that it might damage habitat but also because of the potential for oil spills on the B.C. coast. Whether the proposal can overcome those objections, or skirt around them, remains to be seen.
Expansion of B.C.’s potash handling capacity, such as a $49 million upgrade at Neptune Bulk Terminals in Vancouver in 2011, has also caught China’s attention. But the biggest item, Dr. Fung said, is a $15-billion proposal, led by Apache Corp., to pipe natural gas to liquefaction terminals in Kitimat.
“The pipeline has not attracted any controversial issues at all,” Dr. Fung said.
“Because there are shortages in China and surpluses in Canada, natural gas prices in China are about five times what they are in Canada,” he said.
“Imagine if we can get the pipeline going by 2015 or 2016. It could be a boon for our natural gas industry in Alberta and B.C.,” Dr. Fung said.
It might even make it possible for Canadian trade with China, which now stands at just $60 billion annually, to leapfrog over the $90 billion annual trade between Australia and China, he said.
Infrastructure investments show Canada is serious
Meanwhile, the Pacific Gateway Alliance, a collaboration of the federal and provincial governments as well as transportation authorities, is overseeing $22 billion in ports, railways, roads and other infrastructure projects in Western Canada, says the Pacific Gateway website. The scope of the initiative shows how serious the Canadian government is about future trade with China, Dr. Prentice said.
“Now, curiously, almost all of that work seems to have gone toward receiving containers of imported goods,” he said, “not towards the things that we’re exporting.”
He has been an advocate of containerizing all of Canada’s wheat. “Any time a commodity goes from bulk into containers, the containers never seem to come back,” he said.
Whether that idea catches on or not, “Asia-Pacific container traffic to North America is expected to increase by 300 per cent” by 2020, says a posting on the B.C. government’s Pacific Gateway website.
Container shortage anticipated
No wonder Dave Bedwell, Vice-President of China Ocean Shipping Company, or COSCO, (Canada), predicts that a future challenge will be securing enough containers.
“We are wholly reliant on import containers to supply the export demand,” Mr. Bedwell said.
For example, should Canada’s gross domestic product grow at 3 per cent annually but exports grow at 9 to 12 per cent, Mr. Bedwell said, “Simon says we’re going to run out of equipment.”
Should a container shortage occur, that would mean conventional breakbulk carriage would again become an attractive option for lumber, and pulp and paper. “At least they can, hopefully, fall back to breakbulk conventional carriers to get their product to China,” Mr. Bedwell said.
From what he has read in the news, trade with China is only going to continue to grow. Then again, he confessed that his crystal ball isn’t as clear as he would like it to be.
“All it takes is one catastrophe and things change,” he said. “Going forward, it’s a positive sign. But all we need is a tsunami to hit some place and everything gets screwed up.”
Prosperous China benefits Canadians
The future of trade of between China and Canada depends, of course, on China’s economy remaining healthy. That will always be a concern, said Dr. Fung. He cautioned that people who might wish China ill should understand that an impoverished China would hurt everyone’s pocketbook.
“If China should be threatened by political and subsequently economic turmoil, and imports drop, Canada will be hit very hard,” Dr. Fung said. That would lead to a drop in demand for exports, he added. “And all the commodities that we export would see a dramatic price decline, right across the board.”