In this issue: China’s hot, dry, locked-down summer, Zero-COVID policy prevails, the critical minerals saga and so much more…
You’re back from summer vacation and so are we, with all the China-Canada updates:
China’s hot, dry, locked-down summer
An 11-week heat wave, power blackouts, earthquakes and severe drought are a few of China’s summer challenges.
- In July and August, record-breaking heat and drought cut hydropower generation capacity by half in the southwest regions of China, The New York Times reports.
- Of interest to western Canadian ag producers, data from Sichuan’s emergency management authorities show that water shortages resulted in 3.5 billion yuan of ag and livestock losses in the province this summer, The Guardian says.
- A Bloomberg article reports “the impact of adverse weather conditions at the present time will weaken mainland China’s net food balance in the current harvest cycle.” The situation is something for western farmers, and grain producers in particular, to keep an eye on as we move into harvest season.
- And for the Canadian consumer: expect grocery prices to rise on products like rice and corn. More from Bloomberg on this.
Trade impacts for Canada
Global supply chains reliant on China’s industrial production are feeling the pressure as low water levels leave ports backed up and inaccessible, The New York Times says. Even Pay, an agriculture analyst at the Beijing consulting firm Trivium China and also a contributor to our China Brief expert series, says that China is “losing a few months of really efficient shipping.”
As annoying as delayed shipments and backlogged supply chains are for Canadian consumers, imports from China (+18.96 per cent YoY) are not the problem. The peril for Canadians right now is the lack of consumer demand coming from China. The longer China is locked down, the less demand there is for Canadian products. Exports to China dipped significantly this year, most notably in the prairie provinces.
According to Statistics Canada trade data reports, from 2021 to 2022 prairie exports to China were as follows:
Alberta total exports dropped 27 per cent, barley exports dropped 84.1 per cent and canola exports declined 74.9 per cent. Saskatchewan total exports dropped 16.1 per cent with lentil exports down 94.2 per cent, and flours and meals of oil seeds exports dropped 96.1 per cent. And Manitoba total exports declined 55.6 per cent with chemical wood pulp exports down 99 per cent, linseed exports plummeting 90.5 per cent and barley exports declining 84.1 per cent.
But there was one exceptional export that saw unusual growth…
China leans on coal – with Canada’s help
With an exposed energy system susceptible to weather-induced outages, China is returning to coal. In July of 2022, estimates were that 258 coal-fired power stations had been proposed, permitted, or were under construction, according to the Wall Street Journal. A trade report put together by our friends at the U of Alberta China Institute shows that although Canadian exports to China slowed down over the summer months (-14.42 per cent YoY), coal has seen dramatic growth since Q1 of 2022. From the same trade report, by value, coal was Canada’s leading export to China in the first half of this year (+84.2 per cent YoY).
Both B.C. and Alberta saw spikes in coal exports to China from 2021 to 2022, according to Statistics Canada trade data reports: Alberta saw a 396.8 per cent spike and British Columbia bituminous coal was up 66.5 per cent.
As the Canadian export menu shifts alongside China’s consumer demand, it is in the best interest of Canadian producers and exporters to keep a close eye on developments in China this year.
Zero-COVID policy prevails
The country is nearing its third year of strict, on-and-off COVID-19 lockdowns, with no loosening in sight despite extreme climate conditions and energy emergencies, BBC reports. Chengdu, a city of 21 million people in the Sichuan province, remained under strict COVID-19 lockdown during a 6.8 magnitude earthquake that killed over 50 people earlier this month, CTV reports.
Speculation on how long the Zero-COVID policy will last has ramped up ahead of the 20th National Congress of the Chinese Communist Party where President Xi Jinping will likely secure his third five-year term and set the tone for the next five years. Read The Financial Review, The Japan Times, and The South China Morning Post for more from experts on the Zero-COVID policy.
The critical mineral saga
There is no shortage of critical mineral headlines in the news lately. A few concerning China are:
- China refines 40 per cent of the world’s copper, 59 per cent of its lithium, 68 per cent of its nickel and 73 per cent of its cobalt. But China also is a major stakeholder in numerous deposits in the Canadian prairies The Globe and Mail reports.
- One perspective on China’s ownership of Canadian deposits suggests it is not a big deal given the premature stage that Canada’s critical mineral infrastructure is currently at.
- A different perspective, offered in The Globe and Mail, fears that if China pulls out of these Canadian operations, which is not unlikely given Canada’s rising protectionism, overhaul and infrastructure costs will be so high-risk to investors that operations will have to scale back or shut down.
- But China isn’t the only foreign investor in the Canadian critical mineral game. The U.S. Inflation Reduction Act that was announced and took effect last month recognizes the integrated supply chains of the two countries and their prime positioning for joint collaboration, leading to speculation that the U.S. will increase its involvement in growing Canada’s critical mineral sector. Analysts of the bill predict more than CD$400 billion in tax credits, subsidies and funding for energy projects, according to CBC.
- Also, European car makers signed an MOU with Canada to develop joint critical mineral supply chains.
CWF’s Belt and Road and Five-Year Plan Monitor
Stay informed on recent Belt and Road Initiative and Five-Year Plan developments of relevance to Western Canada’s relationship with China.
Earlier this month, the 7th China Belt & Road Summit was held in Hong Kong where state officials and leaders met to discuss the challenges and opportunities of the Belt and Road Initiative under the theme “Heralding a New Chapter: Collaborate and Innovate,” The Globe and Mail reports. And last week, President Xi left China for the first time since the pandemic to visit Kazakhstan, the birthplace of the Belt and Road Initiative. The next day in Uzbekistan, President Xi met with President Putin—see more coverage on this historical meeting from Aljazeera, Reuters, and The South China Morning Post.
Despite coal production ramping up in China, clean energy innovation has not been ignored as Liaoning, a coal and industrial province in the Northeast, has launched a 600-billion yuan ($87 billion) clean energy production plan. Bloomberg reports that through six energy bases of ten gigawatts, the project will generate enough energy to power all of Thailand. Plus, The Global Times reports that as part of China’s push for technological self-sufficiency, China’s Ministry of Industry and Information Technology (MIIT) will create 200 industrial clusters, mainly small and medium-sized enterprises, to promote private domestic industry growth and stabilize employment.
BRI spending shifts
BRI investments abroad have dropped 11.77 per cent in the first six months of this year, an India-based news source, ThePrint, reports. The same source highlights that Pakistan saw a 56 per cent dip in funding, meanwhile oil-rich Saudi Arabia received $5.5 billion during the same period. Sushant Sareen, a senior fellow at the Delhi-based think tank Observer Research Foundation, told ThePrint, “For China, the BRI is a tool to increase its presence and prominence. And — beyond the economics of energy — the pivot to Saudi Arabia is just that.”
A risk-averse BRI
A NikkeiAsia article released last month highlights how crippling debt, implementation failure, dormant construction sites and high unemployment are just a few of the symptoms that countries like Pakistan, Krygyzstan, Sri Lanka, Argentina, Russia, Tajikistan, Venezuela, Zambia, and Iran are experiencing since their involvement in China’s initiative. Currently, 35 per cent of BRI projects face major implementation problems, according to AidData Lab. Plus, many member countries are facing historical debt—Kyrgyzstan’s debt is sitting above $5.1 billion and close to half of that is owed to China, Radio Free Europe reports. Chen Gong, founder of Beijing-based think tank Anbound told NikkeiAsia that “the primary issue [facing the BRI] now is stability, not growth.”
- Trade disruption between Canada and China is likely to continue following China’s standing committee next month. Charles Burton, a senior fellow with the MacDonald Laurier Institute, explains more on the RealAg radio show.
- Canadian officials in Beijing are taking on new responsibilities in Taiwan, The Globe and Mail reports. Plus, Canadian parliamentarians prepare for their trip to Taiwan in early October.
- Canada’s limited military and civilian presence in the Arctic has been pointed out by NATO’s chief as Trudeau is warned that Russia and China have plans to intensify practical operation in the Arctic, CBC reports.
- Canadian Canola and China are breaking up. According to the U of A China Institute, canola is now considered a risky investment for farmers given its fragility to increased temperatures. Canola exports to China are down 42.8 per cent YoY and no longer make it on the top five exports to China ranking.
- A warehouse in Surrey, B.C. will soon be home to a $190 million “World Commodity Trade Center” aimed at facilitating a stronger presence of Beijing-directed business in the region. Lots more on this in the Western Investor.
- And for our foodies: ‘Hong Kong Renaissance’ is a recently-showcased dining series aimed to evolve and promote Chinese cuisine in Canada. More on this in the South China Morning Post.
– Taylor Blaisdell, policy analyst
The China Brief is a compilation of stories and links related to China and its relationship with Canada’s West. The opinions expressed in the links are those of the articles’ authors and don’t necessarily reflect the views of the Canada West Foundation and our affiliates.