China Brief: China, the Indo-Pacific and Canada’s West
Issue 98 | October 2023
In this issue: Belt and Road dominates the news, and in our Indo-Pacific section, Indian trade ok and a spotlight on…New Zealand?!? Yes, New Zealand.
The big news with China is the annual Belt and Road summit
Trade infrastructure is critical to the Western Canadian economy, which is why tracking the BRI is important for western Canadian exporters and makes the Oct 17-18 BRI 10th anniversary annual summit this issue’s top story. The BRI is the largest global funding source for port, rail line, road and transportation hubs – US$1 trillion spent and, according to the U.S. Council on Foreign Relations, potentially up to $8 trillion in the future. Trade infrastructure creates the networks through which our exports pass when they leave Canada and head to international markets. BRI-funded infrastructure also moves competitors’ goods. Western Canada is also home to a skilled engineering and design sector that has much to gain from winning global contracts. In short, the BRI creates both opportunities and challenges.
The BRI 10th anniversary was a BIG party. The official summit website shows 20,000 in-person and on-line participants including about 38 from Canada, about the same as from Australia and double the number from the U.S. Vladimir Putin, who faces an international arrest warrant, made a rare trip outside of Russia to attend. Hungarian president Viktor Orbán also decided to drop in.
What is the BRI? Follow the Huang-brick road. The BRI is Chinese president Xi Jinping’s flag-ship foreign policy initiative. In many ways the initiative is like the analogy of being blindfolded, touching an elephant and describing it; you’ll get different descriptions depending on which part was touched.
The BRI connects global trade infrastructure spokes to a Chinese hub. It seeks to capitalize on demand for trade-facilitating infrastructure while supplying outlets for related goods and services for which China has amassed capability over the course of its rapid economic development. It is part foreign influence tool, part international development project and a lot of making China more competitive. The BRI’s evolution over the past decade is a dominant theme in the news coverage. Understanding that requires a lot of reading. There is a good nuanced, piece in the New York Times for those who have access. On the Chinese side, Xinhua (an official Chinese state news agency) has an English piece that offers the Chinese view. And of course, there is the official white paper by the Chinese government for those with more time. But, don’t take our word – Xi-ing is believing.
It’s not just dams and bridges. Major changes to the BRI include smaller loans, focus on environmental sustainability and, something we picked up in a class from CSIS, a shift to funding training and student exchanges. Part of the BRI is the Education Action Plan for the Belt and Road Initiative which funds education exchanges and cooperation with agreements with 45 countries on mutual recognition of higher education degrees. It funds 10,000 university spaces a year in China for students from BRI countries as well as funded positions for Chinese scholars in BRI countries.
BRI segue into Canadian current events. Canada killed its equivalent of this type of educational diplomacy a decade ago – the Understanding Canada program that that funded foreign scholars to teach courses and hold conferences abroad about Canada. China, on the other hand, is just getting started doing what Canada used to do – shaping the minds of the next generation of foreign leaders. China, with its move of BRI money to training, has figured out what Canada knew a decade ago, when the Canadian Press obtained a 2010 internal report prepared for Foreign Affairs on the Understanding Canada program. The report concluded the Canadian economy reaped a 14-fold return from its $5-million annual investment.
BRI gives China a ‘soft’ trade advantage. For Canadian business, doing business abroad is more difficult if public and private sector cadres, sitting across the table in a negotiation, are trained in and by China instead of Canada or even the U.S. This is doubly worse for Canada if those coming to here for education feel they are being “duped” as the Globe and Mail put it and those bad feelings linger into their, or their relatives’, professional careers.
Fortunately, Canada is re-learning this lesson with the Indo-Pacific Strategy (IPS). Canada’s IPS is an attempt to correct past dis-investment in public diplomacy. Given figures on the 14-1 benefit ratio for the Understanding Canada program, thinking about how to use or influence the use of IPS competency and cultural money, may be something for western Canadian businesses and provincial governments to ponder.
Importance of BRI globally: follow the $, leaving the politics of the initiative aside. The BRI has invested considerable sums, estimates are over US$1 trillion. In 2016, the early days of the BRI, McKinsey estimated a global infrastructure investment deficit of US$350 billion a year, with 60 per cent of the deficit in developing countries. The U.S. Inflation Reduction Act’s US$550 billion over 5 years, or US$110 billion a year, will cut into this. For the rest of the world, the Biden administration is trying to stand up a G-7 initiative, the Partnership for Global Infrastructure (PGII), to raise US$600 billion by 2027 to fund infrastructure projects in the developing world. Announced in June 2022, $600 billion equates to raising US$120 billion a year. In the first year the PGII raised a paltry US$30 billion. Canada’s contribution under the Indo-Pacific Strategy for this type of infrastructure investment is CD$750 million over three years, or US$180 million a year. Meanwhile, according to Barron’s, President Xi just announced an additional US$100 billion of BRI spending at the Summit.
Importance of BRI for China. The BRI is many things, but most important for China is funding economic corridors, two words that will ring a bell with western Canadians. Yes, BRI funds infrastructure for development in Africa but it also funds infrastructure to make Chinese supply and production chains more competitive. The trade corridor focus of the BRI was the subject of a 2019 World Bank study, Belt and Road Economics: Opportunities and Risks of Transport Corridors. There is also an OECD study, China’s Belt and Road Initiative in the Global Trade, Investment and Finance Landscape, that is a deep dive into the six economic corridors under the BRI. For China, the BRI is a planning, coordination and funding mechanism for six trade corridors in addition to the Maritime silk road:
- China-Central West Asia
- China-Indochina Peninsula
- China-Mongolia-Russian Federation
- New Eurasian Land Bridge
And the BRI problem for Canada? As mentioned in the last China Brief, China is investing internally in transportation and logistics to increase trade competitiveness (see New Chinese canal targets ASEAN: in the last issue of the China Brief). Via the BRI, China is financing transportation and logistics infrastructure in linked foreign economies to make its integrated supply and production chains more competitive. The U.S., via the Inflation Reduction Act is spending massively on its transportation and logistics systems to improve its competitiveness. Canada is spending only US$305 million a year to make its trade infrastructure more competitive.
And for North America? All hat, no cattle. While China spends trillions of dollars to make its de facto trade blocs more competitive, no one is funding North American transportation infrastructure to make integrated North American supply and production networks more competitive. A lot of talk about re- and near-shoring to face the challenge posed by China but no money, no strategic planning, no coordination, not even awareness that trade infrastructure is the key to enabling near shoring. So nearshoring – all hat, no cattle. This is a problem for all of Canada, not just the prairies, given our trade dependence on North America. CWF and the George Bush Presidential Center have published on the subject, North America’s Border Infrastructure: How It Limits Global Competitiveness and How to Fix It, and this would be a good item to include in this winter’s North American Leaders Summit.
Other China news
China’s economy is…? According to a story in the New York Times, the Chinese economy grew faster than expected over the summer. The confusion on the economy’s health only increases. We’ll hold to our recommendation from the last issue, cautious pessimism.
Cautious pessimism and falling geese. According to YahooFinance, concern over slumping holiday sales in China have caused iconic Canada Goose’s stock to drop close to 10 per cent on the Toronto stock exchange.
Fields to factories. A story in the Anhui Daily gives a glimpse into improvements in vegetable production through ‘moving fields into factories,’ aka greenhouses. But the piece also touches on transportation improvements. Not earthshattering but worth Google translating to get a sense of the type of smaller developments that don’t get reported but when accumulated lead to big change.
India continues food export bans: For those in western Canada worried about political tensions leading to Indian trade retaliation against Canadian exports, reason not to worry continues to grow. According to Bloomberg and other sources, India has extended its tax increase on exports of rice and cut sugar export quotas. India is the world’s top rice exporter and second largest sugar exporter. In addition to crop production issues, pressure for the export bans comes from looming state elections and federal elections next year. These have made food security and food price inflation major worries, making import bans less likely. Good news for Canadian exporters is bad news for poorer countries and those dependent on Indian exports.
Kiwis turn right. Canada’s ally and Indo-Pacific trade trend setter New Zealand (one of the three originators of the TPP trade agreement) appears to have elected a new government of the centre-right National party, which took 50 of 121 seats in the national legislature, and the further right ACT party took 11, replacing the current Labour government. Reuters has a good overview of timelines for when a new government is expected. There are still votes to be counted and the two right-of-centre parties may need the nationalist/populist New Zealand First Party which took six per cent of the vote. Bloomberg has an interesting side analysis noting that “If Te Pāti Māori wins more seats than its 2.6% share of the party vote implies, it would create a so-called overhang and increase the size of parliament from 120 seats. That would raise the number of seats required for a majority and may see Peters’ support needed for a government to be formed.”
What does this mean for Western Canada? Directly not much, but indirectly it could mark significant movement for a strong ally of the federal government’s progressive trade agenda. Given that the NZ Labour government of Prime Minister Jacinda Ardern was aligned with the current government in Ottawa, it is worth watching what a centre-right- right coalition will mean for cooperation with Canada’s Indo-Pacific trade strategy and especially for the progressive elements. The National Party’s rather short foreign policy statement is here and doesn’t give many clues. An analysis from the Australian Institute of International Affairs suggests that there may not be much change since (as in Canada) foreign policy did not feature (at all) in the election. The Australian analysis of the lack of attention to foreign policy in campaign notes one exception “However, with the exceptions of the Green Party and Te Pāti Māori, New Zealand’s political parties, including Labour and National, generally seem to be putting short-term economic concerns above future climate needs.” So the progressive push may remain, likely through inertia, but not the environmental.
And NZ victory on dairy, a story we should have noted last issue. The National Post’s First Reading newsletter reports on Canada and New Zealand both claiming victory on a dairy dispute under the CPTPP trade agreement with NZ requesting a dispute panel and Australia, Japan, Mexico, Peru and Singapore expressing interest in joining New Zealand. The panel report was released on September 5 with both governments claiming victory. While there were wins for both countries, on balance NZ seems to have come out ahead.
Western Canadian ag exporters and bill C-216 For those concerned about the damage that supply management does to ag sectors that export, the private members bill passed by parliament and now in the Senate that would prevent supply management from being included in future trade negotiations, has been of grave concern. The CPTPP dairy case, and the fact that five other economies – Australia, Mexico, Peru, Japan and Singapore, (which doesn’t even have a diary sector – a dairy farm and goat operation don’t make a dairy sector), expressed interest in joining the Kiwi case reinforces how important other countries, including close allies who do not have large dairy sectors, view the issue. It is also a reminder that as Canada fights for ag trade liberalization in difficult, protectionist Indo-Pacific markets like India, ASEAN and Taiwan, even if these countries do not have significant dairy sectors, supply management can still be a major issue of contention. Removing it from discussion by an act of parliament could easily prompt similar responses from other countries. For the western Canadian farmers who produce two-thirds of what Canada’s ag exports to the Indo-Pacific this is not what is helpful.
– Carlo Dade, Director of the Centre for Trade and Investment
The China Brief is a compilation of stories and links related to China, the Indo-Pacific and relationships 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.