IN THIS EDITION: Agri-food trade in 2021, the EU-China Comprehensive Agreement on Investment, Experts weigh in on trade implications of China’s fifth plenum

Agri-food trade in 2021

What will the new year mean for Canada and China’s agri-food trade? Wheat has already performed well with China the number one importer of Canadian wheat in the first quarter 2020-2021 at 745,437 tonnes, up from 279,042 tonnes over the same time period last year. Current projections show that China will end the year as Canada’s number one importer of wheat. 

This past year may also give some hint of where agri-food trends will go in 2021. The Honorable Marie-Claude Bibeau, federal Minister of Agriculture and Agri-Food, reviewed the year and found the following:  

  • China came in second in terms of total agri-food and seafood imports at 12.5 per cent, behind the United States at 52.7 per cent of exports and ahead of Japan at 6.9 per cent. 
  • For pork and pork products, China increased its imports from Canada by 191.9 per cent over 2019. Japan and the United States followed at 3.1 per cent increases over 2019. 
  • China saw a 60 per cent increase in canola seed imports over 2019 while France saw a 183.2 per cent increase and the United Arab Emirates (UAE) saw an 89.3 per cent increase. 

Why such increases to France and the UAE? Brian Innes, vice president of public affairs with the Canola Council of Canada, provided an overview of canola trends in 2020. With tensions over China and the banning of imports from Richardson and Viterra in China, the UAE provided a strong alternative while increased biofuel use in the EU created additional demand for canola. Innes also noted that domestic canola demand increased with domestic facilities crushing 722,322 tonnes of canola seed in March 2019 versus 917,992 tonnes in November 2020. 

For pork and red meat, Food in Canada magazine has some predictions. African Swine Fever heavily impacted the pork sector in China, which is why Canada had such a rise in pork imports in 2020. China’s ability to recover (or not) from ASF could influence how much pork goes to China in 2021 from Canada. As China has little domestic production of beef, Canada could see potential as China’s GDP recovers. 

EU-China Comprehensive Agreement on Investment (CAI)

The EU and China recently announced that the parties had concluded, in principle, negotiations on a Comprehensive Agreement on Investment. The CAI will now have to be drawn up and ratified.   

What does this mean for Canada’s agri-food sector? Al Mussell, research lead at Agri-Food Economic Systems, gave his thoughts in a recent interview with BNN Bloomberg. In short, the agreement is risky for Canada and could leave the sector out in the cold. Much like the U.S. did in the Phase One deal with China, the EU leveraged its large economy to get the agreement. There are concerns it could prevent the EU from taking a firm stance on China in terms of trade or other issues at a time when rules-based international trade is already taking a hit at the WTO and Canada is facing uncertainty in its relationship with China. 

Look to the U.S.

Christopher W. Bishop, International Affairs Fellow for the Council for Foreign Relations, examined the United States’ role in the deterioration of relations between Canada and China. As explored in the previous China Brief, Biden said he will contact his European and Asian counterparts to determine a path forward. Bishop argues that Canada should be first on the call list as it deals with the Meng Wanzhou, two Michaels and resultant trade issues. 

CWF’s own Carlo Dade and Sharon Sun recently pushed for Alberta officials to focus on building relations with western governors in anticipation of gridlock in Washington, D.C. as well as continuing to try new engagement tacks with China given the continuing growth in private sector led trade.  

Canada rejects Chinese mine purchase

After a national security review, the Canadian government rejected Shandong Gold Mining Co. Ltd.’s $230 million purchase of TMAC Resources Inc. The review came amidst concerns over China’s purchase of strategic minerals. The Chinese government said that the decision was “wrong” and a “politicization of normal economic cooperation.” Agnico Eagle Mines, the other Canadian gold mining company in Nunavut, instead purchased TMAC Resources Inc. and the Hope Bay mine operations for a total of $286.6 million. 

Side note:  Under the Agreement Between the Government of Canada and the Government of the People’s Republic of China for the Promotion and Reciprocal Protection of Investments both parties have national security review exemptions. Canada’s national security exemption is for any national security reviews under the Investment Canada Act, which was used in this case. Under the agreement, China cannot bring decisions made under this exemption to dispute resolution. 

Everything else

  • Taiwan Foreign Affairs Minister Joseph Wu suggested Canada should join with a coalition of other countries to put pressure on China and possibly impose sanctions on officials for actions in Hong Kong. Taiwan has raised concerns over Chinese military activity in the region. 
  • Federal Public Safety Minister Bill Blair sent a letter to federal members of Parliament as part of the government’s response to the motion requiring a plan to combat foreign interference. The letter recognizes that China used covert methods in Canada to target dissenters and steal commercial secrets and technology. 
  • The Australian Government submitted an appeal to the World Trade Organization over China’s 80 per cent tariffs on Australian barley. While Australia has taken agricultural complaints related to Canada and Indian to the WTO, it is the first time Australia has done so against China. 
  • The United States will not include Alibaba and Tencent in an investment ban but will ban nine other Chinese companies. Previous speculation that the tech firms would be included caused Alibaba’s Hong Kong-listed shares to go down 3.9 per cent and Tencent to go down 4.7 per cent. 
  • Alibaba’s owner Jack Ma, the second wealthiest person in China, has either gone missing or is laying low after the Chinese government prevented AntGroup, an affiliate of Alibaba, from going public. The government has since opened an investigation into monopolistic behaviour and there are concerns Ma is detained while others think he may be waiting out the scrutiny. 
  • Former Minister of Foreign Affairs François-Philippe Champagne joined officials from the U.S., Australia, and U.K. to condemn the latest round of arrests in Hong Kong. 50 pro-democracy activists and lawyers were arrested in the largest mass detainment since the security laws came into effect in June. 

Spotlight Feature

The Question 

A response from Brett Stephenson, Policy and Government Relations Chair, Canadian Chamber of Commerce in Hong Kong, on last month’s question on last year’s biggest stories that didn’t get enough attention in Canada provoked the question this month: 

How will China’s fifth plenum impact Canadian and western Canadian trade? 

The fifth plenum, a major policy meeting held by the 19th Central Committee of the Communist Party of China from October 26-29, 2020, outlined China’s key economic and political goals for 2021-2025. (Chinese text communique here). The 14th Five-Year Plan, the subsequent document drafted based on the directions set forth by the plenum, will be tabled for the national legislature’s approval this March. This month’s responses highlighted some key takeaways on what the meeting and subsequent plan may mean for Canadian and western Canadian businesses, which highlights and emphasizes the areas of focus and concern.

The Insights 

The views expressed in this section are opinions and do not necessarily reflect the views or positions of the Canada West Foundation or the China Brief authors. They’ve lightly edited solely for clarity and to avoid repetition.

Sharon Sun, Trade Policy Economist, Canada West Foundation, Calgary

China’s fifth plenum is the chief planning mechanism and indicator of where the country is headed. While predicting future bilateral political and trade relations with China is difficult, understanding the goals and direction of where it is going makes China more predictable in the types of policies and domestic activities likely to be expected for the next five to ten years. This information can help Canadian policy makers better formulate policy to anticipate, mitigate and manage trade frictions as well as adjust and align to new trade and investment opportunities with China as bilateral trade grows.

As China shifts its priorities from eradicating extreme poverty to achieving a sustainable middle-income economy, a new model is required. The plenum introduced this new model, the “dual circulation strategy” focuses on utilizing and expanding domestic market demand and strengthening consumer purchasing power to drive the economy. This is a shift from China’s export-led growth model, which has been a key driver of the economy since the country’s accession to the WTO in 2001. This will be positive for overall global economic growth and should result in increased trade between Canada and China, particularly in the slow recovering COVID-19 economic environment. If China proposes protectionist measures to favour domestic over foreign suppliers, however, Canada will face increased export competition and difficulties. Nevertheless, China’s emphasis on food security and the projected demand and consumption for agriculture and agri-food shows opportunities for Western Canada’s key export areas. Furthermore, while more information is needed, the model’s second focus on internationalization – furthering trade integration and cooperation – suggests against an increase in protectionist measures. This emphasizes the importance for Canada to engage with China, particularly as a majority of Canada’s agricultural export competitors – such as U.S., Russia and Australia – have new and improved trade deals with China.

Canada West Foundation will have further research analysis and convening events on the plenum and the 14th Five-Year Plan after it is released in March. Stayed tuned for our work.

Geoffrey Paul Ziebart, Chair, China Policy Centre, Ottawa                                                              

It is critical to recognize that, because there are generally no major shifts in policy resulting from political changes during their lifespan combined with the state’s position in the economy – through ownership of both policy and non-policy banks, and key state-owned enterprises as well as the level of consultation with industry groups and research bodies that go into them – five-year plans have real impact and do significantly shift economic focus. A headline on the front page of Canadian newspapers covering new government policies intended to develop targeted industries may have no impact on the investment decisions of the vast majority of Canadian firms. But when the same is reported on the front page of the state-owned China Daily or People’s Daily, the majority of state-owned enterprises and financial institutions and many private sector Chinese firms and investors will spring into action to figure out whether they need to adjust their strategy. Though this doesn’t mean that the central government accomplishes everything that it sets out to do (it doesn’t), or that provincial and municipal governments are perfectly aligned with its goals, it does provide a very important starting point for preparing for what’s likely coming and how it could impact firms’ bottom lines. Western Canadian companies with an interest in China need to be paying attention to the policy objectives driving the market.

Anton Malkin, Assistant Professor, Global Studies, Chinese University of Hong Kong, Shenzhen, China

China’s fifth plenum places emphasis on several key economic priorities that should catch the eye of Canadian and Western alike.

  1. The fifth plenum has placed emphasis on China’s policy of “dual-circulation,” first announced in May of last year. Among other things, this policy aims at stimulating domestic demand and opening more investment opportunities for foreign businesses alike. Raw material exporters should be aware of the long-term down-side of this policy, as it suggests a doubling down on China’s efforts to avoid being stuck in the dreaded middle-income trap. Agricultural commodity exports should pay closer attention to how China’s shifting emphasis on domestic consumption might impact growth in Chinese consumers’ caloric intake.
  2. Policymakers in Beijing are aware of the danger (to China’s economic development) of becoming overly dependent on being an assembler of high-technology import and a processor of raw materials for exports. The policy focus of China’s development is shifting to innovation and ‘high quality growth.’ Coupled with China’s emphasis on energy efficiency and reducing dependence on foreign supply (of technology and energy as well), Canadian exporters should find ways to hedge against market disruptions driven by geopolitics.
  3. At the same time, China’s shifting economic priorities do not suggest a decisive inward turn in every respect. Given the fifth plenum’s emphasis on energy efficiency and carbon emission reductions, the need for technological knowhow in fostering more efficient industrial and agricultural energy use will increase demand for industrial and agricultural clean tech, as well as for energy-saving technology more generally. Given China’s improving intellectual property protection and litigation environment, western businesses and Canadian businesses more generally should take more care to protect and commercialize their technology in China.

Noah Fraser, Managing Director, Canada China Business Council, Beijing, China

Some new language that has emerged from the plenum includes “dual circulation”. While still not completely clear in definition, this new policy supports protecting the Chinese economy from external shocks by boosting local markets and demand. Many are translating this domestic concentration as “protectionism” – but remember that flip side of the “dual” modifier is the “external cycle” – defined as foreign investment and trade, which will continue to be a priority as attracting foreign capital will be critical for sustained growth.

To that effect, while the buildup of internal economic strength will be front and centre, that does not mean that opening up to more foreign imports, technology and investment will be reduced – in fact, quite the opposite. The PRC asserts that the inward stimulation is going to drive international demand and offer greater opportunities for actors globally.

For Canadians doing business with China, there are some nationally vital sectors that will continue to yield growth in light of these announcements. Firstly, Canada is consistently viewed in China as a source of clean, reliable, high-quality exports, including natural resources, raw materials, green technology, agri-food products and more. Companies in Western Canada are thereby uniquely positioned to reap benefits from the discerning tastes and growing disposable income of China’s gargantuan middle-class consumer demographic. Furthermore, our robust financial services ecosystem will massively benefit from the reforms being doubled-down on in this next planning cycle, especially those working in the fast-liberalizing capital markets, burgeoning insurance world and the expanding social security system.

John Gruetzner, Head of Fundraising, China Policy Centre, Ottawa

Western Canada should note in the fifth plenum and the Central Economic Work Conference the strong emphasis on renewable energy and shift away from coal. This creates an opportunity for natural gas exports but will impact China’s demand for oil as it shifts to electric vehicles. It does, however, create opportunities for western Canadian nickel and other battery focused metals projects. There is a major opportunity for Alberta to develop a carbon fibre to reduce the pollution from the steel industry. There is also an opportunity to deliver biodegradable petroleum-based plastics to service China’s new war on municipal waste.

The emphasis on food security is going to drive the improvement of agricultural yield through investment and technology. Muyuan Foods for example has announced its plans to raise 2.1 million hogs in one location. Another threat to Canadian agricultural exports is the commitments that China has made already and will be financed under its Belt and Road Initiative to diversify its supply chain to secure imports of agricultural commodities and protein.

As part of its commitment to advance domestic agriculture under the plan, the Chinese government has expanded its regulatory acceptance of genetically modified agricultural products and seeds.US-based Corteva has responded to this and obtained approval to import its next generation of genetically modified soya beans.  This builds on Corteva’s current market success in China that has occurred in a market that was overshadowed by the purchase by ChemChina of Syngenta in 2016. Corteva’s success proves that shifting from trading with to being on the ground in China works.  As China’s policy for the use of genetically modified seeds evolves, close attention to compliance under trade and intellectual property agreements will be important.  Another growing opportunity in the food sector is in the next generation of urban Millennials who know just as much or more about oak milk and quinoa as their North American counterparts. Both of these products are part of Western Canada’s own private sector agricultural diversification plans.

Xiaoting (Maya) Liu, Program Specialist, Digital Asia, Asia Pacific Foundation of Canada, Vancouver 

The idea of “dual circulation,” highlighted as one of Xi’s signature strategies in the forthcoming development period, emphasizes the stimulation of domestic production, distribution, and consumption, while looking to balance foreign trade and investment. This could mean both an opportunity and a threat to Western Canada, since its most exported goods to China – crude material, agri-food, and the like – could potentially benefit from increased demand for domestic consumption in China if planned well. But at the same time, these sectors also tend to be highly susceptible to influences from international competition and geopolitical risks that push China to seek other suppliers, especially given the unfavourable situation that we are currently in.

Another most discussed point since the outline’s release is the reaffirmation of innovation being at the “core of the country’s modernization.” Investing in boosting tech capabilities has already been a top priority in the past decade’s FYPs, but the accent put on making “major breakthroughs in core technologies” and endogeneity in the 14th FYP could entail more particular responses to the ongoing China-U.S. technological rivalry in the actual plan to be finalized in March. With China looking to achieve self-sufficiency and lessen dependence on foreign tech imports, Canadian companies currently exporting products and technologies to China could face more pressure in searching for new markets beyond China in the years to come. Successful examples of Sino-Canadian tech collaboration and joint ventures have been playing a significant role in China’s energy efficiency ecosystem, while changes underway might require strategies to be adapted to best fit a new innovation landscape.

– Stephany Laverty, 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.

 

 

Cover image by Jonas Zürcher on Unsplash