IN THIS EDITION: Round up on Roundup and Western Canadian bubble tea retailers, What New Zealand’s challenges on China relations show Canada, Experts discuss what it will take to move the needle on diversification

Canada West Foundation’s weeklong, virtual symposium “China’s Latest Five-Year Plan: Insights for Western Canadian Trade” kicks off on Monday, May 10. The first session features an armchair discussion with Canada’s Ambassador to China, Dominic Barton, hosted by Canada West Foundation’s President and CEO Gary G. Mar. Other sessions feature experts from across Canada and China looking at what the Five-Year Plan means for trade in agriculture, energy and climate, service industries as well as ongoing challenges from the plan’s rollout. The symposium is an opportunity for those in Western Canada who trade with China or are affected by trade with China, as well as the institutions that work with these businesses, to dive into China’s 14th Five-Year Plan (2021-2025). The symposium provides an introduction to China’s latest FYP and how it affects specific sectors of interest to Western Canada, as well as insights on how businesses can use this information.

See the full schedule here and register.

Round up on Roundup and Western Canadian bubble tea retailers affected as shipping delays hit Asian exports

North American farmers, boba and pineapple importers are all facing challenges as shipping delays lead to port congestion in Asia – a supply chain headache that is being felt on a number of fronts, including by Western Canadian sellers of popular bubble tea. The delays are largely in Shanghai, China, and Port Klang, Malaysia. The Suez Canal blockage stalled container availability and impacted an already strained system (see this previous China brief for more). Even intra-Asia trade is affected with Asian countries working to increase capacity on those trade routes to exchange and complete goods as much as possible within the region before exporting to their final destinations.

Farmers in the United States report shortages of glyphosate (Roundup) and glufosinate (Liberty) from China due to shipping delays as well as higher demand. According to Sam Taylor, a Rabobank analyst, “there is some real risk that farmers will incur some higher active ingredient costs on the big names – glyphosate, glufosinate and atrazine in particular […] a double whammy of increased freight and increased active ingredient prices.

Meanwhile, a shortage of boba, the tapioca pearls used to make bubble tea, could dent bubble tea sales across the country. Calgary-based bubble tea wholesaler AB Distribution says that its boba supplies are down. It received a shipment scheduled for March only this past week. Royaltea in southwest Calgary says its supplier is limiting customers to one box per customer, which lasts about four days. Bubble tea is quite popular in Western Canada. Metro Vancouver hosts Canada’s largest bubble tea festival each year and major cities in the other Western provinces have an abundance of retailers over 150 in Vancouver and over 100 in Calgary alone – and eager customers.

What New Zealand’s challenges on China relations show Canada

As Canada determines how best to manage growing trade with China amid political turbulence, New Zealand is asking some of the same questions. As Tim Hunt, Head of research at Rabobank Australia and New Zealand, asks: “Can [New Zealand] continue to maintain quiet diplomatic relations or will things go in a direction where it has to become more vocal and therefore risk being drawn into the same trade battle that Australia finds itself in now?”

China is New Zealand’s top export market and Canada’s second leading export market. The United States is Canada’s top export market. China receives a third of New Zealand’s agricultural goods, predominantly dairy. The trade relationship was valued at $19 billion in 2020.

On the intelligence front, Canada and New Zealand are both members of Five Eyes as is the United States. However, New Zealand’s Foreign Minister Nanaia Mahuta “stressed a preference for a more independent stance on relations with China” while Canada has largely held with Five Eyes.

On the trade front, diversification seems to be the focus for both countries to avoid overreliance on one trade partner. Minister Mahuta recently said “The long term resilience for New Zealand businesses and traders and exporters is to look to the diversity of relationships, yes across the region and further afield, to be able to buffer some of what consequently may be a negative impact.” (See our spotlight question on diversification and China at the end of this brief.)

Minister Jim Carr, special representative for the Prairies, recently said of the Canadian government’s efforts to push businesses to diversify  “I feel confident we’re going to emerge out of this stronger because of our commitment to diversification, more investment in trade commissioners and beefing up CanExport. I believe that 2021 will be a more optimistic year, and I’m actually quite bullish about our prospects.” Canada West Foundation’s Director of Trade & Investment Carlo Dade notes there is scant evidence of past success in government-led diversification efforts with the US.

Pandemic losses shutter Canadian pilot bases

Cathay Pacific will close its pilot bases in Canada – located in Vancouver and Toronto. The Hong-Kong based airline reported an annual loss of HK $21.62 billion in March. Pilots may get the opportunity to voluntarily relocate but such a move is difficult as Hong Kong pilots also need jobs and visas under current policy would be short term. The company is considering a similar move in Australia and New Zealand; a review of European and American pilot bases will take place later this year. Company pilots in Canada received two-thirds of their salary while furloughed through the pandemic, U.S. and European based pilots received half while Australian pilots received no compensation. Calgary-based WestJet most recently laid off 415 pilots on April 1, 2021, due to the pandemic and decreased flights.

Prior to the pandemic, Canada faced a pilot shortage as increased demand from Asia and India required additional flights. 2018 projections estimated that Canada would need 7,500 new pilots by 2025. China was set to be the lead travel destination in 2022 as China’s middle class grew and began to travel more. Flight schools in Canada, the U.S., and Europe were set to train the incoming generation of domestic and Asian pilots. As travel recovers from the pandemic, a recent Oliver Wyman study estimated that the global gap in pilots will reach 34,000 pilots by 2025.

In other news

  • The World Trade Organization’s new WTO’s Director General Ngozi Okonjo-Iweala recently advised countries that China needs to be brought to the table on discussions and shown that the reforms are not specifically targeted at China.
  • In news of interest to Canada’s energy sector, Chinese sovereign wealth fund China Investment Corporation and other Chinese national oil companies are involved in talks to buy shares of Saudi Aramco. Read the full exclusive in Reuters.
  • Something for western agriculture producers to keep an eye on, recent media reports said that China had its first population decline in 2020 since records started in 1949; the total population for 2020 is said to be under the 1.4 billion in 2019. China has challenged those reports and pushed back the release.
  • In a move that may pressure Canadian universities, the U.S. will reportedly allow Chinese students and other international students to return for in-person classes this fall.
  • The Globe and Mail took a close look at the University of Alberta’s research ties to China. A 2005 agreement with China’s Ministry of Science and Technology has meant “U of A researchers have gained access to at least 50 state labs in China, while upwards of 60 professors have received grants for more than 90 joint projects with state and national Chinese labs.”
  • Teck Resources reports Chinese demand for refined copper is now above pre-pandemic levels. Manufacturing, construction, and infrastructure spending are primarily responsible for the increase.

Spotlight Feature

The Question  

Diversification is continually raised – in Parliament, the media and policy circles – as a priority for Canada. While the push arguably began with the US, today the focus is increasingly on China, for a host of reasons that go beyond economic dependence. Given that past efforts to nudge, cajole and entice Canadian firms out of the US market have not been a runaway success, and given that China is a different market and relationship, what specific, concrete measures beyond rhetorical cajoling could be done by federal, provincial and other government entities and crowns to – significantly – move the needle on diversification from China?

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.

 Peter Casurella, Executive Director, SouthGrow Regional Economic Development (Southern Alberta)

It is difficult for a producer or manufacturer to diversify into new markets, because (1) it is just easier to work with what you know and (2) its hard to develop new business contacts and ties in a new location without a network to leverage. I’ve often thought that what would be really helpful is a team of analysts who understand different countries and whose job is to look for market opportunities in different geographic locations. Those market opportunities would then be handed down to Canadian industry associations and business groups along with introductions to the people at Export Development Canada who can help turn the market opportunity into a real endeavor.

Michael Mitchell , former Assistant Deputy Minister, Trade and Export Development, Government of Saskatchewan

Companies have invested a great deal in the China market over the past decades.  Unless there is a war, it is unlikely they will uproot themselves from a market like China to move to elsewhere in Asia.  However, their success in establishing themselves in China bodes well for them to expand.  The role of government? Government’s role is a quiet one of disseminating information and bridging relationships by providing some additional level of trust. Governments at all levels in Canada have been doing this in Asian countries outside of China. But treating China as a more mature market and shifting some resources might make business as well as geopolitical sense.  The companies already in China will likely be the ones most ready to expand to other countries.  They are the ones I would talk to first, both about expanding and about concerns they might have of changing priority markets.

Commodity producers in Canada are aware of the market in Asia.  However, as Asian economies mature, there will be a greater demand for services to meet consumer demand.  Information about services, with the exception of education services, has not been a focus of government.  The education sector has the easiest path to diversify its markets, but there are other opportunities that are opening.  Governments need to provide better data to companies on services and to connect Canadian companies with trusted actors across Asia.

Lastly, government needs to be honest about its role.  Resources are limited.  Asia is a big place.  If expectations are in line with resources, resources can be better allocated and justified.

Dr. Stephen Nagy is a senior associate professor at the International Christian University in Tokyo, a fellow at the Canadian Global Affairs Institute (CGAI) and a visiting fellow with the Japan Institute for International Affairs (JIIA). Twitter handle: @nagystephen1

A modest yet accelerating selective diversification from China is already occurring in select sectors associated with profitability, competition, geopolitics, and lessons learned from the COVID-19 pandemic. The Federal government’s assistance needs to be informed by these long-term trends. Labor costs and competition are bifurcating the production network for low added value products to Southeast and South Asia for local consumption but retaining a footprint in China for Chinese consumption.

Ottawa should not take a zero-sum approach with China. It needs to remain engaged to take advantage of China’s comparative advantages while supporting pre-existing selective diversification initiatives such as the Resilient Supply Chain Initiative (RSCI) initiated by Japan, Australia, and India while identifying Canadian comparative advantages to add value and create opportunity for Canadian businesses.

Geopolitical competition in the tech realm is severe. Top-tier, semi-conductor supply chains and other sensitive technologies are diversifying away from China towards a trusted network of like-minded states. Ottawa must support Canadian tech firms to be at the forefront of this relocation through supporting joint ventures, subsidies to re-locate, and investment in tech supply chain diversification with trusted partners.

The COVID-19 pandemic also revealed the dangers of an overly centralized global production network and its vulnerabilities to an endogenous shock. Ottawa needs to support Canadian businesses to build indigenous production capacity in specific sectors such as personal protective equipment (PPE), pharmaceuticals, amongst others. Part-in-parcel of these efforts should include support for strengthening the resilience of supply chains in Canada and with trusted partners.

Carlo Dade, Director, Trade and Investment Centre, Canada West Foundation

One of the easiest, but often overlooked, paths to diversification is to make new products for new markets. Canadian agriculture exports to China are a good example of where this can work.

Take the case of the export crop for which Canada is most dependent upon the Chinese market peas (not canola) where that country took over 70% of Canada’s exports last year. As Canada moves to process more peas at home to meet rising global demand for plant-based protein products it not only adds value in Canada it changes the potential export markets. China is awash in plant protein that is a leftover by-product from using bulk, imported Canadian peas to primarily produce noodles. This gives Chinese alternative meat giants like Whole Perfect Food a ready supply of cheap processed plant protein inputs and creates natural market barriers for Canadian exporters. As Canada processes more peas at home for plan protein ingredients, those peas, in a new form, will naturally ‘diversify’ to other markets.

For canola, the combination of new crushing capacity and a new renewable-diesel fuel requirement as part of Canada’s new Clean Fuel Standard, could have the same effect. Former Canola Council of Canada VP, Brian Innes estimated a new renewable-diesel requirement could create a new market for over two million tonnes of canola per year. This would almost replace the 2.5 million tonnes of bulk canola that Canada exported to China last year. While there are environmental issues and concerns from some quarters with using food for fuel, from a national and trade security perspective, it is more of a slam dunk. But even without the renewable-fuel play, simply switching from exporting bulk seed to oil would eliminate the dockage problems that allowed China to block Canadian exports. Canada has 4.5 million tonnes of new canola crushing capacity planned to be on line by 2024.

The role for government in all of this is facilitating the development of new products and assistance in overcoming the natural intransigence of export pathway dependencies, or “the old and easy way” of selling the same products to the same customers. Identifying and mitigating risks to producers in switching to new products, investment attraction for new industries and investments in new trade infrastructure for new products and new markets are all in the government wheelhouse.

– 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.

 

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