History may not repeat itself but sometimes it rhymes. A hundred years ago, Britain was contending with the rising new powers — Russia, United States, Japan and, especially, the new contender, Germany. We know how that worked out.
It would be the bloodiest century in the history of mankind. Graveyards in Europe and Asia are a reminder that Canadians do not live in a fireproof house and underline why Canadian foreign policy since the Second World War has been characterized by a commitment to collective security and an active, global internationalism.
Today, the US is contending with the rising new powers — Brazil, a renascent Russia, India and, especially, the new contender, China. Managing the China relationship for the 21st century will be as important as the German question was for the last century.
By 2030 China is expected to have the largest economy in the world, generating twice as much trade as the US. Since Deng Xiaoping moved away from central planning to “reform and opening up” in the late 1970s, China has consistently demonstrated a willingness to be a responsible player and play according to “Western” rules, in stark contrast to an earlier era when China systematically tried to destabilize its neighbours and spread communism. It has joined all the major economic institutions, arguably opening its economy more than Japan and India. It has resolved many of its border disputes with its 14 neighbours, including the perennial problem of an arms race across the Taiwan Strait.
The World Bank reckons the Chinese “miracle” has pulled 400 million from poverty and on almost every scale: meat consumption, living space, education. China leapfrogged Britain, Germany and then Japan to become the world’s second-largest economy. Hosting the Olympics in 2008 was a demonstration that China had arrived. Last year it was the site for the Shanghai World Expo. While I was there this past summer, it hosted the Universiade in Shenzhen.
The miracle is not without warts. Chinese treatment of dissidence can border on the paranoid — witness its ongoing demonization of the Dalai Lama and clumsy treatment of Nobel Peace Prize winner, Liu Xiaobo. Social unrest is an abiding preoccupation with the fear, as Mao put it, that “a single spark can start a prairie fire.” Its 35 different minorities number over 100 million people, or about 8.3 percent of the 1.3 billion population. Chinese nations and the autonomous regions of Tibet, Inner Mongolia and Xinjiang make up over 40 percent of Chinese territory.
Graveyards in Europe and Asia are a reminder that Canadians do not live in a fireproof house and underline why Canadian foreign policy since the Second World War has been characterized by a commitment to collective security and an active, global internationalism.
For the Chinese leadership, domestic stability is fundamental to progress, and this has led to celebrated confrontations, especially with regard to freedom of information. Examples are those with Rupert Murdoch’s SkyTV (which led to the withdrawal of their distribution of BBC News) and more recently with Google over Internet freedom. The poet and performance artist Ai Weiwei, incarcerated earlier this year, has observed that “China is like a runner sprinting very fast but it has a heart condition.” The recent smash-up of its high-speed train is a reminder of a sometimes too reckless pursuit in attaining technological milestones. But generally, Chinese leadership has demonstrated courage in their domestic economic reform and behaved with restraint on the international stage.
China is now the alternate economic centre to the United States. It is also America’s biggest creditor. It has surpassed Germany as the world’s biggest manufacturer. It is becoming the alternate military pole to the United States, and while far behind in sophistication and technology, it is coming up fast, especially on the employment of cyber-intrusion. Any effort to deal with climate change will have to involve China. It is the world’s biggest carbon emitter, although the United States, Australia, Europe and ourselves emit far more per head, but it is also embracing alternative sources, and as I witnessed during a trip to China this summer, solar energy is already in application even in Lhasa.
Canadians have an interest and role to play in ensuring that the international system responds to the changing concert of powers and that China, in particular, is accorded place, standing and respect in a new order built on peaceful, competitive dynamism.
Gamed out in thrillers like Matthew Glass’s Ultimatum or Alex Berenson’s The Ghost War, the alternative scenarios will harm Canada: SinoAmerican divisions on currency, climate change and trade leading to the collapse of globalization, a reversion to protectionism and isolationism in the US, the stagnation of reform initiatives in China and, ultimately, military confrontation over the Straits of Taiwan.
Our geography and demography give us cards to play and through skillful diplomacy Canada can play a constructive role in keeping the Sino-American relationship on track. But first we have to develop a “smart” relationship with China. It is never easy dealing with the Middle Kingdom, but by focusing on people-to-people connections, we will build trust that will both serve our commercial interests and advance our ability to play constructive internationalism.
Canada starts with a couple of advantages.
First, our history. Still a staple in Chinese liturgy on Canada is the legacy of Dr. Norman Bethune and the remembrance that Pierre Trudeau defied conventional wisdom and the US when Canada recognized China in 1970. Our recognition led a procession of some 30 other countries to apply what came to be known as the Canadian formula. Subsequent prime ministers, especially Brian Mulroney and Jean Chrétien, also recognized the importance of the Chinese relationship. Without kowtowing on human rights, they got their message across in a manner that preserved “face.”
Second, our existing people-to-people ties. While the US has always been the main destination for Chinese migrants, on a per capita basis, Canada is the most popular country for resettlement. Chinese migrants made a contribution to building our country since Chinese shipwrights built the first ship on the West Coast. Since 2000, China has supplied 15 percent of our immigrants, making it the largest source country, averaging well over 30,000 immigrants each year, with a high of 42,000 in 2005. Include immigrants from Hong Kong and Taiwan and the total rises to closer to 33,500 annually.
Nearly 1.4 million Canadians claim Chinese ancestry, with most living in our major metropolitan areas half a million in Toronto, 400,000 in Vancouver, more than 80,000 in Montreal, 75,000 in Calgary and 45,000 in Edmonton. Business-to-business relationships are actively promoted through the Canada-China Business Council and the Hong Kong-Canada Business Association.
China was largely ignored during the early years of the Harper government. As Premier Wen Jiabao bluntly told Prime Minister Harper during the November 2009 visit to Beijing, “This is the first meeting between the Chinese premier and the Canadian prime minister in almost five years…Five years is too long a time.”
It was an error in judgment. It had put in the deep freeze the comprehensive partnership launched in 1997 after a series of successful Team Canada missions led by Prime Minister Jean Chrétien. The hiatus after 2006 reflected the lingering effect of Reform Party roots on the new Conservative Party and the former’s alignment with the Taiwan lobby, a legitimate concern about human rights abuses in China, a preoccupation with the domestic agenda and the exigencies of minority government that made long trips difficult.
China is now the alternate economic centre to the United States. It is also America’s biggest creditor. It has surpassed Germany as the world’s biggest manufacturer. It is becoming the alternate military pole to the United States, and while far behind in sophistication and technology, it is coming up fast, especially on the employment of cyber-intrusion.
A good relationship between the top players is essential, particularly in the case of China, where so much commercial activity is directed by state-owned enterprises or sovereign wealth funds. Through their own post-government business visits, former prime ministers Chrétien and Mulroney preserved their “old friend” status, recognizing that astute management of our relationship with China offers dividends, especially in Washington. Beginning with the appointment of Ralph Collins in 1971, we have been well-served by our successive ambassadors and our expanding network of consulates. Our provincial premiers, especially those in the West, Ontario and Quebec, have usefully sustained political-level contacts during the federal-level hiatus.
Canadian companies, notably Bombardier, have found success in the Chinese market, supplying several of China’s national key projects, including the Automated People Mover at Beijing Airport, the high-speed link between the capital and Beijing Airport, the Shanghai Metro and the Wu-Guang rail line.
The Harper 2009 visit produced a series of agreements, involving climate change, cultural exchange and travel. China’s granting Canada “approved destination status” is a concession that will allow travel agents to vigorously promote travel to Canada and boost tourism.
During the past two years, there has been a steady flow of senior political visits, including the state visit of President Hu Jintao to Canada in June 2010 where the leaders committed to raise the bilateral trade volume to US$60 billion by 2015.
China is not yet an “ally,” as Foreign Minister John Baird termed it during his July 2011 visit to Beijing but the tone is now right. As Harper prepares for his next visit to China, his first objective should be on improving people-to-people relationships with a focus on tourism, education and immigration.
With greater disposable income and wanderlust, the Chinese government reckons that by 2015 there will be 100 million outbound travellers a year from China. A 2010 study conducted in Beijing, Shanghai and Guangzhou and sponsored in part by the Asia Pacific Foundation found that Canada was ranked third, after Australia and Singapore, as a favoured destination because of our natural beauty, skiing and wine. Approved Destination Status makes a difference: in 2008 total visits were 159,000; for the first half of 2011 there were 160,000 visits
Earlier this year the Canadian Tourism Commission began direct-to-consumer advertising in China, aiming to position Canada as a destination of choice for high-spending Chinese travellers. Daily direct flights to Shanghai, Beijing and Hong Kong are essential, and we should also begin exploring secondary hubs like Chengdu, Hangzhou and Guangzhou.
Tourism, of course, is a lure for both investment and study, and in marketing their universities, colleges and schools Australia again sets the bar. We once enjoyed the lead in educating Asians studying abroad but we let our advantage slide. Closing the Canadian Education Centres, a useful and practical child of the Asia Pacific Foundation, in 2009 was short-sighted.
Today, there are over 130,000 Chinese studying in Australia, almost twice the 70,000 studying in Canada. As I learned first-hand during my five years in Hong Kong, the ties created through education not only bring a lifetime of dividends to the host institution of alumni endowments but also open doors at the highest level. At one point, three-quarters of the Singaporean cabinet had done some schooling in Canada.
It’s not just a long-term investment. In 2008, Foreign Affairs estimated that the 178,000 international students in Canada spent over $6.5 billion, a figure greater than the value of our exports of coal and lumber. Education services are Canada’s number one export to China and the second-largest export to South Korea. Research also revealed that servicing international students generated more than $291 million in taxes and provided employment for over 83,000 Canadians.
According to the Chronicle of Higher Education, the number of students going to university between 1990 and 2007 increased by 22 percent in North America, 74 percent in Europe, 144 percent in Latin America and 203 percent in Asia. As the Canadian CEO of McKinsey, Dominic Barton, observed earlier this year at a Brookings Institution symposium, we start with an advantage because “demand for education in the US and Canada among Asian post-graduate, postsecondary students is roughly 5 to 6 million people.” As China opens for investment, we are also situated at the crossroads of the world’s two main legal traditions, the civil law and common-law systems.
We should start by vesting the Trade Commissioner Service with responsibility for education marketing, working in cooperation with our provinces, universities, colleges and boards of education. For inspiration look to the successful Maple Bear elementary schools. Now in 80 locations globally, they attest to the portability of Canadian education.
Commerce is our second objective. Since the Canadian Wheat Board signed its first contract with the PRC in 1961, Canadian companies that have been willing to invest time and effort are making money in China, subway cars, potash and uranium. The grain trade continues to be significant. During the past half century, China has imported more than 120 million tonnes of western Canadian wheat and barley — enough to make 279 billion loaves of bread and 55 billion bottles of beer. The world’s largest brewer, China is the largest importer of western Canadian malting barley. Canada is the largest softwood lumber supplier to China and, during the first six months of 2011, the value of BC’s softwood lumber exports to China surpassed, for the first time ever, those to the US.
With regard to Chinese direct investment, we’ve got a long way to go. The Department of Foreign Affairs and International Trade (DFAIT) put Chinese foreign direct investment (FDI), or what they define as an investment involving a long-term relationship, a lasting interest and a significant influence on the management of the company — at $14.5 billion in 2010.
As we’ve seen with China Investment Corporation’s investment in TECK, it can be a win-win proposition for both sides. But it hasn’t always worked out as well. China Minmetals’ effort to purchase Noranda in 2005-06 was aborted in the face of Canadian concerns about human rights, resources scarcity and a sovereign-owned entity of a foreign government buying a Canadian “crown jewel.” It left the Chinese (and others) wondering how open we were for investment, and the BHP/Potash experience has underlined the requirement for greater clarity in our foreign investment regime. We should act on the Competition Policy Review Panel recommendations (2008) to increase the thresholds for the size of review of foreign acquisitions and shift the onus from the investor having to prove “net benefit” to the minister having to prove “net harm.”
The Chinese government puts Canadian direct investment at $7.7 billion (in comparison US FDI in Canada is $306 billion and Canadian FDI in the US is $249 billion). Scotiabank recently made a $700-million investment in the Bank of Guangzhou. Negotiations for a foreign investment protection agreement began in 1994 and a deal is overdue.
The Chinese government’s 12th Five Year Plan, released last March, identifies seven strategic emerging industries, including life sciences, energy and the environment, IT, manufacturing and “clean energy” vehicles in which they are prepared to invest.
Each of these presents opportunities but be prepared to spend considerable time and effort developing “guanxi” or trust with Chinese CEOs and government officials as a precondition to progress. Transparency International ranks China 78th on its 2010 Corruption Perception Index (Canada ranks 6th), and insider trading is a problem.
Hectoring doesn’t work. Instead, what is required is cultural empathy, finesse and patience and a mindfulness of the 3 Ts — Taiwan, Tibet and the June 1989 events in Tiananmen Square — and the one F — the Falun Gong sect. This does not mean that we need to “leave our values at the door when we talk to China’s leaders, nor to go into every discussion on one knee,” as Chris Patten, the last governor of Hong Kong, has observed. Instead we should strive for a cooperative approach, what Henry Kissinger describes in On China as a “co-evolution,” and recall the Chinese proverb “Deal with the faults of others as gently as with your own.”
For Canadians, Hong Kong remains the best entry point to Greater China. Hong Kong is Canada’s fourth-largest market in the world for seafood, beef and meat products and a market for a wide variety of goods and services such as telecommunications devices, train signaling systems, educational and financial services. After Tokyo, Hong Kong is the largest financial market in Asia and the most popular destination in Asia for Canadian FDI at $6.2 billion, almost 50 per-cent higher than for Mainland China, and close to that invested in Japan ($7.3 billion) and significantly more than that in India ($492 million.
The grain trade continues to be significant. During the past half century, China has imported more than 120 million tonnes of western Canadian wheat and barley — enough to make 279 billion loaves of bread and 55 billion bottles of beer. The world’s largest brewer, China is the largest importer of western Canadian malting barley.
Our consulate reports that 15 Canadian companies have established their regional headquarters in Hong Kong, with a further 33 maintaining regional offices and 44 more with local offices. The Canadian Chamber of Commerce in Hong Kong numbers over 1,100 members. The territory is home to over 150,000 alumni of Canadian schools, another great entrée to doing business. Getting there is also easy, with 76 direct scheduled flights each week from Vancouver and Toronto to Chek Lap Kok Airport.
As we prepare for the next prime ministerial visit to China, consider four initiatives that combine mutual interests with opportunity:
- Market our educational institutions. Why not a Team Canada education mission led by the prime minister accompanied by the leaders of our universities? Aim to double within five years the number of Chinese students in Canada with technology partnerships, built around university “smart” parks as a cornerstone to fraternal institutional arrangements.
- The Canadian experience with management of diversity, including official languages, is a major asset and, as the Aga Khan observes, “shareable.” Let’s offer our Official Languages Commissioner and his predecessors to share their experience in addressing the needs of minorities in support of China’s internal evolution.
- Sponsor China for membership in the Arctic Council. Much of the cargo that will eventually be carried through the northern routes will be stamped “Made in China.” Western strategy over the past half century has been to integrate the outliers into the legal governance framework that has been carefully constructed to provide security and stability. The Chinese want in and have a plan for polar exploration. We should put out the welcome mat.
- Launch a “clean energy and mineral resources” dialogue, building on the 2009 commitments to widen cooperation on climate change and mineral resources. Establish an ongoing dialogue between Canadian CEOs with their Chinese counterparts. Recent investments by CNOOC Ltd. (2005), Sinopec (2009-10) and PetroChina (2009) in the oil sands illustrate their interest. Building on our historical advantages and then drawing on these new initiatives will give us insights and understanding that we can leverage with the rest of the world, but especially in Washington where the debate in managing China is ongoing. Smart people-to-people policies is key. Our Chinese diaspora and their ties throughout Greater China give us a head start in developing a “smart” relationship with China.
The China question is the challenge for the 21st century. The West, including Canada, has teeter-tottered between two conflicting approaches, one stemming from the missionary experience and the other from the realist school of interest and power. Too often, China is either damned or romanticized, but these passions are not the basis on which to make policy. Henry Kissinger relates in The White House Years that it took 18 months of behind-the-scenes negotiations before he secretly visited Beijing, and another seven months of tough discussion before Nixon went to China. Dealing with China will be a long game requiring patience, perseverance and hard bargaining. We need to get it right, because the alternative is too grim to contemplate.