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Sample Essay on China's Trade Relations with Canada

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Sample Essay on China's Trade Relations with Canada

Introduction

Background

China and Canada have a strong and well-established bilateral trade ties. These two nations have a common interest in enhancing their trade relations by increasing mutual trade in merchandise and services as well as investment. In 2009, Canada`s premier visited China for the first time, and the two leaders jointly issued a statement emphasizing the robust trade complementarities that the two nations enjoy. The two leaders further made commitments to improve cooperation and increase joint trade. China`s president equally visited Canada in 2010. These visits together with many bilateral ministerial-level visits indicate the existence of close trade relations between these countries. Both the Chinese and Canadian economies were not severely hit by the global recession. These shared strengths have further promoted the need for strong trade ties. Officials from both China and Canada collaborate on a regular basis through various bilateral investment and trade mechanisms, especially the Joint Economic and Trade Commission (JETC), a forum through which important Chinese and Canadian investment and trade issues are discussed. Another mechanism launched in 2005 is the Strategic Working Group through which cross-cutting trade and political issues are discussed (Delios and Paul 53).

Objectives of the Research

The objective of this research is to examine the relevant data related to the bilateral trade relations between the two countries as a significant step toward enhancing their trade relations. Six sectors will be examined to identify their contributions to the Canada-China trade relations. The selected sectors are: agriculture; machinery and equipment; clean technology; natural resources; services; and textiles and related products.

Review of Literature

            There is sufficient literature on China`s trade relations with Canada.  A study by Department of Foreign Affairs and International Trade (DFIAT) indicates that China was Canada`s third biggest product export market, after the United States and United Kingdom. Canada`s exports to Hong Kong and Taiwan combined accounted for less than a third of its exports to China (DFIAT 10). Based on third party GDP growth forecasts, by 2040, China will move one step ahead to become Canada`s second largest product export market, after the United States(DFAIT(b)19).

            Similarly, from academic literature, Head, Jing and Ries (38) undertook a study to validate various theoretical trade models by using a distinctive data set on imports of various municipalities in China. The authors were the first to examine the sourcing decisions of importing companies in China. According to Ricardo`s theory of comparative advantage, exporters who have the lowest costs should be the monopoly suppliers to a given market, however, importing regions and countries were found to depend on various import sources. The authors made use of detailed data from Chinese customs for the year 2006. This allowed them to demonstrate that in practice, cities in China do not depend on a single low-cost supplier. One major contribution of this study is that even for identical products, most cities in China rarely engage in single sourcing. One major implication of the study by Head, Jing, and Ries is that in China, multinational networks of production imply that foreign-owned companies (some of which are Canadian firms) handle most of the imports. Such companies exhibit strong preference toward their parent countries (Head, Jing, and Ries 34).

            In terms of management literature, various scholars have made their contributions to an emerging literature that seeks to support Canadian companies, particularly the small and medium-sized firms to expand to China. Beginning with opportunities provided by a rapidly expanding economy, management literature focuses on the different aspects of entering the Chinese market. Small and medium-sized firms (SMEs) from Canada have managed to export successfully to China not only by positioning their businesses as a link in the supply chain, but also by investing directly in China through wholly owned subsidiaries or joint ventures. In this way, firms in Canada can participate in transforming the Chinese economy from export processing toward meeting domestic demand. Peng (32) provide answers to questions such as which types of companies should expand to China, where should they be located, and which entry strategy should they adopt. Many SME`s from Canada have successfully established themselves in China. The knowledge that these firms gained in China coupled with the changes in market demand have allowed these SMEs to take advantage of new opportunities, and some of them presently operate as wholly owned Canadian firms in China. This means that domestic demand is increasingly being met from local facilities, meaning that products that were formerly exported from Canada to China no longer appear in Canada`s trade statistics. This implies that exports alone are not an indicator of successful trade ties among the two nations (Peng 32).

Data and Methodology

For this paper, investment and trade flows between China and Canada will be represented in U.S. dollars; one of the most commonly used currencies in international trade. However, in a few instances, Canadian dollars will be used. The figures will be used to make a comparative statistical analysis. For this paper imports from both nations will be used to analyze China-Canada trade relations. Similarly, import data for the two countries will be used to determine the monetary value of mutual trade. All product trade statistics will be sourced from Canadian Parliament records authored by Tremblay and DFAIT study. Other statistics are obtained from the national statistics agencies of the two countries.

Main Issues/Findings
Trade Relations
Two-Way Trade in Merchandise

Over the past ten years, China-Canada trade ties have significantly improved. Presently, China is the number two leading trading partner for Canada, and Canada comes 13th among China`s biggest trading partners. The speedy growth in product trade remained stable even during the global recession as indicated in the tables 1 and 2 below.

Table 1: China- Canada Goods Trade (U.S$ Billions)

 

2007

2008

2009

2010

2011

2012

Canada Exports (Imports from Canada to China)

 

8.9

 

9.9

 

9.7

 

12.9

 

17.0

 

8.9

Canada Imports (Exports Canada from China)

 

35.9

 

39.9

 

35.0

 

43.2

 

48.6

 

35.9

Total

 

44.8

 

49.8

 

44.7

 

56.1

 

65.6

 

44.8

 

Source: DFAIT (b) (4)

Table 2: China- Canada Goods Trade (U.S$ Billions)

 

2007

2008

2009

2010

2011

2012

China Exports (Imports from China to Canada)

 

19.4

 

21.8

 

17.7

 

22.2

 

25.2

 

19.4

China Imports (Exports from Canada to China)

 

11.0

 

12.8

 

11.9

 

14.8

 

21.6

 

11.0

Total Trade

 

30.4

 

34.6

 

29.6

 

37.0

 

46.8

 

30.3

Source: DFAIT (b) (4)

            Notwithstanding the growth trends witnessed in the recent past, the level of bilateral trade for the two nations is just a small fraction of each nation`s global trade. Evidently, many major opportunities still exist that can improve Canada-China trade relations. With regard to goods trade, China is ranked third in terms of the volume of goods it imports from Canada. In 2011, total imports from Canada to China were worth $21.6 billion. Resource-related products account for the largest percentage of Canada`s exports to China. In addition, agricultural products that Canada exports to China are equally significant, especially fish, oilseeds and seafood. While some sectors have witnessed an upward trend, particularly high-end manufactured exports like equipment and machinery, medical and aircraft instruments, the market for resource-based goods in China remains the main driver of Canadian-Chinese (DFAIT (b) 4).

            Between2000 and 2011, Canada`s product imports from China have significantly increased to US$48.6 billion, making China the second largest merchandise supplier to Canada, after the U.S. Canada imports primarily consumer goods like bags, toys, textiles, footwear, furniture and apparel from China. Other Chinese imports that continue to grow include machinery, electronics and plastics. In the 2012-2014 periods, it is evident that the volume of exports from China to Canada still outweighs the volume of imports as shown in the table and graph below.

Table 3: China-Canada trade 2012-2014

 

Jan-Dec

Jan-Dec

Jan-June

Jan-June

 

2012

2013

2013

2014

Exports

19,055,515,362

20,170,655,976

9,823,817,533

9,317,762,941

Imports

50,720,323,806

52,716,736,457

23,501,735,460

26,801,773,160

Trade Balance

-31,664,808,444

-32,546,080,481

-13,677,917,927

-17,484,010,219

 

Source: Asia Pacific Foundation of Canada (1)
Two- Way Services Trade

Trade in services is a significant component of China-Canada trade relations. All sectors of the two economies are made up of important service elements. Technological advancement has significantly broadened the range of tradable services. Services trade is equally an important component of value chains both domestically and internationally. Huge opportunities for improved China- Canada trade in services still exist. Canada is among is an open service economy. Moreover, China has made commitments to open up 62.5% of its entire service sector, which covers 10 out of the 12 service categories under the General Agreement on Trade in Services (GAAS) (DFAIT (b) 3). Estimating the accurate volume of trade in services is difficult because official data available is not categorized by subsector. However, statistics from both China and Canada demonstrate that in the past ten years up to 2011, bilateral trade in services has grown significantly. According to official Canadian statistics, trade in services among the two nations increased two-fold in the last decade, and by 2009, the value of services trade had reached US$2.2 billion.  Similarly, statistics from China indicate that trade in services between the two nations increased by nearly 200% between 2005 and 2010. Over this period, the value of services trade was valued at US$5.4 billion (DFAIT (b) 5). Travel services is one of the top service imports that China imports from Canada, representing 33% of all services imported from Canada in 2009. There is room for more growth in this segment considering that in 2010, China granted Canada the Approved Destination Status (ADS). In 2011, approximately248,887 tourists visited Canada from China, bringing in foreign exchange worth CAD $390 million to Canada. Experts have forecasted that by 2015, ADS will increase the number of Chinese travelers going to Canada by up to 50% per annum. In addition, China procures management, communications, financial, and engineering services from Canada. Although China`s services trade is in deficit, the country has expanded its global share of services trade. Imports of Chinese`s services to Canada nearly doubled between 2004 and 2009. Transportation services account for approximately 50% of China`s service exports to Canada, with engineering and commercial services equally showing remarkable growth. Travel services represent a third of Chinese service exports to Canada. In the 2010 fiscal year, Canadian travelers made nearly 320,000 trips to China (DFAIT (b) 5).

Analysis of Trade Relations by Sector
Agricultural Sector

Canada is a net exporter of agricultural products owing to its small population size. In contrast, China has a global trade deficit in agricultural commodities. Total agricultural trade between Canada-China has expanded significantly in the past 10 years ending 2011. In 2001, the value of agricultural trade for the two nations was worth US$851.2 million. However, by 2011, the figure had increased to US$4.2 billion (DFAIT (b) 6). However, it is worth noting that this trade only represents 2.7% of total China`s trade in agriculture in the international market and only 5.3% Canada`s agricultural with other countries (DFAIT (b) 6). As a result, opportunities for growth in this area are still abundant. Canada takes position 8 among the major agricultural products` suppliers to China. The country`s agricultural exports represented only 3.3% of Chinese agricultural imports (DFAIT (b) 6). In 2011, Canada`s agricultural exports to China were valued at US$3.1 billion. Similarly, China`s agricultural exports to Canada in 2011 was US$1.1 billion, representing only 3.2% of total imports by Canada from the world (DFAIT (b) 6).

Clean Technology Sector

The clean technology industry in Canada is more export oriented, with nearly 81% companies in the sector being exporters and exports contributing 53% of revenues. In 2010, total Canadian exports of engineering and architectural services globally, including clean technology were valued at US$3.0billion. The clean technology products that China imports from Canada increased nearly three-fold over the period 200-2011. In 2001 clean technology imports by china from Canada were valued at US$19.9million. In 2011, the figure had increased to US$63.1million. In terms China`s exports of clean technology products to Canada, the value of products traded has increased much faster than the two countries` bilateral trade. In 2001, Canadian imports of clean technology products from China were valued at US$51million. However, by 2011, the value had increased to US$1,009million. In particular, the importation of solar photovoltaic cells from China has significantly increased from its 2009 level of US$44.7million to US$385million in 2011 (DFAIT (b) 5).

Machinery and Equipment Sector

            Globally, China exports more machinery and equipment than it imports. The country`s expanding domestic capacity has prompted manufacturers to pursue international opportunities. In contrast, Canada imports more equipment and machinery than it exports even though its economy is very export-oriented. Industrial machinery exports account for 6% of China`s exports and 4% of Canada`s exports respectively. Canada-China trade in machinery and equipment has substantially grown over the period 2001-2011, with the average annual growth rate standing at 25%.  Except for a minor reduction during the global recession, two-way trade in machinery between China and Canada has remained stable, with the value hitting the US$4.7 billion mark in 2011(DFAIT (b) 5). For the 2011 fiscal year, Chinese imports of Canadian machinery and equipment were valued at US$697 million. Out of this figure, 89% were products from three categories: plastic and rubber molding machinery, pumps and valves, and mining equipment (DFAIT (b) 5). These categories generated the highest trade volume with China, an indication of major competitive strengths on the part of Canada. Canada has developed industrial clusters with companies specializing in the manufacture of machinery and equipment. In the last 10 years ending 2011, imports of these products by China have grown by 23% on average per annum. Over the same period, imports of agricultural and food processing equipment by China also recorded fast growth. In contrast, machinery and equipment imports by Canada from China are primarily made of construction equipment, mining equipment, valves and pumps that collectively accounted for more than 88% of the US$3.1 billion machinery and equipment imports to Canada from China in 2011 (Azube 1).

Natural Resources Sector

Both countries are well endowed in natural resources. The volume of trade in natural resources for Canada as of 2011 was valued at US$325.5billion. Canada is ranked as the world`s third leading exporter of natural resources. For instance, the country`s energy exports for 2011 was valued at US$105.3billion while its forest products and metals and minerals exports were valued at US$26.7billion and US$83.4billion respectively. Natural resources accounted for 47.6% of its total exports in 2011 (Canada China Business Council (CCBC) 1). Its leading natural resource exports include copper, nickel, crude oil, steel, lumber, iron, wood pulp, and aluminum. In contrast, between 2001 and 2011, trade in natural resources for China had increased by 25.6% per annum to US$798.4billion in the 2011. Presently, China is ranked as the fifth biggest exporter and the second biggest importer of natural resources in the world (CCBC 1).

In terms of trade in natural resources between the two countries, trade in natural resources has increased by an average 29.1% per annum from 2001-2011. In 2011, two-way trade in natural resources between the two countries reached US$15.9billion, and accounted for 22.7% of China-Canada merchandise trade. That notwithstanding, China-Canada natural resource trade only accounts for 1.9% of China`s and 4.3% of Canada`s global trade in natural resources. Canada is position 16 in terms of the volume of natural resources it exports to China. In 2011, China`s imports from Canada was valued at US$12.0billion, which represents only 2% of China`s total natural resource imports globally. Looking at specific natural resources, in 2011, Canada exported just 2% of China`s minerals and metals imports. China is Canada`s number five largest source of natural resource imports. The value of total natural resources imported by Canada from China in 2011 stood at US$3.9billion, accounting for 3.5% of the country`s total imports of natural resources from the international market. Canada`s main natural resource imports are minerals and metals. These resources, account for nearly three quarters (US$3.0billion) of its natural resource imports from China. Similarly, Canada imported forest products worth US$892.1million from China in 2011, representing 23% of its total natural resource imports (DFAIT (b) 3).

Services Sector

Between 2006 and 2009, two-way trade in services between the two countries recorded huge fluctuations due to the effects of the global financial crisis. Despite the fluctuations, the sector maintained a fast growth momentum. Canada-China bilateral services trade are primarily in the areas of tourism, consulting services, transportation services, and insurance services. As of 2009, China was the 7th largest services export market for Canada, with Canadian service exports reaching Canadian $1.1billion. The major service exports included for Canada included commercial services (CAD $249million), transportation and government services (CAD $323million) and travel services (Canadian $569million). In the same year, Canada became the 11th largest source market of services imports, with imports totaling Canadian $1.4billion.The most substantial imports were in the area of travel (CAD $455million) and transportation and government services ($696million) (DFAIT (b) 4).

Textiles and Related Products Sector

China-Canada textiles trade increased from 2005 onwards. In 2011, total textile exports from China to the international market was valued at US$217.9 billion, representing an increase of 21.2% from 2010 and nearly a 500% increase from 2001. Imports of Canadian textiles and apparel to China give a mixed picture. In the ten years beginning from 2001 to 2011, the trade value in this sector declined from its 2001 level of US$69.8 million to only US$34.9 million in 2011 (DFAIT (b) 4). This was primarily due to the drop in volume of low-end textile imports. During the same period, importation of high value added textile products from Canada increased substantially.  Similarly, importation of textiles by Canada from China demonstrated large and consistent annual increments both in terms of share and total value over the period 2005-2011 (except for 2009). In 2011, imported apparel and textiles from China accounted for 38.8 % or $4.7 billion of Canada`s total imported textiles and apparels, an increase from its 2005 figure of 29.7% (US$2.7 billion) (Tremblay 1).

Conclusion

This research has shown that China`s trade relations with Canada contributes significantly to the growth and development of the two nations. However, the volume of trade for Canada and China only accounts only for small percentage when compared to each country`s overall trade globally. This is an indication that significant opportunities still exist in the area of trade that can further promote trade relations between these two nations. The findings from the study indicate that endowed with agricultural products and natural resources that are instrumental to China`s growth and development. Whereas China is also rich in agricultural produce and natural resources, these resources cannot satisfy the demand of the more than 1.34 billion people in the country. As a result, China provides a major and fast growing market for Canadian exports. As a producer of high quality products, supplies from Canada can help reduce inflationary pressures in China in major areas such as food, leading to improved quality of life for the people of China. Simultaneously, China is increasingly becoming a major source of investment capital that is used to promote the development of the abundant resources in Canada. Whereas traditional areas of mutual trade interests between the two countries will remain important, there are various emerging sectors with significant growth potential. For example, China is committed to pursuing clean energy alternatives and tackling environmental problems. All these emerging areas can benefit Canadian businesses by allowing Canadian firms to supply China with state of the art technology and best product and service solutions. On their part, the Chinese can supply Canada with inputs for advanced equipment and materials that will allow producers in Canada to remain competitive. As a whole, China exports more than it imports from Canada, meaning that China has a positive trade balance while Canada has a negative trade balance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Works Cited

Asia Pacific Foundation of Canada. ‘Canada’s Merchandise Trade With China’. Asiapacific.ca. N.p., 2014. Web. 13 Nov. 2014.

Azube, Diego. ‘What Does Canada Trade With China?’. Cbc.ca. N.p., 2014. Web. 13 Nov. 2014.

Canada China Business Council (CCBC).’Canada China Relationship’. N.p., 2014. Web. 13 Nov. 2014.

Delios, Andrew, and Paul  Beamish. International Business: An Asia Pacific Perspective. Singapore [u.a.]: Pearson/Prentice Hall, 2004. Print.

DFAIT (b). ‘Canada-China Economic Complementarities Study’. International.gc.ca. N.p., 2014. Web. 13 Nov. 2014.

DFAIT. ‘Canada’s State Of Trade: Trade And Investment Update 2011’. N.p., 2012. Web. 11 Nov. 2014. 

Head, Keith, Ran Jing, and John Ries. ‘Import Sourcing Of Chinese Cities: Order Versus Randomness’. 2011. Working Paper, version of September 22, 2011, pp.38.

Peng, George. “What Do SMEs Need to Know when Entering the China Market?” SMEEReview/Revue PMEE, June 2012, pp. 28-33.

Tremblay, Pascal. ‘Canadian Trade and Investment Activity: Canada–China’. Parl.gc.ca. N.p., 2014. Web. 13 Nov. 2

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