Firms cannot stay out of China
Sep. 23, 2005. 01:00 AM
DAVID CRANE
In its latest World Economic Outlook released this week the International Monetary Fund forecasts continued strong growth in China. In fact China continues to contribute more to global economic growth than the United States, despite the fact that the U.S. economy is much bigger.
And while China is forecast by the Organization for Economic Co-operation and Development to become the world's biggest exporter by 2010, it will also become one of the world's largest importers. The OECD, in a special report on China, says it should have no difficulty maintaining its high economic growth rate for some time and expects it will become the world's fourth largest economy within five years. Other forecasts suggest it will overtake the United States as the world's largest economy by 2025.
China's continued growth is an important reason why Canada should focus much more on this economic powerhouse, viewing it as an opportunity rather than a threat.
Some Canadian companies — such as Manulife Financial, the Bank of Montreal, Sun Life, Magna International, Alcan, Power Corp., Bombardier and Nortel Networks — already have China strategies, with important investments there. But for most Canadian companies, the United States remains their only strategy. This is short-sighted since, in the global economy, businesses need to link into global chains of production and pursue the new opportunities.
Last year, Canadian exports to China totalled about $6.7 billion while imports from China reached $24.1 billion. Given China's explosive growth, we should be exporting more. So how do we change this?
Governments can help a lot by opening access to markets and opening doors to business opportunities, by building relationships with the Chinese leadership, and by negotiating agreements to facilitate opportunities. Former Prime Minister Jean Chrétien paid a great deal of attention to China and current Prime Minister Paul Martin is building on that relationship.
The recent visit of Chinese President Hu Jintao led to a number of new Canada-China agreements, from tripling the number of permitted air passenger and cargo flights and technology co-operation on rail systems to joint measures on food safety, nuclear energy and science and technology.
The purpose of the joint declaration on science and technology co-operation is to identify and advance joint projects the two countries can carry out together. One of China's most important goals is to move from a low-cost labour economy to what the Chinese call an "IP economy," meaning one based on advanced technologies that are protected through intellectual property rights.
Much of the effort to strengthen the two-way relationship is now in the hands of the Canada-China Strategic Working Group of deputy ministers from the two countries. It was first proposed by Chinese Premier Wen Jiabao at a farewell meeting with Chrétien during a visit to Ottawa in December 2003 and formally launched when Prime Minister Paul Martin visited China this January. At a recent conference of the Canadian Association for Business Economics, Elly Mao, principal economist in the Financial Secretary's Office in Hong Kong, underlined why firms can't afford not to be in China: "Looking ahead, the remarkable economic performance of China over the years will show up in its consumption demand. With a huge and increasingly affluent population, China is a vast market with unfathomable potential."
This kind of dynamism spells opportunity for the more bold-hearted members of the Canadian business community who would sooner increase their business than take early retirement through income trusts. Infrastructure investments alone are daunting — including electricity, clean water and sanitation, telecommunications, all forms of transportation, along with housing, health and education.
China's growth also creates opportunities for Canadian financial institutions to design investment vehicles so more Canadians can participate in China's growth in their RRSPs or elsewhere.
Make no mistake, China is on the march to a modern, knowledge-based economy. Chinese universities now file about as many patents in China as U.S. universities do in the United States, says Ian Harvey, chairman of the Intellectual Property Institute in London. This reflects the "seismic shift" in the development of intellectual property in China.
"A creative tidal wave will wash over the U.S. and Europe's shores in the next decade, enabling China to dominate significant technology areas," he predicts.
Canadian companies cannot afford to stay away. Government can lead by building the relationship between the two countries. But in the end, it is up to our businesses to follow through by trading and investing in China.
David Crane's column appears on Friday. He can be reached at crane@ interlog.com by email or by fax at 416-926-8048. |
