On March 23, Canada will launch the first trading hub for Chinese currency in the Americas. This is the latest new rung in the ladder for Canadian businesses seizing opportunities in Asia. Canadian businesses can now shave off a significant cost in doing business with China, and reach a wider universe of customers in the Asian nation—customers who do not have the resources to conduct business in foreign currencies. In conjunction with the fall announcement of a foreign trade and investment protection agreement (FIPA) with China, Canadians will also have increased access to Chinese securities and investment opportunities. These policies signal the beginning of a new era in Canada’s trade and investment relationship with China.
And the timing couldn’t be better. Canada’s exports to China—and more broadly, Asia—have long been concentrated in commodities such as coal, metals, agricultural, and forestry products, with very few exports of consumer and commercial goods and services. Moreover, only a small share of Canada’s known global foreign direct investments are destined for Asia—and this share has been declining. With the commodities supercycle drawing to a close, and China’s shifting gears to focus its growth on domestic consumption, Canada will need to shift its engagement with the region to maintain its competitive position and maintain the prosperity that exports to Asia has brought with it.
Asia’s importance for Canada’s global trade is paramount. Canada’s economy and living standards benefited tremendously from Asia’s seemingly insatiable demand for natural resources over the last decade.
What little growth in trade Canada has experienced in the last decade can largely be attributed to its relationship with Asia. Bilateral trade with Asia almost doubled in the last decade, making it Canada’s second most important trade relationship after the U.S. While trade with the U.S. and Europe is expected to accelerate in the short term and remain critically important for Canada, neither region offers the type of growth opportunities that Asia does. Indeed, Canada’s economy and living standards benefited tremendously from Asia’s seemingly insatiable demand for natural resources over the last decade, and it is important to continue this momentum.
Despite the wealth of growth opportunities for trade and investment in Asia, Canada has largely focused on supplying Asia with natural resources, and has struggled to maintain its share of Asia’s market. Twenty years ago, Canadian goods accounted for 2% of Asian imports, but by 2013 Canada’s share had been cut in half, even with its surge in natural resources exports to Asia.
Next week, the Conference Board of Canada is releasing two reports that detail the past, present, and future opportunities of Canada’s trade and investment with Asia. This research identifies relatively untapped fast-growth opportunities in Asia that are also Canadian export strengths (see table below.) While many of these fast-growing opportunities remain rooted in natural resources, there are additional opportunities to supply Asian economies with Canadian services such as finance or engineering, and consumer goods such as vehicles or pharmaceuticals.
|Canada’s Asian Export Successes||Selected Fast-Growing Opportunities|
|Major Successes||Other Notable Successes||Goods||Services|
|Source: Beyond Coal: Tomorrow’s Fast-Growth Opportunities in Asia, The Conference Board of Canada (forthcoming)|
Businesses will need to take the lead with more hands-on involvement in Asian markets. Previous Conference Board research has highlighted the need to spend time building relationships in emerging markets. It will not be easy to gain market presence in Asia by remaining on the eastern shore of the Pacific. Targeted foreign direct investment can help Canada boost its trade relationship with Asia, by facilitating increased sales of Canada’s goods and services abroad, and a deeper integration into Asian “tangled web” of supply chains.
But Canadian businesses will have to be proactive in making the switch to RMB. Being first to the plate as a trading hub in the Americas will only be to Canada’s advantage for a limited time. The U.S. and South American countries also conduct a lot of trade with China and will also use Canada’s hub or establish their own. Furthermore, China is liberalizing its capital accounts and this will further level the playing field within the next five years or less.
Armed with knowledge of Asian markets, relentless innovation, strong leadership, and international networks, and supported by trade and investment policies (such as trade deals and currency exchange hubs), Canadian businesses can take on the next phase of Asian demand, and continue to tap into one of the fastest growing regions of the world. Seizing new opportunities will allow for a more dynamic and sustainable trade and investment relationship with Asia that is less exposed to changes in commodity prices and demand.
Jacqueline Palladini is a Senior Economist with the Conference Board of Canada and contributes to research on global trade and investment as part of the Global Commerce Centre. Follow her @J_Palladini.