China represents one of the few bright spots left in the global economy. On Nov. 10, responding to news that growth slowed to 9% in the third quarter, Beijing announced a stimulus package valued at US$586 billion. The following day, the Hong Kong Stock Exchange’s main index gained 3.5%, while the Shanghai Composite soared 7.3%.
Markets on this side of the world reacted poorly. That could have been because of optics: if China is projecting 8% to 9% annual growth, why would it need such a large stimulus? But according to Bill Majcher, a managing director with Baron Group, a Hong Kong–based investment bank, Asian markets have good reasons for their positive reaction. “The package is designed to increase domestic consumption in China,” he says.
Essentially, China is investing in itself—thus positioning itself to emulate the United States following the Second World War. In the U.S. at that time, internal consumption and growth was fuelled by national highways and other infrastructure build-outs. That meant the economy was relatively insulated from the rest of the world.
As the effects of its stimulus kick in, China will become an even more attractive market for those companies well-poised to sell to it. The country is also eager to invest surplus reserves of capital in companies around the world.
Canadian business isn’t blind to these opportunities, as the stories in this issue show. Exports to China are up 21% over last year. And Chinese foreign direct investment in Canada surpassed half a billion dollars in 2007. That growth is poised to continue—if we are sufficiently open to it, while retaining control of the process.
Unfortunately, we’re not the only country jostling for access. In a competitive context, Canada’s trade relationship with China is slipping. In 2006, we were among its Top 10 trading partners, by volume. By 2008, we’d dropped off that list.
What to conclude from this picture? Instead of fearing the opportunity China represents, we should be courting it—intelligently. And a key part of that would be for Prime Minister Stephen Harper to go there and visit. He indicated recently a willingness to do so, for the first time—but no concrete details have been forthcoming. It’s time to set the date and book a flight.