Uneasy Year of the Pig arrives for China – dependant BC companies

[BIV – February 4, 2019]

Chinese New Year dawns on a jittery business landscape as Huawei dispute casts uncertainty over access to overseas markets.

Not only is Chinese New Year one of the local community’s most celebrated holidays, it is also typically the time for B.C. businesses – especially those with ties to the Chinese market – to celebrate a year of gains while looking optimistically at the potential of more in the coming year.

2019, however, is not a typical year. Ottawa and Beijing’s political relationship has been in a deep-freeze for two months now, triggered by the arrest of Huawei Technologies Co. Ltd. CFO Meng Wanzhou in Vancouver on December 1 and exacerbated by the arrest of multiple Canadian citizens in China as apparent retaliation.

There have also been advisories from both sides warning about travel in the other country.Diplomats from China have issued multiple stern warnings about consequences if Canada shuts Huawei out of its 5G network development and the head Canadian diplomat in China has just been terminated after making controversial remarks about the Meng case.

The result is a gloomy Chinese New Year for the B.C. businesses typically most likely to celebrate the event. The uncertainty facing the future of Canada-China trade is palpable at almost all trade association and business gatherings involving Chinese-Canadian players since 2019 started.

“The answer is a definitive ‘yes’ if you ask if the mood is different this year,” said Tom Yuan, founder and director of Richmond-based winemaker Canada Berries Enterprises Ltd. “This is the reality facing all of us doing business in the field. All of us – whether we are of Chinese origin or not – are currently very sensitive if we have business dealings in the Chinese market.”

Leaders from sectors ranging from tourism and education to trade and investment have said it is too early to tell from statistics whether the Huawei dispute has hurt B.C.’s economy, citing the need for more time for relevant data to emerge post-December. But several Canada-China business players – many of whom asked not to be named – admitted there is anecdotal evidence that worries them, adding that the fear of more severe measures, such as trade sanctions or boycott campaigns, while Meng faces potential extradition to the United States makes for one of the uneasiest Chinese New Years on record for businesses.

“Nothing like this has ever happened before between China and Canada, so we are just keeping our fingers crossed and maintaining good relations,” said Randall Martin, executive director of the BC Council for International Education, who noted his comments are from his personal observations and do not reflect those of the B.C. government. “I think people are just taking a deep breath and hoping that the politicians sort everything out, because there are a lot of other relationships beyond the political one that are important.”

China is Canada’s second-largest trade partner overall and in most subsectors within the economy, with total merchandise imports totalling $54.8 billion for the first nine months of 2018 and imports reaching $18.2 billion. Top Canadian exports include fruits, grains, wood pulp, lumber products and mineral fuels. In recent years, both Ottawa and the provinces have pushed to draw more international students from China, to the point where Chinese students now make up 28% of Canada’s international student population.

Following Meng’s arrest, made at the request of the U.S. Justice Department, which has since accused Meng and her company of stealing trade secrets from T-Mobile US Inc. (Nasdaq:TMUS), several delegations and industry consultations between Chinese and Canadian officials have been cancelled or delayed, including an Asian trade mission led by provincial Forests Minister Doug Donaldson that was cut short after visits to Japan and South Korea, with the minister deciding to delay the Chinese portion of the trip to another time.

Yves Tiberghien, director emeritus of the University of British Columbia’s (UBC) Institute of Asian Research, said a large part of the nervousness he has seen among local players in the Chinese-Canadian field is a symptom of the lack of control Canada has over the situation. Tiberghien noted that China and the United States, which are involved in a deepening trade conflict, with Washington increasingly critical of Chinese IT companies and the security threats they pose to the West, are the main players in the dispute, putting Canada in a difficult position between two world powers and the country’s two biggest trade partners.

“Uncertainty is the keyword; it’s the same with us at UBC, as we don’t know how much of our deep relationships would be affected,” Tiberghien said. He added that Washington’s “hard deadline” for Beijing to make structural economic reforms to avoid further tariffs is March 1.

“We have a very, very tense month of February coming. It’s the ticking clock of very high-stakes negotiations, and Chinese New Year falls right in the middle of this. On one hand, the U.S. demands are harder than anything we’ve seen since 1970; on the other hand, we have a Chinese leadership that’s less flexible and more willing to take strong positions. So we don’t know if they can find a solution.”

Tiberghien also noted that the date of the start of Meng’s extradition hearing in Vancouver – moved last week to March 6 from February 6 – coincides not only with the Canadian Department of Justice’s slated March 1 decision as to whether or not to continue with the extradition process, but also with the deadline in U.S.-China trade negotiations. While Canadian and U.S. officials have said the judicial process is independent of trade negotiations, Chinese officials will likely see links between Meng’s hearing and the U.S. effort to limit the expansion of Chinese IT companies like Huawei, he said.

“Technically, it falls on an independent track,” Tiberghien said of Meng’s extradition process. “But in terms of the backgrounds of everybody, it’s connected. The reason why the U.S. Department of Justice focused on [Meng] is probably because it’s a part of a bigger case against Huawei and Chinese IT over dominance of 5G and AI [artificial intelligence]. So the Americans know deep down that it’s connected, and the Chinese know deep down it’s connected. But technically, it’s not.”

That notion is heavily disputed by former U.S. diplomat and Asia geopolitics analyst Sean King, currently the senior vice-president of New York-based consultancy Park Strategies. King said the Huawei case is purely a judicial matter and “should be allowed to run its course,” but he added that Beijing’s severe response since then in both Canada and the European Union (where a Huawei employee was arrested in Poland on spying charges) should be an eye-opener for B.C. businesses.

“I sense a sober global rethink over the PRC [People’s Republic of China] and its tempting market,” King said, adding that the dispute is a reminder of how different Beijing’s values are from those in western democracies.

“In other words, people are asking themselves whether it’s worth sacrificing your own values, and maybe even your safety, to do business there…. Any government that doesn’t let its own people vote, or even access Facebook, is unlikely to recognize foreigners’ rights when push comes to shove.”

King added that it may make more sense for B.C. businesses to try to cultivate other Asian markets. One opportunity, he said, is the recently ratified Comprehensive and Progressive Agreement for Trans-Pacific Partnership and markets like Japan – another one of Canada’s top trade partners.

“Canadians doing business in mainland China should keep their heads down, just try to ride this out and start looking at other markets that share their own democratic values,” King said.

Yuan argued, however, that a total trade realignment isn’t realistic. He noted that many in B.C. looked to the Chinese market when calls came from Ottawa and the province to reduce their overreliance on the United States, and have since built links with China that cannot be replaced overnight – if at all.

“I have to reiterate: We need exports to survive,” Yuan said. “If we lose as big of an export market as China, I don’t even know how much time it would take to develop ties with other markets that would come close to offsetting the Chinese market…. Our legalization of marijuana has already dealt a blow to tourism and education; Chinese parents don’t want to send their children here to smoke pot. And when you have multiple issues coming together and concentrating at one point, then you have a volcano….

“With the U.S. going ‘America first,’ if we ignore our second-largest trade partner as well, I really don’t know what the Canadian economy will stand on.”

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