2014-15 Canada-China Business Forum Magazine - Page 10

POLICY rapidly growing and highly competitive tennis environment. Tennis is a sport that barely existed in China prior to 1988, when Li was six years old. In 1988, tennis was reinstated as an Olympic sport, and China began to invest heavily in its promotion and development. China’s economic re-orientation & rebalancing continues apace • • • Urban population expanded by over 200 million from about 525 million in 2003 (41 per cent of total population) to 731 million in 2013 (54 per cent of total population). This growth represents a massive deepening of the domestic market since urban populations consume goods and services more intensively than rural populations. Current projections suggest that China’s urban population will expand by 100-150 million people by 2020. The share of trade in China’s GDP fell from 51.6 per cent in 2003 to 45.3 per cent in 2013, reflecting the deepening of China’s domestic market. The share of trade in China’s GDP will continue to decline until 2020. China has managed to reduce its current account surplus through a gradual real appreciation of its currency. Since China de-coupled the Renminbi from the U.S. dollar, China’s economy has grown at a compound annual growth rate of 18 per cent. China is shifting from flat-out growth to sustainability. It is establishing the framework for deepening its ties with the global economy. The big story in recent years is the emergence of the Renminbi as a means of global payments and settlement – “Redback rising” is the tagline. Multinationals doing business in China are transacting in Renminbi because it gives them a competitive edge. Chinese abroad will help the Renminbi’s internationalization. And on the trade front, China is expanding its network of free trade agreements (FTA). These FTAs give partners important advantages in the Chinese market, because China’s Most-Favoured Nation (MFN) tariffs are still relatively high. If you connect the dots, China will look very different politically in 2020 than the China that we came to know in the BRIC era. The once low-cost assembly economy highly dependent on foreign value chains is fast becoming a knowledge-based economy that is urban, young, well-educated and fiercely competitive, backed by a single national focus on technological advancement supported by an enabling institutional framework. POLICY • Air transport agreements: Canada and China upgraded the bilateral air services agreement in 2012, expanding code share services between Air Canada and Air China. • Science and technology agreements: Canada and China signed an agreement in 2012. • Patent office cooperation: China’s State Intellectual Property Office (SIPO) and the Canadian Intellectual Property Office (CIPO) have launched a Patent Prosecution Highway (PPH) pilot program that fast-tracks examination of eligible patent applications between Canada and China. • Nuclear cooperation agreements: Canada and China signed a new protocol in 2012 which supplements the 1994 agreement between the Canadian and Chinese governments for cooperation in the peaceful uses of nuclear energy. • Trade offices: Canada has announced the opening of four new trade offices in China that will expand the network to 15 points of service and raise the number of trade commissioners in China to 100. • High-level visits: Prime Minister Stephen Harper visited China in 2012. This was followed by a state visit by Governor General David Johnston in 2013 and a planned visit by the prime minister on the margins of the APEC Summit in Beijing in November 2014. THE FRONT STORY In its Global Markets Action Plan (GMAP), the Government of Canada states that it will ensure that “all the diplomatic assets of the Government of Canada are harnessed to support the pursuit of commercial success by Canadian companies and investors in key foreign markets.” What does this mean for China? • Free trade agreement: Canada is dancing around the edges of a bilateral agreement with a complementarities study, but China is not party to Trans-Pacific Partnership negotiations. Canada’s withdrawal from developing generalized system of preferences with China means tariffs on Chinese goods and services will rise to MFN levels as of January 1, 2015. • WTO agreements: Canada is in the WTObased Trade in Services Agreement (TISA) negotiations, but China is not at the table. • Double taxation agreements: Canada and China upgraded the 1986 agreement in 2012, but the 1986 agreement remains in force (the updated tax treaty with Hong Kong took effect in 2013). 9 element matters. In Chinese, that translates into guanxi at the government level. Similarly, trade agreements appear to be very important, perhaps more important than we can reasonably account for based on directly quantifiable aspects of FTAs such as tariff cuts. The signals that FTAs send are very important as well. “Paul Evans, in his recent review of Canada-China relations, argues that Canada lacks a compelling narrative for its relationship with China.” At the same time, Canada needs to put in place the institutional framework for its companies to succeed in China. President Xi Jinping has called for an early conclusion to the FTA negotiations with Australia. Meanwhile, Canada will raise its tariffs as China’s eligibility for GTP preferences expires on January 1, 2015. That is not where Canada wants to be. The challenge for Canada is straightforward: put in place the trade, investment and financial platforms for Canadian business to succeed in China – and to accommodate a dynamic presence of Chinese global firms in Canada. \\ DC Dan Ciuriak is director and principal at Ciuriak Consulting Inc., research fellow with the CD Howe Institute and associate with BKP Development Research & Consulting GmbH. He sits on the industrial policy expert review panel in the lead-up to the WTO’s 20th anniversary in 2015. The panel is an E-15 initiative sponsored by the International Centr