Stephen Harper faces the challenge of playing poker with a superpower. With China, it’s time to play some cards.
The PM will travel to China in February with oil sales on his mind. But Canada wants other things from Beijing, like more protection for Canadian companies doing business in China. Mr. Harper has some bargaining chips.
He has oil on his side. He’ll never have China over a barrel, but right now, he’s got leverage.
Mr. Harper has put shipping energy to Asia at the top of his plans, and made hardwiring the country with pipelines to the West Coast a key strategic priority for his government. The Obama administration’s decision to delay approval of the Keystone XL pipeline extension to carry Alberta bitumen to the Gulf Coast has made Mr. Harper’s shift to China more urgent.
Beijing wants Alberta oil, if it can get it, but selling oil isn’t Canada’s only trade imperative. China will be the world’s biggest economy by around 2020, so Canada’s economy will fare poorly if it doesn’t sell more than resources there.
U.S. politicians provided a reminder on Wednesday that pipelines can be politics, forcing the Obama administration to reject Keystone XL and let the developers reapply later. Mr. Harper has played into it, upping the emphasis on selling oil to China, creating a sense of pipeline competition.
China wants Mr. Harper to continue the push for a pipeline to the Pacific. And they want something else: consistent access to buying companies in Canada, in the oils sands and elsewhere.
Mr. Harper’s government has approved increasingly ambitious investments by Chinese state-owned companies, but with shifting notes of caution – suggesting the investment is welcome for new developments, but perhaps not for big takeovers of established operations. It looks arbitrary and political to the Chinese, because it is. Mr. Harper has given part of what they want, but not all.
Canada wants some things, too. Trade is booming, but $44.4-billion in Chinese goods was imported into Canada in 2010 compared with $12.9-billion in Canadian exports to China.
On his February trip, Mr. Harper can use his new opening, and the prospects, to press Beijing to open market access and protection.
First, that means the long-awaited investment-protection agreement to provide some security for Canadian companies trying to do business in China, said Wendy Dobson, co-director of the Institute for International Business at the Rotman School of Management.
A lot of Canada’s economy is based on selling parts or expertise into the U.S. supply chain, for things like cars and equipment, so a big challenge is entering China’s supply chain.
Canada’s economy is now largely driven by a lot of medium-sized companies, Ms. Dobson said, and it’s a more daunting cost for them to make the contacts to crack Chinese supply chains. Risky, too. Chinese policy-makers and courts can be unpredictable and arbitrary, so an investment-protection agreement that would provide some recourse to outside arbitration is essential to ensure a deal is a deal. Ottawa keeps saying it’s close.
And Ms. Dobson argues Canada needs to set a “road map” with China for closer ties – not an immediate free-trade agreement, but narrower agreements in areas like transportation, financial information and technology.
Gamesmanship is risky with much bigger powers, which is why Ottawa has typically approached the United States by pushing for joint rules, like free-trade agreements, and appeals for fair play. It’s dangerous to make demands when you have less leverage.
It’s not easy with China, either. Mr. Harper has just sealed a warmer relationship after an initial chill. The flurry of Chinese investment in the oil sands came after a period of almost none from 2006 to 2008.
Both sides want clearer rules, but they’re still rebuilding ties on political decisions. And for a short while, Mr. Harper can dangle what China wants, the chance to buy a little energy security, in exchange for steps from Beijing to provide better access to a big market.