Business tip on China: Make it personal

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If Canadian businessman Hermann Derbuch is able to realize his dream of buying a gold mine in China, he won't be thanking Prime Minister Stephen Harper.

Navigating China's thorny business and government bureaucracy is already difficult enough, the chief executive officer of junior miner Gold World Resources Inc. says, but his progress has been impeded by the Canadian government's poor relations with party officials in Beijing.

"It certainly is an issue with the senior people I meet from time to time in Beijing. We are dumbfounded with how Canada can mess up the opportunity that exists here."

Prime Minister Harper was publicly taken to task Thursday by Chinese Premier Wen Jiabao for failing to visit China sooner. The unprecedented scolding shed light on the strained relations between Ottawa and Beijing that many Canadian business leaders say has hurt trade and business with the Asian economic superpower.

Mr. Harper's visit to China is the first since his government came to power in 2006 and the first by a Canadian prime minister in almost five years.

China's roaring economy, which is expected to grow by 8 per cent this year, has made it a highly coveted trading and business partner for Western countries trying to recover from the worst economic downturn since the Great Depression. A rapidly growing middle class has foreign businesses scrambling to crack the Chinese market.

But business leaders say Canada is risking being left behind because of the government's poor diplomacy. China imports about $1-trillion (U.S.) worth of goods each year. Canadian goods, however, account for just 1 per cent of those imports.

"China requires personal, regular attention. Certainly, our competitors are doing that. It would be good for Canada's interests to have that kind of regularity and high-level political contact," said Peter Harder, president of the China Canada Business Council.

Mr. Harder, a former federal deputy minister of foreign affairs, said the Canadian government's failure to foster stronger political ties with China has definitely harmed Canadian business interests. But he hopes the Prime Minister's public dressing down will serve as a wakeup call for the government to improve relations.

"In the Chinese business culture, it is important to have high-level political engagement to encourage the atmosphere and environment for enhanced business relationships," he said.

Mr. Derbuch, the head of Gold World Resources, knows this first hand. He travels to China every two months trying to finalize a deal to acquire a gold mine in China or partner with a Chinese company. He hopes to bring Canadian mining techniques, technology and know-how to an existing mining operation to improve its performance. But he says that if Canada doesn't fix its political affairs with China, his company risks being shut out by private business interests or the Chinese authorities.

"The government needs to show China that they are there to support Canadian business by facilitating the transfer of goods and ideas. Otherwise, we miss out in a big way," he said.

Natural resources and commodities are the cornerstone of Canada's business ties with China. In 2008, Canada exported about $5.8-billion in natural resource products to China, which represented 55 per cent of all Canadian exports to the Asian country.

China's state-backed mining firms are keenly interested in investing in Canada's resource sector. They've been on an international buying spree recently, spending billions to secure a supply of copper, oil and nickel that will be needed to fuel its economic growth.

Robert Hattin, CEO of Hamilton-based Edson Packaging Machinery Ltd., which sells equipment to manufacturers for packaging products, said the Harper government should focus on negotiating with China on ways to break down barriers hindering Canadian investment in the huge Chinese market.

He said his company "ruminates about China every day" because the country has a huge interest in modernizing its factory processes with new equipment. But Edson has held off taking a major plunge because of barriers such as local or regional taxes that greatly boost the final cost of equipment by the time it is delivered to a Chinese buyer.

"They're not really duties, but at the end of the day it triples the price of equipment being imported," Mr. Hattin said. "There are payments along the way in order to get your equipment there that makes it very difficult."

Thomas d'Aquino, who represents many of Canada's largest companies as CEO of the Canadian Council of Chief Executives, said he has seen no evidence of a frosty political relationship that has hindered Canadian companies from succeeding in China, noting that companies such as Bombardier Inc., Research In Motion Inc. and Manulife Financial Corp. remain big investors in the country.

He added that none of his council's members have complained to him about problems caused by the federal government's relationship with China over the past five years.

"I've had no one present me with hard evidence to say, 'If we had a much warmer relationship at the very top, we would be doing much better in China.' I can honestly say I've seen no evidence of that."

Jayson Myers, chief executive officer of the Canadian Manufacturers & Exporters, said it is more important in China for governments to have a strong relationship than in most other countries, where companies can do business irrespective of personal friendships among political leaders.

While many Canadian companies are successfully doing business in China - and more are looking now to expand to China as growth slows from U.S. customers - Mr. Myers said deals would be easier to conclude if there were better political relationships.

"I think the relationship has not been as strong over the last few years as it was, and in China, relationships among heads of government are very important, probably more important here than anywhere," Mr. Myers said Thursday in an interview from Hong Kong. "It really is very, very important in China to have an official relationship."