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The economic punishment Beijing has inflicted on Canadians after the extradition arrest of a top Chinese executive last December should spur Canada to reduce its trade reliance on China, a new paper from the Macdonald-Laurier Institute says.

Writing for the Ottawa-based think tank, economist and senior fellow Duanjie Chen says Canada is not the first country to suffer what she calls “economic coercion” from China.

Since Ottawa arrested Huawei Technologies Co. Ltd. chief financial officer Meng Wanzhou at the Vancouver International Airport last December on an extradition request from the United States, China has stopped buying Canadian canola seed and soybeans, and has banned Canadian pork and beef.

“China’s ban on major Canadian agriproducts has opened a new chapter in its habitual deployment of economic coercion against countries whose lawful actions it finds offensive,” Dr. Chen writes.

She said Canada needs to use this crisis to restructure its relationship with China, adding that key Asian countries have withstood the same kind of coercion from China by diversifying trade away from the country.

Ms. Meng will likely have to remain in Canada for years as she fights extradition to the United States under the Canada-U.S. extradition treaty. The Americans allege Ms. Meng helped the company violate U.S. economic sanctions against Iran. She has been charged in the U.S. with bank fraud, wire fraud and conspiracy to commit bank and wire fraud.

This means Canada could face years of economic coercion from China.

“Doing nothing but waiting for [Chinese President] Xi Jinping’s mercy is not an option; rather it is a failure that has invited and would keep inviting more trouble for our country,” Dr. Chen said.

She argues Canada is better positioned than it might think to not only weather the dispute, but also find new markets for goods.

She identifies seven jurisdictions that have previously felt the pain of Chinese economic coercion and notes three of them – all in Asia – responded not by capitulating, but instead shifting trade away from China.

The list of targeted jurisdictions includes Philippines, Mongolia, France, Norway, South Korea, Japan and Taiwan. Disputes arose over matters such as conflicting territorial claims, the Dalai Lama, sales of Western weapons and Chinese dissidents.

China’s coercion included bans on agricultural products, restrictions of valuable exports, harassment of corporate investment in China, deep restrictions in Chinese tourist visits and the loss of major Chinese contracts.

“The Philippines and Mongolia have capitulated while France and Norway have modified their behaviour to appease China,” she writes.

Dr. Chen argues that Canada should instead pay close attention to how South Korea, Japan and Taiwan responded. “With its growing economic size, China believes it can act at will against any country. As such, yielding to China’s coercion, economic or otherwise, has only emboldened China, and will only keep emboldening it to further dismiss international order and norms."

South Korea, for instance, largely refused to appease China and at least one of its largest corporate investors, Lotte Group, is seeking to exit the Chinese market. Japan, after China restricted the sale of a rare earth element needed for building products such as hybrid cars and wind turbines, instead found other sources for the mineral.

She said Taiwan, the island that China considers a wayward province, offers the best example for Canada to follow. Of all the countries that have suffered Beijing’s economic coercion, Taiwan is the most vulnerable because of its international isolation – because of Chinese pressure – and its close economic ties to China. Trade with China represents nearly 25 per cent of all trade.

Dr. Chen said despite repeated economic punishment from China, two successive governments in Taipei have made enormous efforts to reduce dependence on Chinese markets, signing free-trade agreements with foreign countries and boosting trade and investment in Southeast Asia and India. She said Taiwan’s 2018 exports, excluding trade with China, grew 16 per cent. Imports from countries other than China grew 25 per cent.

The nature of Canada’s trading relationship with China makes it easier to replace Chinese buyers, Dr. Chen argues. Canada’s top exports to China are farm goods. If China doesn’t buy them, other countries will purchase them at the prevailing world price. “Producers who will be filling in the Canadian share of the Chinese market … must vacate their existing non-Chinese markets for Canadian farmers to supply.”

She said Canada also has options to counter and lessen China’s economic coercion.

These include banning Huawei from supplying gear for the next-generation 5G wireless networks in Canada – as countries such as Australia and the U.S. have done – on the grounds that the Shenzhen-based company represents a security risk, citing the fact that businesses in China are legally required to conduct espionage at the request of Beijing’s security services.

Also, Dr. Chen said Canada should expand its farm-insurance programs to help Canadian farmers cope with China’s economic coercion and use some of the capital that Canada had set aside for our share in the China-led Asian Infrastructure Investment Bank.

She recommends Canada also require the registration of all Chinese research-and-development funding at work in Canada and block any relationships that are taking intellectual property out of this country.

Finally, Canada should resign as a member of the Asian Infrastructure Investment Bank, “which serves as an important institutional representation of China’s global power.”

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