A slowdown in China's trade growth is raising fears that the engine of the global economy is cooling, and dragging on Canada's already sluggish economy.
Exports from China increased at the slowest pace in seven months in September, as demand from major trading partners Europe and the United States waned and a stronger Chinese currency pinched manufacturers. The pace of import growth also slowed sharply, heightening concerns that demand for materials from resource-rich nations such as Canada will decline.
The signs of a slowing Chinese economy come as Canadian companies are increasingly targeting China and other emerging countries as a market for their products. The fresh evidence of China's vulnerability to slowing growth in Europe and the United States suggests that these relatively new markets for Canadian exporters will not be immune to a downturn.
"It's not a very good sign, that's for sure," said Jayson Myers, president and CEO of Canadian Manufacturers & Exporters.
U.S. and European customers of Canadian exporters have reduced orders and those from Europe in particular are having trouble securing financing, Mr. Myers said. Orders from emerging market customers remain strong but there are growing concerns of a slowdown.
"We're not seeing the impact of China yet but falling commodity prices are a leading indicator of slowing economic activity in China that would have an impact on global demand," Mr. Myers said.
Canada's latest trade figures, from August, show that exporters and manufacturers are continuing to diversify away from their traditional reliance on the U.S. market, which now accounts for 70 per cent of Canadian sales abroad – the lowest share since 1982. Trade with countries other than the United States rose for a fourth-consecutive month, Statistics Canada said Thursday, soaring almost 8 per cent to a record $11.2-billion.
Bank of Canada Governor Mark Carney and other leaders have urged businesses to avoid feeling "paralyzed" by global uncertainty and to forge ahead with plans to make themselves less dependent on the U.S. and Europe, where demand could be sub-par for years.
"We've already got a long trend of diversification established here," said Peter Hall, chief economist at Export Development Canada, the government's export-financing arm, "and Canadian companies are jumping on it.''
By 2020, the U.S. share of Canadian exports will have fallen to 60 per cent, with 90 per cent of the difference going to emerging markets, said a recent report by CIBC World Markets economist Benjamin Tal.
Industrial equipment maker Hayward Gordon Ltd. of Halton, Ont., is typical of many Canadian exporters. It's becoming far less reliant on the United States as it taps vast and promising new markets in South America, Asia and Africa.
As recently as five years ago, 40 per cent of the company's sales of pumps, mixers and other tools were in the U.S. and less than 20 per cent outside North America. Today, the percentages are exactly the opposite, with the bulk of its exports destined for customers beyond North America.
"Our business has done a complete reversal, and it's really reflecting what's going on in the world and in the world economy," company president John Hayward said. "The U.S. is losing steam and global markets are charging ahead."
Chinese exports climbed by just 17 per cent in September to about $170-billion (U.S.) from a year earlier, down from a near 25-per-cent rise in August. Year-over-year import growth fell to 20.9 per cent from 30.2 per cent in August.
Though China's trade growth is slowing, most economists expect third-quarter GDP growth above 9 per cent and predict the world's second-largest economy will avoid a "hard landing."
Canadian firms are relying on long-term growth in China. Transportation giant Bombardier Inc. expects Canada and the United States will make up less than 40 per cent of the world market for 20- to 145-seat aircraft over the next 20 years. China will jump into the No. 2 spot, ahead of Europe, company spokesman John Arnone said.