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The Globe and Mail

Canada needs to strengthen ties with China

Money makes the world go 'round, the old saying goes. But in an era of serial financial crises, it's also turning global affairs upside-down. Consider, as an example, Stephen Harper's shifting attitude about China.

When the Conservatives took office in 2006, their foreign policy consisted of annoying China and turning toward more familiar allies, like the United States. The Prime Minister posed for photos with the Dalai Lama, made high-minded noises about the importance of human rights and avoided Beijing as though he feared he might catch bird flu if he went.

Today, the government touts a "new era" and holds up Canada's relationship with China as a bargaining chip with our closest friends. If Americans don't want TransCanada Corp. to build a giant new pipeline through the U.S. heartland, well, there are "many other countries and many other markets for our oil," warned John Baird, the Minister of Foreign Affairs, in a speech in Calgary. And just in case anyone missed the real message, he spelled it out: "China is now our second-largest trading partner and one of the fastest-growing investors in Canada. That is certainly seen here in Alberta's energy sector."

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It took 15 months for Harper's first foreign minister, Peter MacKay, to visit China. Baird waited just two. Depending on your views on China and its treatment of its citizens, this is either a sign of a government that has matured or one that has abandoned its principles.

The truth is more nuanced. In the long run, economics matter—a lot. And if the anxious summer of 2011 made one thing absolutely clear, it's that, economically speaking, Canada needs China far more than the reverse.

The biggest business story of the past three months is the meltdown in confidence in the United States and the European Union, neither of which has a plan for dealing with outsized government debts. As a result, neither will be able to generate much economic growth for a while. Those two blocs take about 82% of Canadian exports.

Japan, a country with a lifeless economy and a bigger government debt burden than the U.S. or EU, buys another 3%. Japan can be counted on to purchase about $10 billion worth of Canadian goods this year, most of it energy and food. But that number has hardly changed at all in a decade. The prospects for exporting more are nil.

So the growth will have to come from the rest of the world, which collectively buys about 15% of what we export. But who? Let's start with the BRICs. Trade with Brazil, Russia and India has grown impressively over the past decade, but, as buyers of Canadian exports, each is still small. The first two of these, Brazil and Russia, are rich in oil and many other resources. They are competitors as much as customers.

India is a more interesting case. It's not so rich in energy—in fact, it's one of the world's biggest importers of oil. It still burns coal to make most of its electricity. It has years of experience in importing liquid natural gas, a business that holds much potential for Western Canadian natural gas producers. It needs a lot of fertilizer. Its citizens are fascinated with gold.

So there's a lot of potential there for Canada. For the moment, it is still mostly that—potential. India is on a more democratic, more chaotic, and slower path to development than the other BRIC countries. It's also conveniently close to the Middle East, where it buys most of the oil that it imports.

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Which brings us to China.

The country's rapid industrialization may feel like a familiar story by now, yet many Canadians still underrate what that has meant for our economy. In the mid-1990s, around the time that then prime minister Jean Chrétien was accused of "consorting with murderous Communist dictators" for his trade missions, China was buying $3.5 billion worth of Canadian goods a year.

Now, China buys more than $13 billion—about six times what India buys. This has given a lift to B.C.'s beleaguered forest industry, which is shipping record amounts of pulp to the Middle Kingdom; to barley and canola farmers; to coal miners and copper producers. None of that growth has been achieved through the sale of crude oil, as virtually all the oil that Canada sends to other countries goes through the United States via pipelines. But that can, and should, change. Hence Baird's warning.

Canadians get chuffed about how well our economy survived the recession, and the Harperites like to credit themselves with good fiscal management. But it surely helped that when trade with every other major economy fell off a cliff in 2009, exports to China kept rising. So, supporters of Chinese democracy and human rights and Tibetan independence will be disappointed, but they will not be hearing Baird say much about their causes in public.

It's no longer simply a matter of enlightened self-interest. It's about economic survival.

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