Finding Our Way: The Future of Canada’s China Strategy
Amidst rising tensions over trade and technology, Living with China author Wendy Dobson’s curiosity changed to alarm as she watched Canada get caught up in the growing antagonism between its two largest trading partners. Learn what led to her new book – and why she’s urging Canadians to up their game with a solid strategy.
Living with China is the latest in a series that began in 2009 with Gravity Shift, an examination of the long-term impacts of rapid growth in India and China. Canadians are the target audience and Canada’s relationship with China is the current focus. My initial motivation was curiosity about future directions in Asia that the new US administration might take. Curiosity quickly changed to alarm as Canada was caught up in the growing antagonism between the United States and China, its two largest trading partners. Long accustomed to a US-dominated unipolar world, Canada lacks a comprehensive strategy for living with an increasingly assertive China whose growing political and economic prominence in our future is a strategic reality.
Since 2013, when Xi Jinping became President and General Secretary of the Party, he has made it clear that China will follow its own path of authoritarian capitalism even as China becomes more active in the liberal international order. He has inserted Party control deeply into China’s economic life even at the expense of openness, growth, and employment goals.
These competing goals have created significant tensions between market and state. Since 2017 the Party has responded to demands from the rapidly-growing middle class for more material and social gains. It has rebalanced policy to rely less on industrial growth and more on service-based, consumer-oriented growth. But the Party-state faces growing pressures from the US administration, which sees China as a strategic rival whose rising economic and political prominence it aims to thwart despite their deep interdependence. There are internal constraints as well. China’s technological and industrial innovation, which is essential to sustained growth, is constrained by the mixed signals sent by China’s authoritarian economic policies. Xi Jinping’s Made in China 2025 advanced manufacturing strategy relies on state-led directives and funding that dominate state-owned enterprises’ (SOEs) incentive frameworks at the expense of riskier private, market-led, bottom-up innovations. Further, recent evidence of declining productivity growth in non-state enterprises relative to SOEs reflects shrinking support for market liberalization that could undermine China’s long-term economic potential.
Canadian policy should take account of such tensions and their implications. As a middle power, Canada is acutely aware of being a policy taker in the diplomatic freeze following the US extradition request for Huawei CFO Meng Wanzhou in late 2018. A comprehensive strategy for living with China should aim for coexistence and pursuit of mutual opportunities, yet be prepared to take stands to manage differences in values, norms, and institutions. The policy debate about Huawei’s 5G capabilities and related security concerns should be part of the evolving strategy of permitting trade to continue in non-sensitive items but imposing selective bans on sensitive equipment and processes. Even so, there will be a price to pay as Huawei and other Chinese enterprises expand into non-western markets and redouble their efforts to become self-sufficient in such key imported components as semiconductors.
Canada’s China strategy should adhere to principles that include (a) recognition of the fundamental reset underway in the US-China relationship from engagement to strategic rivalry, (b) a stated commitment to maintain open relationships with both protagonists, and (c) cooperation with like-minded governments to push the merits of coexistence and reciprocity. The strategy should be transparent and led from the top. It should recognize that many Canadians are unfamiliar with China, a shortcoming that could be addressed in part by measures such as more civic and educational exchanges and by White Paper policy studies like those used by Australians in the past two decades.
The China strategy should protect national sovereignty and national security in the uncertain international environment. Huawei’s funding of digital research in Canadian institutions has raised concerns about cybersecurity and protection of intellectual property. It underlines the importance of managing the relationships among security, trade, and investment. Canada should also become a more active player with middle powers in Asia to develop shared views and interests in regional security. Pushing for a multilateral governance structure in telecommunications that China would be attracted to join could be timely and helpful.
When bilateral tensions ease, efforts should continue to build on the strong complementarities between Chinese interests in secure supplies of food and natural resources and Canada’s abundant supplies. Trade talks are also hampered by the diplomatic freeze and by restrictions imposed in the US-Mexico-Canada Agreement (USMCA) on FTAs with planned economies. Sectoral talks are an alternative. They could begin with liberalization in sectors such as clean tech where there is a high level of common interest and then move to more difficult topics as part of a ”living” agreement that promotes liberalization but allows exceptions for politically sensitive sectors.
Another key strategic issue is China’s growing assertiveness as its influence grows. While bilateral engagement and accommodation are the strategic goals, it may be necessary to form multilateral alliances among governments and coalitions of civil society and the media. These alliances would make it possible to push back against Chinese influence and diversify trade in order to avoid heavy dependence on Chinese imports and civil exchanges.
Normalizing Canada’s relationship with China is unlikely in the short term. Multilateral pressures on China are desirable to adopt laws consistent with global standards. Group pressures on both China and the United States are desirable to promote coexistence rather than the current zero-sum rivalry. All of these strategic elements will take time to develop and follow through. As other middle powers have found, living with China requires focus, patience, and determination.
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Wendy Dobson is the Co-Director at Rotman Institute for International Business and a professor emerita of Economic Analysis and Policy.