Many Canadian companies are concerned that political tensions are stopping them from fully tapping into the world’s second-largest economy.
That’s according to a new survey from the Canada China Business Council (CCBC), which found nearly half (46 per cent) of respondents say they viewed China as a lower priority in 2023 compared with 2021.
Political reasons are among the top obstacles for Canadian companies doing business in or with China, the survey found.
The report also concluded that although the economic environment in China is more challenging for foreign countries in general, Canada is trailing behind the likes of U.S. and Australia in business activities and official visits, undermining Canadian companies’ competitiveness in the market.
“It's important that we keep in mind that China's economy, even if it's growing more slowly, is still growing on a very big base, trying to still add about a third of global growth each year and that base keeps growing larger,” Sarah Kutulakos, the CCBC’s executive director, said at a Jan. 25 press conference.
She said Canadian opportunity in China is, in many cases, still largely not being addressed. As of last November, 3.9 per cent of Canadian exports to the world went to China while the U.S. had almost double that despite its contentious relationship with Beijing.
“Sectors like beef and pet food have been frozen out of a growing market for the past several years, without any realistic indications of a resolution. … All while the U.S., Australia, and other countries grow their exports at Canada’s expense,” said Kutulakos.
Current relations between Canada and China were cited as the top obstacles for Canadian companies doing business in or with China in 2023, followed by geopolitical risk and relations between China and the U.S., according to the Canada-China Business Survey 2022/2023, which had 185 respondents.
“Economic engagement between China and Canada were very normal and smooth before 2019. Then it became much harder, which increased the costs of doing business and consequently driving up the prices,” said Michael Lee, owner of Richmond-based Watson Enterprises Inc., an Asian food wholesaler.
“Governments should see the benefits of lowering barriers for doing business between the two countries for Canadian businesses and economy.”
Nearly half of the respondents (46 per cent) said they put China on a lower priority in their global plan in 2023, a significant increase from 27 per cent in 2021. Meanwhile, 12 per cent of respondents said China was a higher priority, a drop from 24 per cent two years ago.
The top Canadian sectors that planned to expand in China were educational services (18 per cent) and agri-food and agri-business (14 per cent), according to the report.
Companies have also reduced their dependence on China with nearly half (48 per cent) of respondents saying they decreased their sourcing volume from China in 2023, up 17 percentage points compared with 2021. Meanwhile, 13 per cent reported an increased sourcing volume from China, down 16 per centage points from 2021. Firms are now diversifying, turning to other countries for sourcing or as export destinations.
However, Kutulakos said it takes a lot of smaller countries to add up to China’s market influence in many sectors.
“The business community really wants to get down to business,” reads the report.
“While global conflict, which weighs on geopolitical risk and inconveniences travellers, is out of our control … respondents wish that Canada would follow the example of other Western countries in re-engaging at multiple levels to help our companies compete on a more-level playing field.”