China-Canada trade pattern shifting

ROMA LUCIW
Globe and Mail

China's rapid industrialization has seen its appetite for Canadian imports shift to wood, metals and other raw materials from wheat, which dominated the roster a decade ago.

Wheat was Canada's largest export to China in 1997, accounting for nearly 19 per cent of the value of overall exports, according to a Statistics Canada report released Friday. But by 2004-06, wheat's share had dropped to just 6 per cent and it had disappeared from the top ten list of Canadian exports to China.

Bruce Burnett, director of weather and crop surveillance at the Canadian Wheat Board, said the Chinese government has moved aggressively to curb the country's dependence on all foreign-grown wheat, including Canada's.

Ten years ago, China was the second-largest buyer of Canadian wheat, with bulk shipments reaching 1.7 million tonnes, he said. By 2005-06, shipments to China had shrunk to 160,000 tonnes.

“China used to be a significant customer of Canadian wheat,” Mr. Burnett said. “In the last decade, the Chinese have increased their own internal wheat production and improved the quality of their wheat, so they have become much less reliant on imports.”

Instead, exports to China have experienced rapid growth in the value of Canadian wood pulp, organic compounds, nickel products, copper and metal ores. Shipments of machinery and equipment, as well as vehicle parts, have also risen.

Peter Hall, deputy chief economist at Export Development Canada, said China's rapid development has created a massive manufacturing sector that needs raw Canadian goods for the production process.

“China is moving up the value chain, so, in terms of what it consumes,” Mr. Hall said. He noted that rising levels of Chinese personal wealth have increased demand for Canadian vehicles and parts, a market that will only grow.

Overall Canadian trade with China surged nearly fivefold to $42.1-billion last year from $8.7-billion in 1997, Statscan said. China has been Canada's No. 2 trading partner since 2003 when it surpassed the United Kingdom and Japan.

China accounted for 5 per cent of Canada's overall world trade in 2006, up from 1.5 per cent a decade earlier. The United States is still Canada's largest trading partner, although trade with our southern neighbour has dropped to 68.9 per cent in 2006 from 75 per cent in 1997.

China's arrival as a major economic, export and consumer powerhouse has triggered a resource boom, raised global commodity prices and increased demand for Canada's vast natural resources. Although Canadian shipments of goods to China have taken off in the early part of this year, Canada still imports far more from China than it exports.

Imports from China were five times higher in 2006 than in 1997, while exports to the country tripled, the report said. As a result, Canada's trade deficit with China has expanded to $26.8-billion last year from $3.9-billion.

Chinese machinery - which includes computers, hand tools, refrigerators and hand tools - rose from the No. 4 spot ten years to emerge as the largest Canadian import in 2006, making up 20.8 per cent of the overall total. Imports of made-in-China electronic sound equipment, toys and furniture also picked up in the last decade.

“A significant part of Canada-China trade can be related to the globalization of production,” said Jafar Khondaker, the Statscan researcher who wrote the report. He noted the increasing prevalence of two-way trade of the same commodity groups between the two countries.

As of last year, two-way trade accounted for more than 45 per cent of exports and 57 per cent of imports. The types of goods the two countries are exchanging include organic and inorganic chemicals, plastic and rubber materials, iron and steel, industrial and agricultural machinery and equipment, electronics, automotive equipment and parts, optical, photo, medical and surgical instruments, wood products, paper and paperboard and fish products.