CHINA
22 March 2014
Canadian business advances into China
China is a notoriously difficult place for doing business. But Canadian business is advancing nicely into China, according to a report by the Asia Pacific Foundation of Canada.
China is well known as a difficult place for doing business -- lack of rule of law, corruption, intellectual property theft, unreliable partners, poor product quality and so on. And while China had been the star of the global financial crisis, the Chinese economy has been weakening more recently.
But according to the 2012 Survey, "Canadian Businesses in China", 75% of Canadian companies active in China have profitable operations. This is very impressive, even if it is below that of German firms (80% profitable) and American firms (89% profitable).
This report by the Asia Pacific Foundation of Canada also indicated that 66% of Canadian firms have experienced growing business activity over the last five years -- thus providing an alternative source of demand during the slump in the US economy. Companies with operations in China saw the most growth, followed by importers, and then exporters.
What is the profile of Canadian business in China?
Canada is not a newcomer to China. 19% of Canadian businesses active in China started their China business more than 20 years ago. But not surprisingly, there has been a jump in more recent years, with 31% starting in the past five years. Canadian small- and medium-sized enterprises are the nation's major players in the China market, with 58% of the survey respondents having global business of less than $10 million.
Export to China is the most important form of business, followed by having local operations in China, and then importing from China. Canadian companies doing business in China cover a wide range of industries, notably manufacturing, professional services, high-tech/IT, education and mining. And the home base of 40% of the parent companies is in Ontario, while 25% come from British Columbia.
How difficult is it to do business in China?
70% of the companies surveyed noted that it was either much more difficult or somewhat more difficult to conduct business in China than in other international markets in which they operate.
Unlike U.S. and German companies, which viewed constraints on human resources as their biggest challenge, or British and Swiss firms, which said slowing global growth was their biggest challenge, the top three challenges identified by Canadian firms were related to “rule of law” issues, including: (i) intellectual property rules and practices in China; (ii) inconsistent interpretation of regulations/laws in China; and (iii) weak dispute settlement mechanisms.
What about a free trade agreement with China?
The Chinese government recently proposed that Canada and China start discussions about a free trade agreement. An overwhelming majority of the Survey respondents support free trade talks with China and believe that their businesses would grow if an FTA could be agreed upon.
The top advantages of an FTA are: (i) helping protect the rights of Canadian businesses in China, with commitments to treat Canadian firms the same as domestic Chinese businesses; (ii) ensuring that Canadian goods would not be excluded from the Chinese market due to the application of arbitrary and discriminatory technical rules and standards; and (iii) helping set up an improved rules-based system for doing business in China, where Canadian businesses would have recourse to remedies if they were excluded from the market.
The FTA ball is now in Ottawa’s court!
Notwithstanding this apparent success story, the reality is that China is still a minor trading partner for Canada, accounting for about 4% of exports and 11% of imports. And for three-quarters of the companies surveyed, China business was less than one-quarter of their global business.
Canadian business should make greater efforts to exploit the potential of Chinese and other Asian markets. Its neighbor, the US, will not return to the heady days before the global financial crisis, even though it is picking up now. And Europe could be bogged down in its sovereign debt crisis for a decade or so.
This excellent report by the Asia Pacific Foundation of Canada provides inspiration concerning the immense opportunities that are awaiting Canada in this Asia Century.
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
But according to the 2012 Survey, "Canadian Businesses in China", 75% of Canadian companies active in China have profitable operations. This is very impressive, even if it is below that of German firms (80% profitable) and American firms (89% profitable).
This report by the Asia Pacific Foundation of Canada also indicated that 66% of Canadian firms have experienced growing business activity over the last five years -- thus providing an alternative source of demand during the slump in the US economy. Companies with operations in China saw the most growth, followed by importers, and then exporters.
What is the profile of Canadian business in China?
Canada is not a newcomer to China. 19% of Canadian businesses active in China started their China business more than 20 years ago. But not surprisingly, there has been a jump in more recent years, with 31% starting in the past five years. Canadian small- and medium-sized enterprises are the nation's major players in the China market, with 58% of the survey respondents having global business of less than $10 million.
Export to China is the most important form of business, followed by having local operations in China, and then importing from China. Canadian companies doing business in China cover a wide range of industries, notably manufacturing, professional services, high-tech/IT, education and mining. And the home base of 40% of the parent companies is in Ontario, while 25% come from British Columbia.
How difficult is it to do business in China?
70% of the companies surveyed noted that it was either much more difficult or somewhat more difficult to conduct business in China than in other international markets in which they operate.
Unlike U.S. and German companies, which viewed constraints on human resources as their biggest challenge, or British and Swiss firms, which said slowing global growth was their biggest challenge, the top three challenges identified by Canadian firms were related to “rule of law” issues, including: (i) intellectual property rules and practices in China; (ii) inconsistent interpretation of regulations/laws in China; and (iii) weak dispute settlement mechanisms.
What about a free trade agreement with China?
The Chinese government recently proposed that Canada and China start discussions about a free trade agreement. An overwhelming majority of the Survey respondents support free trade talks with China and believe that their businesses would grow if an FTA could be agreed upon.
The top advantages of an FTA are: (i) helping protect the rights of Canadian businesses in China, with commitments to treat Canadian firms the same as domestic Chinese businesses; (ii) ensuring that Canadian goods would not be excluded from the Chinese market due to the application of arbitrary and discriminatory technical rules and standards; and (iii) helping set up an improved rules-based system for doing business in China, where Canadian businesses would have recourse to remedies if they were excluded from the market.
The FTA ball is now in Ottawa’s court!
Notwithstanding this apparent success story, the reality is that China is still a minor trading partner for Canada, accounting for about 4% of exports and 11% of imports. And for three-quarters of the companies surveyed, China business was less than one-quarter of their global business.
Canadian business should make greater efforts to exploit the potential of Chinese and other Asian markets. Its neighbor, the US, will not return to the heady days before the global financial crisis, even though it is picking up now. And Europe could be bogged down in its sovereign debt crisis for a decade or so.
This excellent report by the Asia Pacific Foundation of Canada provides inspiration concerning the immense opportunities that are awaiting Canada in this Asia Century.
Author
John WestExecutive Director
Asian Century Institute
www.asiancenturyinstitute.com