Evidence of meeting #31 for Canada-China Relations in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was china.
A video is available from Parliament.
7:30 p.m.
Bloc
Stéphane Bergeron Bloc Montarville, QC
Thank you very much, Mr. Chair.
Witnesses, would you say that you see the recent election in Taiwan as a stabilizing factor in the region or, on the contrary, as a factor for potential upheavals in the region?
7:30 p.m.
Chancellor's Professor and Professor, Norman Paterson School of International Affairs, Carleton University, As an Individual
Given the Chinese reaction to the election, I would say it's destabilizing. They were hoping for a different outcome.
Does that mean that they're going to do what they have threatened to do? A lot of that depends on how the new leadership in Taiwan handles and manages its relationship with China, as well as on the deterrent messages that the United States and its western partners send to China.
There are some strategic experts who say that we should get ready, given what's going on in the world, for a March or April military offensive that the Chinese will launch against Taiwan, because they've simply had enough. I am somewhat skeptical of that.
However, the other factor you have to put into the mix is the risk of miscalculation, what is sometimes referred to as the “inadvertent escalation”. It could be an incident at sea. There have been quite a few where American forces or the forces of their allies get into a shooting match with a Chinese vessel. A ship gets sunk, and then what do you do?
If there is a breakdown in communications, we've seen that scenario in 1914 with the mobilization and countermobilization of forces in a war that nobody really wanted. I don't think anybody wants—and that includes the Chinese, by the way—to get into a war with the United States over Taiwan. They have simply just too much invested in the global economy and their own prosperity to do that, but if they feel the Americans are distracted, looking the other way, they may be opportunistic. As I said, there could also be inadvertent actions resulting from a loss of control over military forces that get you into a shooting war.
7:30 p.m.
Liberal
The Chair Liberal Ken Hardie
Thank you, Mr. Bergeron.
Now we will go to Ms. McPherson for two and a half minutes.
7:30 p.m.
NDP
Heather McPherson NDP Edmonton Strathcona, AB
Thank you very much, Mr. Chair.
This has been very interesting. Thank you so much.
Dr. Houlden, I am going to ask you a question about Taiwan now, actually.
What do you think the likelihood of an open conflict is in the near future or the relatively near future, especially hearing from Dr. Hampson that we have an election that is causing some mayhem. Obviously the Middle East and Ukraine have U.S. interests divided somewhat. I'm just wondering about your perspective on that.
7:35 p.m.
Professor and Director Emeritus, University of Alberta - China Institute, As an Individual
I've been really wrong in my long career on certain things, particularly the Soviet Union. I could see the cracks in the wall. I thought it was all going to come down. I thought it was going to take 50 years. Eighteen months after I left my mission, it had all collapsed. Take that as a warning. I have no magic crystal ball.
I actually thought that the Chinese reaction was much milder than I'd expected and many people had thought, which tells me something, I think, about their willingness to pull a trigger in the near future. I thought it was relatively mild. They fly jets almost every day that are within sight of the island. I didn't see the strong reaction, and they have lots of tools that they can bring to bear—not just an actual invasion but all sorts of grey areas, boycotts and shutting Taiwan out of markets. Taiwan's main market for their goods is still the PRC.
Looking into the future, I think the Ukraine may have been a bit of a warning. When you start a war, it's not easy necessarily to conclude it. It doesn't necessarily conclude in a time frame you wish or in a manner that you would hope for. An opposed maritime landing is one of the most difficult military exercises conceivable. There's no defence in the medium term—let's say a few weeks into a conflict—without direct U.S. assistance. However, I think that also brings in another factor. Are Xi Jinping and the Chinese willing to engage in a potential open military conflict with the United States?
The number one job of the Communist Party of China is to stay in power. Yes, on that short list is unification, welcoming Taiwan back into the embrace of the motherland. However, it's not number one—the party maintains power. Number two would be, then, how they do that—mainly economic means.
Yes, they want to do it. If there was a moment of weakness, as my friends have suggested, they might lunge forward. However, we're not there yet. I think right now, actually, a working relationship of some fashion with the United States—reducing the risk of open conflict and maintaining market access and a stable global economy—is more important than bringing back Taiwan right now.
Xi is in the position where he can redefine those goals at any given time. It's really up to him and the Chinese media, and they have a big role in shaping public opinion. He's not saying in 12 months or in 24 months. Obviously he would like to do it sooner rather than later, but I see hesitation and caution.
7:35 p.m.
Liberal
The Chair Liberal Ken Hardie
Thank you, Ms. McPherson.
Now for our next round, we'll go to Mr. Chong for five minutes.
7:35 p.m.
Conservative
Michael Chong Conservative Wellington—Halton Hills, ON
Thank you, Mr. Chair.
Just building on that, many people suggested that, if there's something that happens with Taiwan, the American-led response will be similar to their response for Ukraine—in other words it will be non-kinetic, non-military.
In that context, maybe you could describe to us, based on your knowledge and analysis, the kinds of non-kinetic responses we would see, like sanctions, and how that would impact Canada and Canadian interests. Just say one last thing about that.
The U.S. is relatively autarkic as an economy. It exports about 1% of its GDP to China and imports about 1% of its GDP roughly in imports. China exports between 5% and 10% of its GDP to United States consumers and imports a lot as well, much more in excess of 1% of its economy, from the United States, so it's much more reliant on U.S. trade than the United States. It's a similar kind of relationship we have with the United States. About one-fifth of our GDP is exported to the U.S., and they only export about 1% of their GDP to us.
In that context, with an American-led economic response to a threat to Taiwan, what is the impact on our economy and our interests?
7:35 p.m.
Chancellor's Professor and Professor, Norman Paterson School of International Affairs, Carleton University, As an Individual
There are two questions there.
One comment I would make is that Taiwan has a dual importance to the United States. One is as a democracy, and that's the values proposition, but the second is as the world's dominant maker of computer chips. I think the Americans, and others, have woken up to the fact that it's not good to have a single source of supply there, so they're making a very active effort now to diversify. In economic terms, and particularly technological terms, Taiwan is going to be of diminishing importance in the technology frontier.
7:40 p.m.
Conservative
Michael Chong Conservative Wellington—Halton Hills, ON
I guess what I'm asking is this: We enacted almost all the same sanctions the European Union did when it came to Russia. That was easy for us to do. A two-way trade investment between Canada and Russia was almost non-existent. Our repercussions here were small. European companies took a big hit—tens of billions of dollars in investments written off, family fortunes wiped out, a lot of pain.
To me, our relationship with the PRC and trade investment is similar to many European countries' relationships in trade investment with Russia. I guess what I'm looking for is whether anyone thought out the implications of a non-kinetic response to a PRC threat to Taiwan.
7:40 p.m.
Chancellor's Professor and Professor, Norman Paterson School of International Affairs, Carleton University, As an Individual
To come back to the proposition about what the Americans would do if they imposed sanctions, a lot depends on the nature of those sanctions. If it's trade restrictions, to be honest, we buy more from China than we sell, so it will hurt the consumer. A lot of what we import are consumer durables. The stuff we buy on Amazon, a lot of it comes from China. We'll see a rise in prices for certain consumer durables. Is it catastrophic? No, because, as Gordon said, the bulk of our trade is with the United States and with Mexico.
I think what we might worry about, to be honest, is sort of a repeat—Trump 2—under a Trump administration, where they impose tariffs that are directed at China, but we become collateral damage because it's a general tariff against America's trading partners. Trump has pretty much said that he's going to put a 10% tariff on all imports coming into the United States and, by the way, that includes us. If he then decides that he's going to make nice with the Chinese, as he did, and strike a deal on agriculture, that side-swipes us or has the potential to side-swipe us, because it would be a preferential arrangement with the Chinese.
If it's economic sanctions or financial sanctions, that would likely affect our investments in China, which are considerable but they're not enormous. Speaking in terms of our global footprint, the majority of our investments go south of the border, and that's certainly true of our financial institutions.
7:40 p.m.
Professor and Director Emeritus, University of Alberta - China Institute, As an Individual
Could I add a few words?
I haven't done the math, but I think the effects of a thoroughgoing set of sanctions in the United States would be catastrophic in the short to medium term. It would be immensely inflationary. In many cases, the necessary inputs to manufacture would not be there. Magna alone has 13 factories in China. We thought it was bad enough with the disruptions from COVID. That would be mild compared to the effects of a thoroughgoing effort to isolate the Chinese economy from the North American economy. Even Mexican factories very often have Chinese investment or Chinese inputs in them. Even the U.S. defence industry gets alarmed every now and then when they find a chunk of Chinese chips or other pieces in their aircraft.
I think there would be a cascading, rolling effect, which would be devastating for the stock market and inflationary, with higher unemployment. Again, I haven't done the math, but my gut feeling is that I hope we don't have to go there but, if we do, tighten your seat belts as the effects would be very seriously felt across this country.
7:40 p.m.
Liberal
The Chair Liberal Ken Hardie
Thank you, Professor Houlden.
We'll now go to Mr. Cormier for five minutes or less.
7:40 p.m.
Liberal
Serge Cormier Liberal Acadie—Bathurst, NB
Thank you, Mr. Chair.
Mr. Houlden, thank you for being with us this evening to share your expertise.
While we were in our ridings, I met with some groups with whom I discussed the economy. We talked about everything that’s happening on the world stage, and my fellow citizens expressed great concern.
We also talked about Canada’s Indo-Pacific Strategy. As I’ve already told the Committee, China is a partner that New Brunswick regrettably can’t do without, especially for exporting its seafood such as crab and lobster, among other products.
How might this strategy help New Brunswick exporters, not only in the area I just mentioned, but also businesses in our region? How could a strategy that isn’t exactly tailor-made at least calm the situation we’re currently facing worldwide?
Do you see the Indo-Pacific strategy as a solution that could help our companies diversify their exports? What is your view of this strategy?
7:45 p.m.
Professor and Director Emeritus, University of Alberta - China Institute, As an Individual
When I look at Canada’s Indo-Pacific Strategy, I don’t necessarily see any details that could apply to the New Brunswick situation. In principle, though, we need to make greater efforts to help seafood exporters, for example.
Although we shouldn’t limit ourselves to this, one possible measure is to increase Chinese investment in Canada, in the Atlantic provinces, but this approach presents a political challenge. I would point out that the China Institute at the University of Alberta has conducted several studies on the level of investment in Canada, and it is now much lower. Indeed, there is public opposition to the People’s Republic of China investing in Canada, even in non-strategic areas such as the agricultural sector, where there are no major risks.
China is the world’s second-largest economy. All of Canada’s provinces depend on exports. Canada has a tradition of exporting luxury goods to Europe, the United States and other places with more or less the same values and institutions as ours. It’s a different story in Asia, especially when it comes to China.
In my opinion, we should have a slightly more sophisticated investment policy. I agree that every Chinese investment in Canada needs to be carefully analyzed to see if it provides clear benefits to our country. However, Canada’s current answer to this question is almost always no, even in non-strategic areas. And yet, a Chinese firm setting up in New Brunswick must comply with Canadian and provincial rules and laws. Based on this, I believe we can find solutions that are in the interests of both parties. Right now, however, it’s very challenging, both politically and in terms of public opinion.
7:45 p.m.
Liberal
Serge Cormier Liberal Acadie—Bathurst, NB
Mr. Houlden or Mr. Hampson, even with an Indo-Pacific strategy and a wide diversification of markets for its goods, do you really think that Canada could ever do without China in terms of economic trade?
January 29th, 2024 / 7:45 p.m.
Chancellor's Professor and Professor, Norman Paterson School of International Affairs, Carleton University, As an Individual
When it comes to the Indo-Pacific strategy, I think the real question is, what are we selling? At the end of the day, our comparative advantage comes from selling commodities.
When it comes to China, we don't need free trade agreements to do that because the prices of commodities are set on global markets. That, by the way, also applies to the wheat we sell to Indonesia. I think we're the largest supplier of wheat to Indonesia.
We're not competing with the Chinese. We're exercising good old Ricardian comparative advantage. I just don't see China as a competitor.
As we've seen before, if the Chinese decide to put sanctions on us as they did with our beef, pork and canola, there are third parties we can sell to that will sell those products to the Chinese. I think the UAE was the middleman in that exchange. We continued to sell canola to China, even though it said it wasn't going to buy it from us over the affair with the two Michaels.
7:50 p.m.
Liberal
The Chair Liberal Ken Hardie
Thank you, Professor Hampson.
In the time available, we have time for one question and one answer from each party.
I'll call upon Mr. Kmiec and Mr. Fragiskatos for one question, and then Mr. Bergeron and Ms. McPherson.
Mr. Kmiec, it's your question.
7:50 p.m.
Conservative
Tom Kmiec Conservative Calgary Shepard, AB
Thank you, Chair.
In the Indo-Pacific strategy, it talks about “reviewing all mechanisms and structures” between Canada and the PRC, so I want to ask about the Asian Infrastructure Investment Bank.
Professor Hampson, you mention that the PRC's intention is building these replacement institutions to replace the Bretton Woods institutions.
On the Asian Infrastructure Investment Bank, the government invested heavily into the bank and called it part of its foreign policy strategy. Now it has regrets. In June last year, it announced it was freezing co-operation. There have been no announcements since then on what's going on and whether they will pull out or not. Was that in the best interest of Canada? Is the AIIB a replacement institution to try to push out Bretton Woods institutions?
I'll go to you, Professor Hampson, and to you, Professor Houlden as well.
7:50 p.m.
Chancellor's Professor and Professor, Norman Paterson School of International Affairs, Carleton University, As an Individual
Very briefly, yes, we did the right thing because we woke up to the fact that the Chinese are calling the shots in the AIIB, and we have very limited influence there. If you want to play their game, keep your membership, unfreeze it. If you don't want to play their game because it's not advancing your own national interest, then suspend it.
7:50 p.m.
Professor and Director Emeritus, University of Alberta - China Institute, As an Individual
If you're going to cancel it or freeze it, better to not have gone in in the first place. However, I would note that while the belt and road is a totally opaque organization with no governance that's visible, it is at a scale that's at least 10 times the size of the AIIB. The belt and road is a far more challenging and difficult institution. Creating the AIIB was an effort to try to create a counterpart to the Asian Development Bank. It's relatively successful and more admirable—I suppose you could say—than the belt and road, but if you're going to freeze, if you're not going to be there constantly, it's better to not start in the beginning. I don't see the gain in going in and then pulling out. It's better to have stayed out. I'm not sure there's enough common ground to have gone in in the first place.
7:50 p.m.
Liberal
7:50 p.m.
Liberal
Peter Fragiskatos Liberal London North Centre, ON
Both of you mentioned BRICS. How worried should we be about the fact that it has grown in membership? Where is this going, and how should Canada respond in working with others or taking actions on its own? What do you think?
7:50 p.m.
Chancellor's Professor and Professor, Norman Paterson School of International Affairs, Carleton University, As an Individual
I wouldn't be losing sleep tonight over the BRICS, but I might five years from now if it expands in the way the Chinese would like it to expand. In the written remarks I submitted to the committee, I raised some of the flags that are out there about the BRICS.
On some of the countries that have joined, I'm not sure we should be worried, to be honest. They're not a club that we would necessarily want to be in.
However, I think we should be concerned that the BRICS are responding to a frustration with the existing global machinery of international governance, and part of that frustration is born out of an unwillingness on the part of key countries. We're not in that group, but there's an unwillingness to allow for greater reform of those institutions. What should we do? We should be pushing for the reform of the World Bank and the IMF and giving a bigger voice to developing countries who might want to jump over to the other side.