OTTAWA—Next week Prime Minister Stephen Harper departs for his first visit to China since taking office, and so far the message for the trip has been trade alone.
China is Canada’s second-largest trading partner and third-largest export destination. And many seem content to view the relationship as simply as that, ignoring the inconvenience of discussing a political system still managed by an often repressive communist regime.
But trade, as with many things in China, is not that simple.
The shortcomings of China’s ruling party and its system suddenly become important when they affect whether product recalls are made when they should be, whether business partners overseas can be held to account, and whether our companies’ intellectual property is secure.
China is Canada's—and the world’s—factory. While the U.S. is still our largest source of imports, many of the consumer products Canadians use every day come from China.
Rampant corruption and inadequate consumer protection means the quality of goods produced in China and exported to Canada is at best uncertain. Business interests guarantee minimum standards most of the time, but toxic products, including toothpaste contaminated with chemicals used in antifreeze and brake fluid, as well as poisonous dog food and lead-filled toys, still make their way to Canada and other countries.
Enter the politics. While the lack of a reliable legal system in China may have fostered this culture of fake goods, the regime’s efforts to squash all bad news has helped preserve it.
A most telling example emerged just after the Olympics when news of China's melamine-tainted milk supply erupted around the world as hundreds of thousands of Chinese suffered and at least six babies died from kidney stones caused by the contamination.
Just as it did with SARS, Beijing suppressed early reports of the crisis, making a bad situation worse. The world soon learned that the regime knew about the problem weeks before the Olympics but did nothing. Exported products containing Chinese milk ingredients were pulled from shelves in Canada and elsewhere as each tested positive for melamine contamination.
According to Export Development Canada, Beijing sees economic output as essential to maintaining its hold on power and believes mass unemployment and civil demonstrations could “coalesce into a widespread anti-government movement.” This may explain why the regime exercises its near-absolute control of the media to kill stories that may stain the nation’s image as a manufacturer, even when it’s in the public interest.
China's manufacturers are more than a source of products for Canadians consumers; they are also used by Canadian businesses looking to cut costs so they can compete against international companies doing the same. Chinese factories have become a part of the supply chain of many Canadian businesses.
This forces Canadian manufacturers to compete with a labour market where unions are little more than show, environmental protection is a farce, and the only thing cheaper than the wages factory workers make are the rations fed to hundreds of thousands of labour camp prisoners. (The United States is among countries that have tried to keep forced-labour goods from being imported, but this is difficult to do when the regime doesn't cooperate.)
Meanwhile, Canadian companies that outsource to Chinese suppliers can sometimes find their business held hostage by Chinese firms intent on squeezing every dollar they can from the arrangement.
In his book Poorly Made in China, author Paul Midler details some of the nightmare scenarios. Most notable perhaps is the issue of “quality fade” where a company will hire a Chinese supplier to make its product, only to watch the quality of the product deteriorate over time. Rather than risk a lengthy supply interruption, the company will try to get its Chinese supplier to address quality problems—from partially-filled bottles to swapped ingredients—only to find that the supplier will always push standards to the limit of what a company will accept without leaving.
What’s worse is that these Chinese manufacturers frequently use their newfound know-how to make counterfeits of the product they were hired to manufacture, which they then sell in secondary markets.
Even companies that do no manufacturing in China are at risk, as ice wine producers in Ontario discovered when a Chinese firm started filling wine bottles identical to theirs with who knows what, leaving the Canadian producers terrified their brand would be destroyed by someone getting poisoned by the fake look-alikes.
Less talked about but also extremely costly to Canadian business is the rampant pilfering of Canada's hard-won intellectual property. Companies spend millions on research and development only to later discover that their Chinese engineer has been faxing the blueprints to a firm back in China.
Michel Juneau-Katsuya, author and former head of CSIS Asia desk, has estimated that economic espionage is costing Canada up to $1billion a month.
Though Prime Minister Harper may be travelling far to make his first visit to China, Beijing’s hand can already be felt here. The Prime Minister would do well to talk about a lot more than trade as our ties to China grow.