BUSINESS

BULLISH ON CHINA'S SHOP

Canadian government and business look to the East

BRENDA DALGLISH November 14 1994
BUSINESS

BULLISH ON CHINA'S SHOP

Canadian government and business look to the East

BRENDA DALGLISH November 14 1994

BULLISH ON CHINA'S SHOP

Canadian government and business look to the East

BUSINESS

In the cavernous Great Hall of the People, just down the street from Tiananmen Square in the heart of Beijing, Prime Minister Jean Chrétien and 1,500 Canadian businessmen and their Chinese guests plan to gather this week for a long evening of dining and toasting. The 11-course dinner featuring lobster and turkey is just one of several formal events packed into the Prime Minister’s five-day visit to China. The visit began on Saturday when Chrétien, visibly tired after the 21hour plane trip, accompanied the camera-toting group on a sightseeing trip to Beijing’s 500-year-old Forbidden City. The official portion was getting under way on Monday, with Chrétien meeting President Jiang Zemin, head of the still-powerful Communist party, and Premier Ii Peng. The visit is Canada’s response to China’s persistent invitation to Canadian businesses to play a larger role in its phenomenal economic transformation.

For the businessmen in the crowd, Wednesday’s dinner provides an opportunity to score points with the Chinese who enjoy ceremonial banquets. Winston Kan, Asian sales manager for Escalator Handrail Co. Inc., an Oshawa, Ont.-based company that makes rubber handrails, says that even though his company has been successfully exporting to Chinese customers for several years, the socializing will strengthen existing connections. “Some of our customers are very excited about the dinner,” said Kan. “There will be lots of face and honor and prestige.”

In fact, there will be lots of everything as the largest trade delegation Canada has ever launched wends its way around Asia.

On the tour through China, Chrétien is travelling with two cabinet ministers, nine premiers—only Quebec’s Jacques Parizeau is missing—two territorial leaders, and several mayors and almost 400 businessmen. Although most of the pre-

miers have already been to China at least once, they still seemed intrigued by its exoticism. Alberta’s Ralph Klein, noting the lyrical nature of the names of public buildings such as the Hall of Great Supremacy or the Palace of Maintaining Harmony, joked, on hearing of the Hall of Mental Stimulation, that “everyone but the premiers should be obliged to visit there.” Although Chrétien is lagging other leaders in visiting China—German Chancellor Helmut Kohl last year led his third trade delegation in a decade to China—Canada is making up for that with sheer numbers: the business interests represented on the trip include everything from banks, resource companies and aircraft manufacturers to food companies, lawyers, accountants and advertising agencies. Federal officials say that they expect 60 to 70 contracts to be

signed during the visit, including a nuclear co-operation treaty that could lead to a $2.4billion sale of Atomic Energy of Canada Ltd.’s CANDU reactors to power-starved China.

“Remember, China is still a Communist country, and government officials make many of the business decisions,” said Daniel Veniez, vice-president of corporate affairs with Montreal-based forest company Repap Enterprises Inc. “Government-to-government contact is absolutely essential to open the door.” British Columbia Premier Mike Harcourt, a veteran of about 30 trips to Asia, agrees: “Politicians are there to open the

doors, business is there to close the deals.” Not everyone, however, is as enthusiastic about the showy presence of Chrétien’s ‘Team Canada.” James Fletcher, president of China Capital Inc., a Vancouver-based merchant bank, says that he had no interest in trooping around China with the Canadians. China Capital, with the help of influential Chinese connections, is currently developing several projects—including one of China’s highly lucrative toll roads. “They will see nothing and they will accomplish nothing,” predicted Fletcher. “China is littered with letters of intent that have never gone anywhere.”

The Canadian visit comes at a time of political and economic uncertainty in China. Its 90-year-old patriarch Deng Xiaoping, who no longer holds any official government titles but whose presence lends stability at a time of profound transition, has recently been reported to be in deteriorating health. The death of Deng could trigger internal power struggles that might derail the country’s long-term program of economie reforms.

For the past two years, Beijing has been hying to rein in the growth of the domestic economy—which boomed ahead by 13 per cent last year—and to lower the inflation rate, now officially reported at 28 per cent. But Chen Zhao, managing editor of The China Analyst, a Montreal-based publication that monitors the Chinese economy, says that floods in the south and droughts in the north this year have caused crop failures. That, in turn, has created inflationary pressures from big hikes in food prices.

But Chen notes that measures such as tight constraints on new lending are starting to work. “The economy is showing signs of slowing down,” said Chen. “That’s the good news. We don’t want it to explode.” However, the last time China’s central government succeeded in putting the brakes on economic growth was in 1989. The subsequent recession caused widespread social unrest that culminated in the military’s brutal attack on the students’ demonstration in Tiananmen Square.

But none of that appears to be deterring the businessmen travelling with Chrétien who have a keen eye on China’s opening market of 1.2 billion people. The Chinese, at the same time, are exploiting the potential of that fastgrowing market by trading access to it for other economic benefits. Repap, for one, expects to sign a threeyear deal during Chrétien’s visit to sell pulp to China. “It’s a foothold,” said Veniez, “that provides us with a number of opportunities.” Clearly, the Chinese are less interested in importing goods than they are in encouraging foreign companies to undertake joint ventures or to make direct capital investments within the country. Catherine Chase, spokesman for Canadair Aerospace Group, an aircraft manufacturer owned by Bombardier Inc. of Montreal and the Ontario government, says that the Chinese have bought a total of 32 aircraft from Bombardier’s various divisions since 1970. The

potential of the Chinese market, with its growing demand for improved transportation and communication technologies, has captured the attention of Bombardier chairman Laurent Beaudoin, who is on the trip with Chrétien. However, as a condition of these sales, Chinese companies have demanded contracts to produce components for some of the company’s aircraft, including emergency doors, baggage doors and water tanks.

While companies like Bombardier would prefer to make sales with no strings attached, the Chinese are reluctant to buy foreign products unless the purchases are accompanied by extra benefits. Said Chase: “The Chinese are certainly intent on acquiring our technology, and we’re certainly intent on gaining wider access to their market. But where it is all going to lead remains to be seen.”

Canada is particularly fortunate because many Canadian companies specialize in such key areas as transportation, communications and natural resource development, which China considers vital for its development. RPM Tech Inc., of Cap-Santé, Que., is a mediumsized company that makes snowblowers. Four years ago, Chinese officials sought out the company and bought $800,000 worth of truckand tractor-mounted equipment. Said Norman Duncan, RPM’s marketing manager: “It was simply a matter of the Chinese looking around for a place that knew how to handle snow, and what better place for that than us?” The equipment is being used in the mountains north of Uriimqi, northwest of Beijing along the Russian border. ‘We’ve never actually seen it in use because the Chinese won’t let us out of Uriimqi on the grounds that the area is too sensitive politically,” says Duncan. “But they keep telling us that everything’s working fine.”

At the other end of the spectrum is Atomic Energy of Canada Ltd. (AECL), which is on the verge of making a major sale of power-generating CANDU nuclear reactors. On the eve of his departure for China, AECL chairman Robert Nixon expressed confidence that a sales agreement will be negotiated over the next several months. “Their need for electricity is huge,” said Nixon. “The Chinese negotiators are competent and capable. I detect nothing but goodwill.” Despite the economic benefits, the sale of two CANDU reactors, which would be erected near the city of Qinshan south of Shanghai, raised some worries in Canada. “When the Chinese were testing weapons a few months ago, it certainly gave members of the government a good deal of concern,” said Nixon, a former Liberal government treasurer of Ontario. “But the agreement that they will sign clearly restricts our nuclear contribution to peaceful uses.” Nixon says he is confident that the declaration of intent that AECL expects to sign represents sincere Chinese interest in CANDU. But he, like other business leaders who are dipping their toes into the foreign market, is waiting for the only document that really matters: a signed cheque.

BRENDA DALGLISH

ANTHONY WILSON-SMITH