CANADA

THE CHINA DEAL

Anthony Wilson-Smith November 21 1994
CANADA

THE CHINA DEAL

Anthony Wilson-Smith November 21 1994

After a week that included, among other things, a run up the Great Wall of China, a bicycle trip down a street in Shanghai, a printed excerpt of his autobiography in China’s biggest newspaper, an abundance of praise from Canadian premiers and overseeing the signing of more than $9 billion in potential contracts, what does a seemingly indestructible Prime Minister do for an encore? In the case of Jean Chrétien, he goes on on the sixth day to become the first Canadian leader in almost half a century to observe a moving Remembrance Day ceremony with veterans in Hong Kong—and on the seventh day, he rests. “The Prime Minister is tired, very satisfied, but tired,” announced his communications adviser, Peter Donolo, when Chrétien decided to go to bed even earlier than his usual 10 p.m. last weekend. “It has been a gruelling week.”

Without doubt, it was—and, at the same time, a checkered but largely successful one. It highlighted the continuing and remarkable honeymoon that Chrétien enjoys with both the Canadian public and most of his provincial counterparts. In the same week that a Gallup poll put the Liberals at 63 per cent of decided voters—the highest level of support for a federal party since Gallup began polling in Canada 54 years ago—Chrétien clearly charmed both his Chinese hosts and his often recalcitrant collection of premiers. "I have seen a lot of ups and downs in federal-provincial relations," said New Brunswick Premier Frank McKenna, a Liberal and veteran of seven years in office, "but I have never seen anything like the respect and affection that Jean Chrétien commands from his peers." Manitoba's Gary Filmon, a Conservative and sometime bane of co-operative efforts in the past, added: "The Prime Minister has just been an absolute delight to work with.” And Ontario Premier Bob Rae, a New Democrat, presented Chrétien with a Team Canada sweater on behalf of all the attending premiers and referred to him as “our leader and captain.”

Among other things, there was a palpable reason for that enthusiasm within the Team Canada lineup: score this the biggest selling blitz in Canadian history for the Prime Minister, nine premiers, two territorial leaders, two mayors and about 400 business executives who led the largest peacetime trade delegation that Canada has ever sent abroad. Among other things, they left China with $2.6 billion in firm contracts—a total that was more than 2-1/2 times what federal officials had predicted they would achieve before they left. To put that figure in perspective, it amounts to more than half the combined $4.8 billion in all Canada-Chinese trade that took place last year. At the same time, a combination of less-certain “memorandums of understanding” and “letters of intent” could almost quadruple that figure if those deals bear fruit. That would include, if the deal can be closed, a $3.2-billion contract to sell two CANDU nuclear reactors to China, with the money to be paid over the next 20 years.

With those results, both Chrétien and the premiers seemed to feel that it was churlish to look for any clouds within that proverbial silver lining. “It is clear that we have succeeded in our aims beyond anyone’s original expectations,” he said at a news conference in Shanghai marking the end of his six-day stay in China. That appears true, but in the wake of a week that seems likely, in the long term, to profoundly affect the way that Canada views both itself and its place in the world, questions remain about both the topics that were discussed and those that were pushed aside.

Among them: what price profit? Before the trip, Chrétien, foreign affairs officials and several premiers insisted they would use the occasion to raise concerns about Chinese government human-rights abuses. (China continues to indefinitely imprison dissidents who publicly criticize the government, to frequently harass foreign journalists based in Beijing, and to crack down violently on nationalist movements in such areas as Tibet, and it was recently accused by the New York City-based Human Rights Watch of doing a lucrative business in selling the organs of executed political prisoners for transplants.) But that issue was swished to the side once the delegation arrived in China. "We do not practise megaphone diplomacy, but we do not practise doormat diplomacy either,” insisted a senior foreign affairs department official, who said that Canada would raise its concerns in a “constructive” fashion.

But instead, Canada, personified by the Prime Minister, barely raised them at all. The only time Chrétien came close to the issue was in a meeting early in the week with Prime Minister Li Peng that included the premiers and other Chinese officials. Chrétien raised the issue so briefly that a Chinese foreign affairs ministry official later insisted it had not come up at all, and Nova Scotia Premier John Savage, who was at the meeting, did not initially recall any mention of the subject. For his part, Chrétien conceded that Li simply “did not respond” to his remarks, and that he then changed the subject. But as a measure of how Canada’s political leaders approach the issue, two of the most vociferous defenders of Chrétien’s low-key approach after the meeting were New Democrats Roy Romanow and Rae, whose national party used to be strident on human-rights issues.

Similarly, the issue of the fate of Hong Hong after China takes it over in 1997 from Great Britain was given equally short shrift. After his meeting with his Chinese counterpart, Li Peng, Chrétien declared that he was “satisfied” that Hong Kong would be allowed to maintain its democratic institutions after the takeover. But two days after the meeting, the Chinese government announced that it will abolish all the island’s duly elected legislative bodies when it takes over on July 1, 1997.

Other questions concern the composition of the deals themselves. Despite the fanfare surrounding them, in many cases few specific details were given. And despite the billions of dollars involved, it is not clear how many Canadian jobs will be created, or how much of the potential profit will eventually come back to Canada. Chinese law prevents foreigners from making more than a 12-percent return on their investments in several fields, such as hydroelectric construction, and companies are often obliged to plow their profits back into the country through the creation of subsidiaries based in China. As well, many of the contracts provide for a combination of Canadian financial investment coupled with a Chinese investment of land and labor. As a result, any statements about potential profits is purely speculative. For example, Toronto-based Can-Alm International has agreed to build four major power plants worth more than $170 million in different parts of China. But the Chinese government will pay only 20 per cent of the total cost, while Can-Alm will supply the balance. Similarly, Northern Telecom signed a three-year co-operation agreement with the province of Guangdong to supply up to $250 million of telecommunications equipment. But much of the equipment will be supplied from a new manufacturing facility that Northern Telecom is building—largely with its own money—within the province.

Another example involves the biggest potential agreement, the sale of two 700-megawatt CANDU-6 reactors. Under the present terms, China will pay only about one-third of the purchase price up front, while a significant part of Chinese financing is likely to come from the Canadian Export Development Corp.—which means, in essence, that Canadian taxpayers are help ing to finance the Chinese government's purchase. As well, some critics suggest that Canada is taking a significant risk in selling the highly sophisticated reactors to a country that is notorious for its refusal to abide by copyright laws and its willingness to pirate technology. At the same time, full details of the tentative agreement have not been made public and Canadian officials admitted that the signing almost did not take place because of last-minute concessions demanded by the Chinese government. But, said Robert Nixon, the chairman of Atomic Energy Canada Ltd., the Crown corporation that made the sale: “We are confident that all the necessary safeguards are built into this deal.”

Despite those difficulties, the enthusiasm of the Team Canada delegation was both obvious and, from a business point of view, easily understandable. The explosive pace of growth in the Chinese economy is clearly visible in both Beijing and, in particular, the port city of Shanghai, where construction cranes and newly erected multi-storey office complexes dominate the skyline. There are more than 20,000 buildings now under construction. Shanghai’s stock exchange, which was shut down after the Communist revolution in 1949 and reopened four years ago, has increased its listings from eight to more than 160 since then. The Bund, the legendary waterfront area of the 1930s once dominated by foreigners, has been refurbished and renovated in spectacular fashion. For now, office rental prices in the city are among the highest in the world, and the main shopping thoroughfares are dotted with Western-style stores selling gold jewelry, imported fashions and showrooms full of German and Japanese cars.

What is even more remarkable is that almost all that growth has come in the past four years, since the Chinese government loosened a series of restrictions on the city. Shanghai, once known as the “Paris of the Orient,” has always been viewed with suspicion by Communists because of its “bourgeois” background and the distinctive, often rebellious nature of its residents. But now, those restrictions have been lifted, and the city’s natural attractions, coupled with new tax benefits and incentives for foreigners, have resulted in Shanghai’s regaining much of its former popularity with outsiders.

Still, that boom may have also distracted Team Canada officials and allowed them to overlook some significant continuing problems in the country. In Beijing, for example, multimillion-dollar construction projects are often built directly alongside rusting, decrepit peasants’ apartment buildings notable chiefly for their primitive conditions and the stench of their blocked or malfunctioning sewage systems. The city’s tap water is undrinkable because of pollution problems, the air is cloying and visibly clouded for similar reasons, and the working conditions for much of the population are unregulated and sometimes life-threatening. Last year, China acknowledged that more than 15,000 people died in industrial accidents in 1992; Westerners working in the country estimate that the real figure may be well over twice that.

But very few of those problems would have been visible to Canada’s political leaders, who spent almost all their time closeted in meetings in government buildings or Western-built hotels with Chinese officials. The closest brush that Chrétien had with meeting Chinese people on an uncontrolled basis was a midweek morning speech he made to students at Beijing University. But even then, his appearance was restricted to brief remarks, with no questions allowed, in front of a carefully chosen audience of about 50 students who had been invited the week before.

Even if they had been allowed to meet with Chrétien, there was little danger he would hear any controversial views. Since 1989, when the university was a favorite gathering place of the protesters who were eventually brutally suppressed by the military in Tiananmen Square in June of that year, the government has kept a close watch over the campus. The bulletin board on mid-campus that was once covered in pro-democracy slogans is now filled with posters announcing such events as the next meeting of the university chess club and a coming English-language showing of the romantic movie Ghost.

In fact, Chrétien’s campus appearance marked one of the few times that he and the premiers were separated from each other for any significant period of time. Even when they were not appearing together formally, they appeared to go out of their way to either meet informally to plan strategy, or just to socialize (page 19). One of the busiest was New Brunswick’s McKenna, who wandered up and down the aisles of the federal government charter jet on the 21-hour flight from Ottawa, sporting a red Team Canada hockey sweater with his name on the back.

One of the most hair-raising experiences belonged to Nova Scotia Premier John Savage, who saw a year-long negotiation to sell the money-losing provincially owned Sydney Steel Corp. to a Chinese group almost collapse minutes before the signing ceremony. Ten minutes before the deal was to be signed, Savage said: “The Chinese officials were demanding a series of concessions from our people that were simply untenable.” Savage demanded, and received, a meeting with the head of the Chinese delegation. “I told him,” he said, “that I am the premier and the deal is very important for my people, but that I would be prepared to walk away if we did not feel the spirit of goodwill could prevail.” The Chinese relented.

But the unquestioned leader—and star—of the trip was Chrétien, who has now completed his remarkable transition from the waffling, ill-at-ease opposition leader of several years ago to the poised, relaxed character who now appears at ease on the world stage. His performance won raves from both businessmen and the other political leaders accompanying him. Several hours before the midnight flight carrying the Prime Minister and most of the premiers left Ottawa for China, Chrétien startled patrons in a Hull bar when he suddenly wandered in to join them for a beer. “I just felt like seeing people,” he explained later to an acquaintance.

He behaved in a similar manner in China, receiving guests in his hotel suite in rumpled sweater and casual pants and often without appointments. McKenna, despite his shared Liberal roots, was sometimes sharply critical of Chrétien in private discussions with intimates when the federal Liberals were in opposition. But now, he has become one of Chrétiens biggest boosters. “He is a man of remarkable wisdom and great common sense,” said McKenna. “We all can learn something from him.”

Similarly, Chrétien was praised by Guy Saint-Pierre, the chief executive officer of the huge SNC-Lavalin engineering group in Montreal, for the “delicacy” he demonstrated in dealing with the Chinese. The result, said Saint-Pierre, is that it is now “quite a bit easier” for Canadians to do business in China than it was in the days of former prime minister Brian Mulroney. And the response at home in Quebec, where Chrétien’s popularity lags behind his status in the rest of the country, was also positive in newspaper editorials and comments from other members of the business community. At the same time, Chrétien may have found a powerful new argument to use against Quebec sovereigntists: Canada’s membership in the increasingly important Asia Pacific Economic Co-operation group—whose leaders, including Chrétien, are to meet in Indonesia this week—would not, in theory, be open to a sovereign Quebec with no Pacific borders.

Some of that goodwill may not be enduring. Already, there is speculation that the Chinese government will expect Canada, in return for the contracts it has received, to back Chinese efforts for early admission to the World Trade Organization even if it does not meet all the usual conditions for acceptance—and that the Chinese government may even want Canada to propose it for acceptance in the G-7 group of the world’s largest industrialized economies. Similarly, much of the lustre will be lost if deals such as the CANDU sale sour—or if China’s already uncertain political situation, compounded by the great age and ill health of 90-year-old leader Deng Xiaoping, worsens. But for now, Canada’s political leaders clearly feel that in reorienting the country’s political and economic focus to the Asia-Pacific region, they may be breaking with the past, but they are building on the future.