Canada-China spat could sour business relations, experts say

The Canadian Press

Souring relations between Ottawa and Beijing could affect Canadian companies in China, potentially tarnishing the appeal of Canadian brands for some Chinese consumers, experts said on Tuesday. 

Companies like Canada Goose, Roots, Lululemon and Tim Hortons have expanded in China in recent years, leaning into Canada's reputation as a source of quality goods and often featuring the red maple leaf in store and product branding.

China is central to the growth plans of many Canadian companies eager to tap into the country's compelling consumer market, retail analyst Bruce Winder said.

"If you look at the drawing boards of those companies, China's a big factor in the growth strategy," he said. "It's a huge market. There are over 1.4 billion people and folks in China are getting rich, so you have a massive middle class."

But a diplomatic spat between Ottawa and Beijing could spur a "soft boycott" of Canadian brands in China, Winder said. 

"Canada's supply chain is very dependent on China, but consumer-facing Canadian brands in China could be at risk too," he said. "It's something that could potentially impact the future growth prospects of Canadian companies in China."

Beijing declared a Canadian diplomat as "persona non grata" on Tuesday in retaliation for Ottawa's expulsion of a Chinese consular official over allegations of foreign interference.

China's Foreign Ministry said in a statement posted to its English website that China was deploying a "reciprocal countermeasure to Canada's unscrupulous move,'' which it said it "strongly condemns and firmly opposes.''

Sarah Kutulakos, executive director of the Canada China Business Council, said diplomatic relations between the two countries have been strained for years but the economic relationship has remained.

"These sort of diplomatic issues happen and they're playing out right now," she said. "We are always hopeful that trade doesn't get thrown into the mix of other complications in the relationship."

The bilateral non-profit business council, which has seven offices in Canada and China, encourages both governments to resolve their differences "and where there are irreconcilable differences, understand the other side's perspective," Kutulakos said. 

She added that Canada's reputation in China remains strong, and hostilities between the two countries have not impacted the impression of Canada in the past.

"Tim Hortons in China looks more Canadian inside than any Tim Hortons in Canada," Kutulakos said, noting the abundant red maple leaves and other Canadian decor inside the coffee shops in China. 

Tims China chairman Peter Yu said in February that the coffee and doughnut chain had 600 locations in China, with plans to grow to a thousand by the end of 2023.

Lululemon had 117 stores in China as of the end of January, according to the company's most recent annual report.

Calvin McDonald, Lululemon CEO, said during the company's fourth-quarter earnings call last month that the retailer's potential in China is significant. 

The company is planning to open up to 35 new stores in international markets this year, with the majority planned for China, Lululemon's chief financial officer Meghan Frank said during the call. 

Meanwhile, Roots has more than 100 partner-operated stores in Asia, including many in China, the retailer said in its annual report in January. 

"Our focus on international expansion continues to remain in the U.S. and China, where we see long-term potential for the brand," Meghan Roach, Roots CEO, said during a recent earnings call. 

Canada Goose appointed Larry Li as president of its China operations last year, part of what it called a new phase of expansion in China.

This report by The Canadian Press was first published May 9, 2023

China's ban on Canadian beef still in place 

year-and-a-half later; industry in dark

Amanda Stephenson, The Canadian Press

A Chinese ban on Canadian beef that industry officials expected would be short-lived remains in place 17 months later, and industry representatives say they remain in the dark about the reasons.

China has been blocking beef shipments from Canadian processing plants ever since an atypical case of BSE, a rare variant of classical BSE (sometimes called mad cow disease), was found on an Alberta farm in December of 2021.

At the time, Canadian officials expressed little concern that the case would have lasting market impacts. Atypical BSE develops spontaneously in about one in every one million cattle and unlike the classic BSE strain — which has been linked to the fatal neurological disorder Creutzfeldt-Jakob disease — it poses no health risk to humans and is not transmissible.

While most of Canada's trading partners did not respond with any form of trade restrictions after the discovery of the case, South Korea and the Philippines joined China in suspending beef imports from this country.

However, both South Korea and the Philippines lifted the restrictions less than two months later, while China — which in 2021 was Canada's third-largest beef export market, importing $193 million worth of product — has still not resumed trade.

"Most countries do not close when you find an atypical case," said Dennis Laycraft, executive vice-president for the Canadian Cattle Association.

"It's just a few that did and you know, all those other countries opened up fairly quickly. So yeah, really the outlier here is China.”

Adding to the confusion, Laycraft said, is the fact that both Brazil and Ireland have also recently had their beef blocked by China due to cases of atypical BSE in those countries. But China has resumed beef trade with both of those countries, and it took only a short time — in the case of Brazil, only four weeks.

Laycraft said he doesn't know what the sticking point is when it comes to Canada, adding only that he doesn't believe there is a scientific explanation.

"We're pretty confident all of the technical requirements and information that was needed has been provided, to allow the decision to reopen," he said.

"We certainly don't believe there's, on that side, any reason for it not to be. They just, you know, haven’t responded.”

In 2019, China blocked canola shipments from two major Canadian companies, not long after Huawei executive Meng Wanzhou was arrested by Canadian authorities. That ban lasted for three years.

Tensions between Canada and China have recently ratcheted up again, with the Canadian government on Monday expelling Chinese diplomat Zhao Wei, alleging he was involved in a plot to intimidate Conservative MP Michael Chong and his relatives in Hong Kong.

The renewed tensions have even led the canola industry to express concern that China will retaliate to Canada's expulsion of its diplomat by blocking agricultural shipments.

But Gordon Houlden, director emeritus of the China Institute at the University of Alberta, said the beef industry's ongoing issue demonstrates that some of Ottawa's trade challenges with Beijing are pre-existing.

"Some people are jumping to the wrong conclusions and because of this latest exchange, the question of the diplomatic expulsions, they assume that it's going to immediately lead to a whole series of further restrictions," Houlden said. 

"But some of these problems go back a long way."

Houlden said it's not abnormal for China to move slowly on the regulatory front, due to a combination of "bureaucracy and lethargy." He added that China is not always keen to wield trade as a weapon because it is a major exporter itself and knows such tactics can backfire. 

However, he said the fact that China has lifted similar restrictions against beef imports from other countries suggests that at some level, politics is likely playing a role in the delay. Houlden added that while it's hard to know for certain what China's motivation is on any given issue, it's fair to say that Canada's current relationship with China is frosty enough that Beijing is unlikely to make an effort to fast-track the beef issue.

"I think we can surmise that right now politics is not in a position to help solve the problem, and in fact may be part of the problem," Houlden said.

Laycraft said during the year-and-a-half that the Chinese market has been closed, the Canadian beef industry has seen increasing sales into Japan, South Korea, Vietnam and other Asian countries. He said this has been due in large part to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a free-trade agreement between Canada and 10 other countries in the Asia-Pacific region.

"We'd like to see things get back on a more normal track with China. We had some really good customers there that we were starting to build relationships with," Laycraft said. 

“At the same time, we're doing very well in other markets in Asia ... So we’re not in the same vulnerable position that potentially other products from Canada are.”

Atypical BSE, just like classical BSE, is a progressive, fatal disease that affects the nervous system of cattle. However, classical BSE was responsible for the BSE epidemic that started in the United Kingdom in 1986

Classical BSE was also responsible for Canada's own BSE crisis, which began in 2003 with the discovery of a domestic case and led to international borders being closed to Canadian beef exports.

This report by The Canadian Press was first published May 11, 2023.

Canola industry concerned about export access to China after diplomatic spat

The Canadian Press

The canola industry is expressing concern that China will retaliate to Canada's expulsion of its diplomat by blocking agricultural shipments.

China blocked canola shipments from two major Canadian companies in 2019 not long after Huawei executive Meng Wanzhou was arrested by Canadian authorities, and the ban lasted for three years. 

The ban lasted for three years before being lifted in 2022.

On Monday, the Canadian government expelled Chinese diplomat Zhao Wei, alleging he was involved in a plot to intimidate Conservative MP Michael Chong and his relatives in Hong Kong.

Jim Everson, president of the Canola Council of Canada, said maintaining predictable market access is key for Canadian farmers and that although supportive steps have been taken by the federal government, nothing can replace access to an important market like China.

China's block on canola shipments took a toll on the industry as the value of Canadian canola exports dropped from $2.8 billion in 2018 to $1.8 billion in 2021, the last full year under the ban.

This report by The Canadian Press was first published May 9, 2023.