Harper's Visit to China

Harper's Visit to China

Foreign ships have been putting into the Cuntan port in Chongqing, on the Yangtze River 1,700 km west of Shanghai, since 1891. But these days the whole region has a new vocation. All of a sudden Chongqing has become a major assembly and export centre for cheap laptop computers designed in Taiwan. Very soon, 50 million laptops a year will be leaving the port, bound for the world.

Sometimes ships come into port too.

On Feb. 11, Stephen and Laureen HARPER strolled along the Cuntan dockside, chatting with International Trade Minister Ed Fast while a Canadian television news camera crew recorded the moment for posterity. The Harpers paused next to a dirty white steel shipping container draped with a Canadian flag. Work crews opened the container's steel doors. The Harpers watched as somebody opened one of the cardboard boxes inside the container.

"It's pork," somebody said. "From Canada!"

"All the way from Winnipeg," the Prime Minister chimed in.

A kind of modern alchemy is at work. We send pork to China. In return, they send us laptop computers. This, Harper said in the news release that followed, is how Canada is using China "to open markets and create jobs and economic growth back home."

Pork may not be glamorous, but its value adds up, along with all the other commodities Harper and his colleagues were hawking on their week-long trip to China.

Start with those pork exports, whose value nearly tripled from 2010 to 2011. Add Canadian lumber exports, which doubled in 2010 and doubled again in 2011 to $1.5 billion. Add beef tallow exports, back on the market after the 2003 mad-cow disease outbreak, with sales worth $80 million more now than they were then.

Throw in shiploads of beans and lentils, tonnes of uranium for Chinese nuclear reactors, and--above all--rivers of oil from the northern Alberta oil sands, and pretty soon the numbers start to look serious. Chinese investment in Canada tripled between 2008 and 2010, to $14.1 billion. If anything, the pace of investment both ways is accelerating. That's the basis of a reinvigorated bilateral relationship between the two countries.

Harper interrupted that relationship after he was elected in 2006. When he finally visited in 2009, Chinese President Hu Jintao made sure his tardy guest felt a residual chill. But that hazing ritual is now definitively over. Harper was on the front page of the semi-official China Daily repeatedly during his visit. The paper's party-line editorial greeted him warmly: "He has come at an important moment when both sides feel an increasing need to bring bilateral ties to a new level."

In a string of interviews and speeches, Harper has called the renewed China relationship one of the "fundamental transformations" that will define his majority government. And for good reason. China offers Canada a ready market for just about anything Canadian producers want to sell, which makes it a key ingredient in sustaining the prosperity Harper promised voters.

But the opening to China also sets the stage for the next election. It sets up a stark contrast with the NDP on a whole bunch of issues: trade, natural resources, foreign affairs and more. Conservatives believe Canadian public opinion will give them an edge on each of those issues. Harper begins preparing for every election within weeks after winning the one before it, and he was awfully quiet for much of 2011. Do not doubt there is strategy in what he's doing now.

As a kind of bonus, energy exports to China give Harper a chance to undo a key element of Pierre Trudeau's legacy. Trudeau, too, used to think a lot about energy and about Canada's place in the world. His response was the National Energy Program. It aimed to sell Alberta oil within Canada below market prices. It wound up shifting money and power eastward within Confederation. Harper and his supporters believe diversifying energy exports will drive up their price and let a natural western Canadian economic elite rise, unimpeded. If everything works out as planned, it will be the crowning achievement of a political career that began nearly 30 years ago as a reaction to Trudeau's policies.

Before he went to China, Harper talked this trip up for two months, in a series of TV interviews and then in a speech to the World Economic Forum in Davos. It was fair to wonder what the fuss was about. But the triple play he's attempting here is worth some fuss. A significant boost to Canadian exports. A legacy-making rebuttal to the policies that made him angry enough to get into politics as a young man. And a head start on winning a fourth straight election. If he can pull it all off, it will have been worth a little jet lag.

First, the economy. Harper was rattled by the outbreak of the global economic crisis during the 2008 election, but he came to believe he won because of voters' uncertainty about their jobs and their finances, not in spite of it. Ever since, he's believed he cements his appeal to voters when they see him concentrating on the economy.

It's hard to deliver growth without embracing China, whose headlong rush to urbanize and industrialize hundreds of millions of peasants has made the country a ravenous customer for primary resources. Canada has a lot to sell. Harper told a Beijing business crowd he sees "a symmetry between our economic needs that is found among only a small number of our trading partners."

What he meant was that China doesn't just offer a market for Canadian oil, it offers capital to help get that oil out of the ground. "With 174 billion barrels, and likely technological improvement which could move that up to over 300 billion barrels, we've got the largest energy project in the world," Natural Resources Minister Joe Oliver said in an interview. But to reach that potential, "we need foreign capital. We don't have enough."

So perhaps the most important of the many deals Canadian business leaders signed with China during Harper's visit was a $1-billion partnership that connected a big Canadian investment bank, Canaccord Financial, with the Import Export Bank of China. Together they're creating a "Canada-China Natural Resource Fund."

While Harper was preparing to address business leaders at the almost comically opulent Beijing Hotel, I ducked out to talk with Canaccord's CEO Paul Reynolds and his point man in China, Howard Balloch, in a hotel café half the size of a Wal-Mart. Reynolds is a relaxed and plainspoken man, very much in the mould of his father, the former Canadian Alliance MP John Reynolds. He was quick to point out the new fund will make "minority, passive-type investments" and that it won't be "a takeover fund."

Balloch is a courtly man with a bowtie and a neat silver beard. He ran the national unity shop at the Privy Council Office during the 1995 Quebec referendum, and served as Jean Chrétien's ambassador to China from 1996 to 2001. When that was done he decided to stay in China. He's uniquely placed to survey the evolution in Canada-China relations over the past 15 years.

When Chrétien came to China with his big Team Canada road shows in the 1990s, his delegations were packed with representatives of little software companies, community colleges, the Royal Winnipeg Ballet, green technology firms and the like. The contracts they signed were often worth a few million dollars. Canada was offering technology and creativity to a China that was still largely rural and agrarian.

Today the situation is nearly reversed. We send oil, uranium and pork; China sends laptops. And the scale of the transactions is much larger. "The Chinese didn't have $3 trillion of foreign exchange reserves in 1994," Balloch said. Indeed: they had $53 billion. In terms of cash on hand, today's China is like 60 of the Chinas Jean CHRÉTIEN visited. "It's a phenomenally different country," Balloch said.

In some ways he could have been talking about Canada too. We come bearing primary resources because we have less and less of anything else to offer. Employment in manufacturing has fallen by one-fifth since 2004. Nortel has imploded, RESEARCH IN MOTION is struggling, and in January the last Canadian computer-chip maker, Gennum, disappeared from the TORONTO STOCK EXCHANGE after it was bought out.

None of which is necessarily a problem, Balloch says, especially since resources offer such a tidy return on investment. "Our relationship with China is not going to change the structure of the Canadian economy," he said. "Canada has developed in part because of the resources on which we sit. We shouldn't be ashamed of our wheat. We shouldn't be ashamed of our oil. These are very much a part of who we are. We are a great big country with a very small population and we have rich resources. To pretend that we're not hewers of wood and drawers of water, and that we're going to turn our back on that, makes no sense."

There are places in Canada where that kind of argument has appeal outside the bounds of the current Conservative party electorate. In January I caught up with a Calgary lawyer named Daryl Fridhandler at the Liberal party convention in Ottawa. Fridhandler used to be a key organizer for Paul MARTIN in Alberta. He worked on Michael IGNATIEFF's leadership campaigns in 2006 and 2008. And on the day we chatted, he was furious at a line in a speech Ignatieff had delivered the day before, that Liberals "care about green energy, not dirty oil."

"I couldn't believe it," Fridhandler said. "What the hell is he talking about? I've been in briefing meetings with him with leaders of the energy industry. He knows better."

It came as no surprise to learn that Fridhandler is on the board of an oil sands startup, Oak Point Energy, which stands to make very substantial profits by using small, truck-mounted plants to extract petroleum at lower cost than the big companies do. Fridhandler says the firm's new technology is green energy because it decreases the environmental cost of getting oil out of bitumen. But Oak Point will always need markets for its oil. Which is why Enbridge's Northern Gateway twin pipeline project, which would serve the China market, fascinates him.

"I don't think there's anything more important to the country than these two pipelines here," he said. Gateway won't just add a new market for Canadian oil, it will break a U.S. near-monopoly on that oil--and drive the selling price up as a direct result.

That's Enbridge's argument too. "All that crude is kind of landlocked," says Vern Yu, the company's vice-president of business development. "You can't get the best price for your product." With 2.5 million barrels per day, each being sold for about $20 less than world crude prices, oil companies are missing out on roughly $50 million in revenue every day.

Joe Oliver represents Joe Volpe's old Toronto riding of Eglinton-Lawrence, and it was clear from our conversation that he's a little leery of discussing the possibility that Gateway could increase returns for every petroleum exporter, not just for Enbridge. He clearly doesn't want it to turn into a debate about the West getting richer while everyone else pays higher gasoline prices at the pump.

"Right now, there are a thousand companies, at least, from Ontario operating in the oil sands," he said. "The benefit to the East in developing the oil sands will be much greater than any additional price they have to pay, if in fact they have to pay any."

But there are at least two provinces where most voters would view higher returns for oil companies as an unalloyed good: Alberta and Saskatchewan. New census data show that Alberta is the fastest-growing province in Canada, with Saskatchewan in third place.

Here's where we get at something fascinating about exporting oil to China that hasn't been widely remarked--yet. The effect of the policy would be to increase the oil industry's profits and make Western Canada even richer and more powerful than it was last year. Which is precisely the opposite of what Pierre TRUDEAU's NATIONAL ENERGY PROGRAM did to Alberta 30 years ago.

Trudeau sought to protect Canada against skyrocketing world oil prices by requiring Alberta oil be sold in Canada at lower than market prices. The effect, any Alberta conservative will tell you to this day, was to keep Alberta down while protecting Ontario and Quebec and fattening federal coffers. The whole thing seemed designed to subjugate "the burgeoning, politically deviant West," Peter Brimelow wrote in The Patriot Game, a 1986 book that became a sort of user's manual for western conservatism.

Harper has found a policy that would have the opposite effect. Its direct electoral benefits would be limited--every Alberta seat but one is already Conservative; he can't win much more there--but its effect on his legacy would be profound. He has spent a quarter-century getting mad at Pierre Trudeau. China would help him get even.

In the meantime, he always has another election to win, and just because the next one is tentatively scheduled for 2015 does not mean it is too soon to prepare. A few Conservative political staffers in Ottawa are starting to track the NDP response to Harper's recent moves, and they are not displeased that it amounts to a blanket rejection of everything he is doing.

Interim leader Nycole Turmel has suggested she would oppose Gateway even if it passes an environmental review. Before Harper's trip, Windsor West MP Brian Masse warned that resource exports to China would amount to a Trojan horse. "We're going to see, basically, Canadians have their own natural resources used as a subsidy to basically take their jobs," Masse said.

The NDP's opposition extends to Harper's plan for free trade with Europe and to his plans, so far devoid of detail, to reduce the long-term cost of Old Age Security. NDP MPs advocated in Washington last year for the rejection of the Keystone XL pipeline to the U.S. Barack Obama wound up delaying a decision on that project until after this November's presidential election.

In the 2008 and 2011 election campaigns, Harper's Liberal and NDP opponents campaigned for the finer things in life--environmental regulation, labour standards--while he ran as an advocate of tangible economic benefits for middle-class families. He has won more seats and a tad larger share of the popular vote every time. China allows him to rack up tangible benefit at a much faster pace. A lot of NDP and Liberal voters have this much in common with Daryl Fridhandler: they depend for their livelihood on industries whose exports to China are already growing and will soon grow faster. When the time comes, Harper will remind Canadians that the NDP opposed every bit of it.

"If I have to have a battle, it's a battle I would relish, because we've got, in our opinion, overwhelming facts on our side," Joe Oliver said. "I just think the NDP position is a bit fringe, actually. I think that their base is divided on it."

The Conservative base has its moments of doubt too. On Feb. 12, the day Harper returned from China, Immigration Minister Jason Kenney's Twitter feed offered some fascinating reading. "Honoured to meet Ming Li, who spent several years in a Chinese forced labour camp for 'subversive' activities as a Falun Gong practitioner," Kenney wrote, and then: "Had an excellent meeting today w/ board of Tribute to Liberty, the group working to erect the Canadian Monument to the Victims of Communism."

Probably the timing was a coincidence. But trading with a country where human rights are still routinely trampled still rankles many Conservatives. For Joe Oliver it's an easy choice to make. "I don't think Canadians would want us to shun what will become the largest market for our resources in the entire world, and growing. It doesn't achieve anything on the other side, and it would hurt us."

Stephen Harper makes gains for his political philosophy by being forever ready to sell it down the river if he can hope for some benefit later. From 2006 to 2008, while he was enjoying splendid isolation from China, it grew from a very large market to a titanic one. German Chancellor Angela Merkel, a child of Cold War East Germany whose life story makes her a kind of German monument to the victims of Communism, swallowed her pride and visited China three times before Harper had gone once. All the countries that were supposed to have their act together, the European Union and the United States, turned out to be barely more reliable than Ponzi schemes.

So Harper changed his mind. He tried using his power against China and didn't get far. Now he will draw power from China. And there is a hell of a lot of juice in that wall socket.

See also EXTERNAL RELATIONS; INTERNATIONAL TRADE.

Maclean's February 27, 2012