China’s demand for resources has fueled Canada’s economy
Bound as we are by geography to the United States, it is easy to assume that our entire economic fate is tied to the Americans. There is some truth to this — the vast majority of our exports head stateside, and we accrue countless other benefits by living next to the U.S. from tourism to security — but it does not tell the whole story. Much attention has been paid in recent years to the increasing importance of so-called “emerging” economies of South America and Asia. Leading this pack of giants, of course, is China, set to become, by some measures, the world’s biggest economy in a few short years.
As Canadians we reflexively compare everything we do with our powerful southern neighbours. But as we reflect upon the year that’s passed and the one just beginning, it’s important to recall that in today’s world, our well-being is equally tied up in the affairs of far-away nations with whom we are only beginning to engage and trade in a serious manner.
In China, the macroeconomic numbers defy understanding in their enormity. One fifth of humanity lives there — some 1.3 billion children, women and men. Growing at a clip of close to 10 per cent a year, its economy has multiplied tenfold since major economic reforms were ushered in 30 years ago as China began the process of engaging with the world. As such, it has contributed a disproportionate share of world growth over that time period. In many ways, China has been the engine of the global economy for the entire lifetimes of hundreds of millions of people alive today in every corner of the planet.
Canada benefits from China’s growth
Canada has benefitted in no small part from China’s emergence as a global economic power. China surpassed the UK and Japan several years ago as Canada’s number two trading partner, behind the United States. In 2010, total two-way trade between us and China amounted to $37.1 billion dollars. Since then our governments have set as a goal to reach $60 billion in bilateral trade by 2015. This is not pocket change. Sixty billion dollars is about four per cent of Canadian GDP.
But perhaps more important than the huge direct trading links between us and China has been the Asian giant’s effect on global commodity prices, which given Canada’s resource extraction has provided a massive boost to our economy in the past decade.
We’re often told that Canada has weathered the recession better than most other countries. Certainly the government never tires of reminding us of this fact. Though we did experience a short and shallow recession in Canada, we’ve rebounded better than most, and most definitely better than the Americans. I suspect more than a pale shade of boastfulness every time we tell the world how much better off we are than the United States. Though we should be careful of the ills we wish upon neighbours, it is undeniable that we are in a better boat than they are at the moment.
Canada relatively stable
There are countless reasons for our relative strength. We didn’t go mad on so-called subprime debt; we’ve regulated our banking sector in a much more prudent manner; perhaps we’re just a little more risk averse to begin with. But high on the list has to be the fact that Canada’s economy, at its heart, is still based largely on resource extraction and on selling our primary materials to other countries. Our fate is tied far more tightly to the prices of oil and copper than to the number of people seeking jobs in Boise, though the latter often gets higher billing. And for continued buoyant demand and prices for the things we dig from the ground and ship around the world, we can thank, to a large extent, demand from China.
One does not fuel 10 per cent annual growth in an economy of 1.3 billion souls without demanding vast amounts of oil, steel, natural gas, and other raw materials. To become in effect the workshop of the world, China has bought up supplies from producers the world over, not only Canada. This phenomenon has kept commodity prices high even throughout the recession, and helped insulate Canada from an otherwise collapsing global economic situation.
We’re now in for a period of slow growth in the developed world for the foreseeable future. Of this we can be fairly certain. This means we can’t rely on American demand as much as we have historically, and that we must continue to diversify. For the same reason, all Canadian economy-watchers should be keeping a close eye on the remarkable Chinese story. Their growth will fuel ours for many years to come.
