China-watchers – last time I looked, that was just about everybody – shuddered early this year. The Middle Kingdom’s stock markets were rocked on the first business day of 2016, stoking Fed-fed fears of further turmoil. The worry hasn’t waned; there’s a full-blown Sino-scrutiny industry at play, dissecting every detail of data in an effort to determine China’s staying power, or lack thereof. Canada cares, as China is now our number two trading partner. Is our dramatic diversification into this market over, on hold, or still a great opportunity?
Some context is necessary. Combatting the internal fallout of a global Great Recession, China embarked on a dramatic stimulus program in 2008. Sluggish subsequent growth pushed China to maintain and expand its stimulus over the past seven years, an enormous undertaking – but one that has left it with excesses, both real and financial. China now appears to be addressing those excesses: there’s more scrutiny of financial institutions, and mass layoffs appear to be imminent. It’s more than just a bit unsettling, as the broader impacts have yet to be felt.
How will China fare? Much will really depend on how it deals with a clash of poor demographic fundamentals, uncertain global growth, and how it manages an economy that is inescapably more open and subject to the vagaries of world economic fluctuations. China’s management of its increasingly open currency is a very visible test of its policy path.
As beneficiaries of China’s prosperity, Canadian exporters have a stake in the outcome. Prior to the New Millennium, Canadian merchandise exports to China made up less than 1 per cent of total exports. That share increased steadily over the past 15 years, growing almost five-fold at the peak in early 2013. However, since then, the share of exports to China slid below 4 per cent, not so much because of China, but thanks to the US economic recovery. Nascent concerns about Sino-softening are no doubt unsettling to Canadians doing business there, or planning to sometime in the near future. What are the prospects?
Recent data gives hope. Canadian exports surged into the New Year, hard on the heels of a very strong December showing. The ‘January jump’ boosted many industries’ fortunes, but the geographic sources of growth were concentrated. America was dominant, but exports to China also fared well. In fact, the recent increase adds to a steady upward movement that began in the spring of 2015. China’s share of Canadian exports is back on the rise, over 4 per cent again, and rising.