What China’s Pivot to Innovation Means for Canada

China’s leaders say future economic growth relies on high-quality development. It’s an opening that Canadian firms are poised to fill
china bank

No longer satisfied with relying on domestic investment to fuel growth, China is now looking to innovation to drive its economy. The implications for Canadian firms are potentially significant. In the future, opportunities will be found in not simply “doing more business with China” but in “doing better business with China,” said Sarah Kutulakos, executive director and COO of the Canada China Business Council.

Kutulakos was speaking at a mini-conference on Canada-China trade at Smith School of Business, organized by the Queen’s Master of Finance-Beijing program.

In 2017, Canada’s trade with China was $93.6 billion, a 13 percent increase from the previous year. Compared to other regions, such as the EU and the U.S., Canadian exports to China have grown rapidly since 2009.

While China shifts its emphasis from rapid growth to high-quality development, conference attendees heard that the Chinese consumption of Canadian commodity exports will decline to some extent. But any drop in the demand for Canadian commodities can be offset by current opportunities that exist in agriculture and financial services. After relaxing its ownership rules, for example, China is for the first time allowing foreign banks and insurance companies to set up in the country. As for agriculture, China has a tremendous appetite for dairy products — an appetite that Canada has scarcely begun to address.

China's Middle Class

Kutulakos pointed to additional opportunities in education, tourism, clean technology, and health care — a growing demand driven by China’s increasingly aging and middle-class population “who want luxury goods.” The size of China’s middle class, currently estimated at 350 million people, is expected to reach 500 million by 2020.

It’s not only the population demographics that are shifting within China but also the urban-focused business and political environment. The Chinese government, in an attempt to decentralize the physical administration of the country, is shifting ministries out of traditional first-tier cities such Beijing and into emerging third-tier cities.

The redistribution of government services will give new players the chance to establish themselves in still relatively large, but not entirely established, urban centres.

“When you have something that China wants, you can get things done quickly”

So if you happen to be a Canadian small or medium-sized enterprise with aspirations of operating in China and involved in one of the industries currently underserved in China, there is good news. Kutulakos said China's third-tier cities are soon to be a new frontier of economic activity for the foreseeable future, and a foreign business destination of choice.

For those still worried by the obstacles to doing business in China, Kutulakos wants potential investors to know that “when you have something that China wants, you can get things done quickly.”

“China is not for dabblers,” she cautioned. Her words are in no way a warning for any firm to be wary of China. Rather, they are words of advice that you should be ready to move quickly in China when opportunity knocks.

James Bennett

Smith School of Business

Goodes Hall, Queen's University
Kingston, Ontario
Canada K7L 3N6

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