China’s mediocre economic growth, paired with the issue’s neglect during the recent 20th National Congress of the Chinese Communist Party, has raised concerns about the country’s lack of attention to economic policy.
According to experts, that disregard by the world’s second-largest economy could have a damaging impact on Canadian business and beyond.
China announced on Monday that its gross domestic product had risen 3.9 per cent in the third quarter compared with the same period a year earlier. The figure fell below Beijing’s 5.5 per cent growth target and well behind the eight per cent experts say is required to support future population and economic growth in China.
Beijing had delayed releasing its GDP data on Oct. 18, the second day of the party’s congress. It’s likely that Beijing wanted to keep economic growth and its consequences out of the headlines during the congress, which ended on Oct. 22, said John Gruetzner, co-founder of Asia-focused business advisory firm Intercedent and a fellow with the Canadian Global Affairs Institute.
The weeklong party congress, held twice a decade to appoint new leaders, assess the constitution and affirm China’s ideological orientation, is perhaps the most significant event on the Chinese Communist Party’s calendar. It ended with President Xi Jinping securing an unprecedented third term as party leader, presiding over a cabinet loyal to his ambitions of consolidating power, deterring opposition and extending term limits.
A man standing at a public display case reads newspaper coverage of the 20th Communist Party Congress, in Beijing on Monday. The weeklong party congress, held twice a decade, is perhaps the most significant event on the party’s calendar. (Thomas Peter/Reuters)
Canada’s exports to China rose in 2021
Withholding data that’s as significant to trade relations as GDP was “pretty much unprecedented for any major trading country,” said Charles Burton, a senior fellow at the Macdonald-Laurier Institute, a former counsellor at the Canadian Embassy in China and an associate professor of Chinese and comparative politics at Brock University in St. Catharines, Ont., until 2020.
“I’m not sure what signal China’s sending to global trading partners by not providing us with the normal kind of interaction we would expect, which would be a statement of China’s economic prospects,” Burton said prior to the GDP release.
China’s 3.9 per cent third-quarter growth was a bounceback from spring’s measly growth of 0.4 per cent. In the end, “the number came back stronger than many had anticipated, including us,” said Andrew Hencic, senior economist with TD Bank. Its economists had estimated growth of 2.8 per cent.
New vehicles ready for export are parked at a dockyard in Yantai, in eastern China’s Shandong province, on Oct. 13. China’s 3.9 per cent GDP growth in the third quarter was a big improvement from spring’s sluggish growth of 0.4 per cent. (Chinatopix/The Associated Press)
“Looking forward, we’ll see to what extent that moment can be carried through,” Hencic said. That’s especially true as countries around the world, including Canada, are anxious to see whether, to their detriment, Xi will place national security and politics ahead of economic performance.
“It’s clear that over a period of time, one-party states ultimately tend to hit a wall,” Gruetzner said. “If you don’t have multiple inputs into your economic and social policy, you’re ultimately going to have an economic growth problem.”
Canada counts China as its third-most valuable trading partner, behind the United States and the European Union, but second if EU countries were counted individually. Canada’s exports to China grew steadily throughout 2021 to $28.8 billion, according to the University of Alberta — the highest amount since before the COVID-19 pandemic and $10 billion more than was exported in 2016.
The agriculture, meat, paper and mining industries, which drive Canadian exports to China, must be cognizant of how GDP slowdowns might impact their investments in China’s economy, Gruetzner said.
Miners work underground at Vale’s Thompson mine in northern Manitoba. Along with the mining industry, agriculture, meat and paper drive Canadian exports to China. Canada counts China as its third-most valuable trading partner, behind the United States and the European Union. (Katie Nicholson/CBC)
Iron ore, oil, coal and copper prices, in particular, react “very, very quickly” to shifts in Chinese GDP growth, he said. “There’s a whole portion of the Canadian economy that requires China to have the demand. Certainly in the western provinces.”
Share prices in Canadian fertilizer company Nutrien, based in Saskatoon, and Teck Resources Ltd., an agricultural feed developer and metals company headquartered in Vancouver, both saw dips on the Toronto Stock Exchange the day of China’s GDP release ($113.07 to $108.33, and $48.05 to $46.95, respectively).
GDP growth in China faces obstacles
China’s zero-COVID policy and housing crisis have continued to hold back the world’s second-largest economy from a full economic recovery post-pandemic, Burton said. Both will likely impact China’s export-oriented economy and “could be quite disturbing for Canadian business and the global economy in general,” he said.
Although Beijing’s zero-COVID policy has kept total infections in the country of 1.4 billion people to just over one million, it’s hampered the efficiency of China’s ports, decommissioned half of its highways and instituted a total shutdowns of cities that together account for 40 per cent of China’s GDP, according to a report from Alicia Garcia Herrero, the chief economist for Asia-Pacific at French investment bank Natixis.
China strengthened its commitment to the zero-COVID policy this week, sealing buildings, locking down districts and placing millions at home as the country on Friday reported 1,000-plus cases for three consecutive days.
People wearing face masks stand in line at a COVID-19 testing site in Beijing on Oct. 12. Although China’s zero-COVID policy has kept cases relatively low in the country of 1.4 billion people, it’s come at the expense of the economy. (Mark Schiefelbein/The Associated Press)
China’s housing sector is also in the midst of a serious crisis. A lack of government funds has led to several delays in housing construction, and Chinese borrowers who paid for their homes in advance have been left without their investment, Burton said. Local governments in China traditionally fund operations through land auctions and have felt the consequences in their coffers.
Were Chinese economic growth to stay below eight per cent, there would be consequences for the country’s ability to meet its more than $9 trillion US debt obligations, as well as youth unemployment, Gruetzner said.
Reports from China’s 20th Communist Party Congress suggest that the government will nonetheless prioritize national security and military growth in the face of U.S. competition ahead of focusing attention on the economy for its own sake and that of its trading partners, Burton said.
WATCH | China’s leader calls for military growth at Communist Party Congress:
Xi kicks off Communist Party Congress, calls for China’s military growth
13 days ago
Duration 3:25
China’s Communist Party kicked off its 20th Congress in Beijing, with President Xi Jinping calling for faster military growth. Xi also touted his government’s COVID-19 policies and refused to rule out the use of force against Taiwan.
China is on record as wanting to redirect its agricultural and commodity imports away from Western suppliers and toward those in South America and Africa, Gruetzner said.
Burton said both should be a consideration for Canada as it openly reassess trade relationships in the region.
Workers wearing face masks ride on tricycle carts loaded with goods in Beijing last month. China’s zero-COVID policy and housing crisis have continued to hold back the world’s second-largest economy from a full economic recovery post-pandemic, one analyst says. (Andy Wong/The Associated Press)
Canada plans to release Indo-Pacific policy
During a speech in Washington, D.C., on Oct. 12, Deputy Prime Minister Chrystia Freeland suggested Western democratic countries prioritize free trade with one another and limit opportunities for states actively working against their values. Governance in Russia and China, for example, has become increasingly consolidated and autocratic.
Those considerations could be a feature of the upcoming Indo-Pacific policy statement, which Canada’s minister of foreign affairs, Mélanie Joly, said would be released following the Chinese party congress and before the end of the year.
Mélanie Joly, Canada’s minister of foreign affairs, right, and U.S. Secretary of State Antony Blinken speak at the federal government’s official guest house in Ottawa on Thursday. Joly announced that Canada plans to seek membership to the Indo-Pacific Economic Framework for Prosperity. (Blair Gable/Pool/The Associated Press)
“In the coming decades, developments in the Indo-Pacific region will have profound impacts on the lives of Canadians from coast to coast to coast,” Joly said in a news release, adding that Canada is committed to strengthening its presence in the region.
“There will be a strong section on implications for the economy” within the coming policy statement, Burton said. “A lot of businesses would like to see what the government’s intentions are before they consider their choices with regard to investment in China.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
