Chinese experience shows Canadian companies can compete and win
TORONTO, April 16, 2013 /CNW/ - Canadian exporters have shown they can
compete and win in the highly competitive Chinese market but too few
companies are tapping into broader emerging market opportunities,
limiting the ability of the economy to grow, finds a new report from
CIBC World Markets Inc.
The report notes that despite the fact that Canada has nine free trade
agreements beyond the U.S., we have largely failed to tap into a global
trade market that has grown some 70 per cent since 2002.
"The volume of Canadian exports today is at the same level it was a
decade ago," says Benjamin Tal, Deputy Chief Economist at CIBC, who
co-authored the report with CIBC Economist Andrew Grantham. "Regardless
of how you look at it, this was a lost decade for Canadian exports. The
lone bright spot has been in the very competitive Chinese market."
"Although the share of Chinese imports stemming from Canada remains at
just a little over one per cent, it has at least edged up over the last
10 years. In contrast, most other developed countries have seen their
share of Chinese imports fall over that same period. And it is not an
oil story, with petroleum only a small proportion of Canadian shipments
destined for China."
Mr. Tal notes that Canadian companies have shown strength in performance
against their southern neighbours. Of the top 15 Canadian exports to
China, 10 face U.S. competition. "But even with a strengthening
Canadian dollar that is a battle some sectors have been winning.
Improvements in market share within areas such as oil seeds, grain and
fruit, along with pulp and aircraft, are proof of that fact."
He also says Canadian exporters are holding their own against Chinese
manufacturers seeking to further expand exports to Canada's top trading
This success demonstrates that Canada can and should compete in other
emerging markets says Mr. Tal. He notes that Canada has had some
success diversifying. The share of non-U.S. exports in total Canadian
exports rose from 13 per cent at the start of the decade to 25 per cent
today. But we've been stuck at 25 per cent for more than four years.
And almost all of the improvement has come from two sources: the UK and
"A closer look at the trade flows to the UK reveals that virtually all
of that gain was due to the 300 per cent increase in the price of
gold—hardly an inspiring diversification story. So we are left with
developing countries as the key source of Canada's export
diversification of the past decade. And this diversification story is
also very concentrated, and becoming more so.
"Since 2003, China has accounted for more than half of the growth in
developing market exports. But in the past five years, it has accounted
for all of the growth. Exports to all other developing countries (with
the exception of tiny Bulgaria) have actually seen declining shares of
our emerging markets exports. So despite intensifying efforts, Canadian
export diversification is losing momentum. In fact, on a year-over-year
basis, our exports to non-U.S. destinations are now falling."
The report notes that this over dependence on China also holds risks as
growth there has slowed and authorities are starting to refocus the
economy more towards domestic consumption. That will require a
different product mix that Canadian companies may not be positioned to
fill. At the same time, competition is becoming "fierce and rising
fast" as more companies seek to fill the needs of a growing consumer
While many commentators have pegged the slide in Canadian exports on the
surge in the value of the Canadian dollar, Mr. Tal says this argument
is too simple.
"A quick glance suggests that the 35 per cent appreciation in the value
of the loonie between 2000 and 2007 indeed worked to slow the pace of
export expansion. But despite this massive appreciation, exports still
managed to expand at a pace of just over 1.5 per cent a year."
Mr. Tal and Mr. Grantham conducted a detailed sectoral analysis of the
impact the rise in the Canadian dollar had on Canadian manufacturing
found no direct correlation between the value of the loonie and
Although some high vulnerability sectors such as paper manufacturing and
furniture did underperform, other equally vulnerable sectors such as
machinery and electrical equipment actually outperformed. He also found
this on the other side of the spectrum, where sectors not dependent on
a low dollar, such as textiles and chemical manufacturing, lost market
"The key question is to what extent Canadian exporters are adjusting
quickly to reverse [the downward] trend", says Mr. Tal. "What the
experience in China does show, though, is that Canadian companies can
compete and succeed in developing markets. That should encourage them
to broaden their horizons into other growth markets in the decade
The complete CIBC World Markets report is available at:
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SOURCE: CIBC World Markets
For further information:
Benjamin Tal, Deputy Chief Economist, CIBC World Markets Inc. at (416) 956-3698, firstname.lastname@example.org or Kevin Dove, Head of External Communications at 416-980-8835, email@example.com.