Resolving Meng case removes giant thorn from Canada's business relationship with China

Finding common ground with China will remain a big challenge for Canada, but Canadian businesses simply could not shun one of the world's two largest economies, Don Pittis writes.

Friction with China is inevitable, but so are business relations with an economic titan

Huawei Technologies chief financial officer Meng Wanzhou leaves court in Vancouver after her extradition case was dropped on Friday. (Jennifer Gauthier/Reuters)

No matter how much political and popular outrage was stirred up by the Meng Wanzhou extradition case — both in Canada and in China — Canadian businesses simply could not afford to cut ties with what may be the world's largest economy.

After her case was resolved on Friday, experts on Canada's business ties with China said it will likely generate a sigh of relief from companies that do business with China.

Though, a final resolution, they said, would require a deal that freed Canadians Michael Spavor and Michael Kovrig, who had been languishing in Chinese prisons since shortly after Meng's arrest in late 2018. Late Friday night, Prime Minister Justin Trudeau announced the two were on their way home.

Despite the fact that business between the two countries continued during the trio of cases, the larger dispute stalled the development of new trade and business relations.

Thawing cold business relations

"For a long time, I felt there was no forward movement possible in the relationship as long as Meng Wanzhou was in Vancouver," longtime China-watcher Gordon Houlden, former director of the China Institute at the University of Alberta, said in a telephone interview Friday, before the release of Spavor and Kovrig had been announced. "And there is no possibility of improvement while Michael Spavor and Michael Kovrig are being held in China."
The two Michaels, as they have been dubbed, were taken into custody in China shortly after Meng, a top executive at Chinese telecom giant Huawei and daughter of the company's founder, was arrested at the Vancouver airport on charges of bank fraud related to U.S. sanctions against Iran.
Michael Kovrig, left, and Michael Spavor, right, were arrested in China soon after Meng Wanzhou's arrest in Vancouver. They are now on their way home. (The Canadian Press, The Associated Press)

The arrest of the two Michaels for alleged espionage was widely seen as hostage diplomacy in retaliation for the house arrest of Meng, considered a high-flying aristocrat of China's business establishment. China has repeatedly insisted the Meng case was political manoeuvring by the U.S., with help from a complicit Canada.

Trade experts note the dispute has made doing business with China far more difficult. Prior to the Meng case, Canada and China had a relatively good trade relationship despite pressure from the U.S. to join it in banning the use of Chinese technology, notably Huawei's 5G telecom systems.

That pressure was seen by some experts as part of the U.S. government's growing technology cold war that seeks to boost support for U.S. companies at the expense of their Chinese competitors, whom members of Congress, later supported by the FBI, have accused of industrial espionage.

Good relations abused?

Canada's relationship with Huawei was complicated by the fact the company has such a foothold here, with operations staffed by many former employees of defunct Canadian rival Nortel.

Canada has a strong extradition law with the United States to prevent people accused of crimes from avoiding justice across the border. Some observers suspect the former U.S. administration led by Donald Trump exploited that strong relationship to weaken Canada's ties with China.
"It depends how cynical you are," said Houlden, who has worked in China and is well connected in Washington, D.C. "Some would say by putting a spike in Canada-China relations, which the Meng Wanzhou extradition case certainly did, that may well have served U.S. strategic interests as well."
The Chinese company Huawei has deep ties with Canada, partly because it hired many workers from defunct Canadian telecom Nortel. (Fred Dufour/AFP/Getty Images)

Despite the fact that business between Canada and China continued to grow throughout the worst of the political conflict, experts say business relations were damaged in a number of ways. For example, some Canadian executives were afraid to travel to China.

There were deals that didn't get done, and Chinese companies became wary of investing in Canada. And while trade in agricultural goods saw only slight interruptions, high-tech collaboration became very difficult.

From lost deals to irritants

Besides the loss of investment and bigger trade deals, the dispute with China has been a constant irritant for many Canadian companies. Take, for example, the recent fines imposed on coat-maker Canada Goose for mislabelling, something that might have been resolved in a friendlier way.

In Canada, 64 per cent of GDP is generated by trade. That compares with 37 per cent for China and only 24 per cent for the U.S.

"We are highly trade dependent, and shutting off from what is almost the largest economy economy on Earth — it depends on how you count it, it may be already but it certainly will be shortly — is a very high cost for a country like Canada," said Houlden.
Coat-maker Canada Goose was recently fined by China for allegedly misleading consumers about the materials it uses. The company says a technical error on a partner website was behind confusion about its products' materials, and the error was quickly corrected. (Aaron Vincent Elkaim/The Canadian Press)

In some ways, the deferred prosecution agreement in the U.S. that led to Meng being set free after pleading not guilty could bolster China's case that it was all politics to begin with.

That doesn't weaken the Canadian argument that, once the extradition process began in good faith, Canadian courts and the Canadian government were compelled to follow the rule of law. That remains a Canadian strength. However, this latest U.S.-China deal may help deepen the impression that the U.S. had been willing to sacrifice good faith ties with Canada for political advantage.

Houlden said once both Meng and the Michaels were free, Canada could begin to mend its trade and business relations with China. It seems that time is now. Though Houlden suggested other irritants will likely persist.

In many ways, the damage has already been done. A wedge has been driven between Canadian business and the huge Asian economy.

"It doesn't mean the relationship springs back to where it was," said Houlden.

Follow Don on Twitter @don_pittis


Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.


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