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China views potential deal with Canada as means to break US trade lock

When Canada recognised the People’s Republic of China in 1970 under then premier Pierre Trudeau, Mao Zedong reportedly said: “we now have a friend in the backyard of the United States”.

The decision by Canadian Prime Minister Justin Trudeau, the son of Pierre Trudeau, to start talks with China on a free-trade deal offers a similar feeling to Chinese officials now that Beijing is being squeezed and isolated by two Washington-led trade initiatives, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership.

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Mei Xinyu, a researcher with the Ministry of Commerce, said a trade deal with Canada, a member of the G7, would serve as an example for Beijing to conduct similar deals with other rich economies, even if the TPP is implemented.

“The TPP excludes China … but if China can reach free trade deals with TPP member countries, the possible impact from the TPP on China will be smaller.”

In a joint statement issued yesterday following talks between Justin Trudeau and Premier Li Keqiang, the nations agreed to launch exploratory discussions on a China-Canada Free Trade Agreement.

They also agreed to double their trade by 2015 and, in a friendly gesture, China has relaxed import restrictions on sales of Canadian canola oil, worth C$2 billion (HK$11.85 billion) annually, and of beef.

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While it’s too early to predict a high-level free trade deal between the two countries – negotiations between China and Australia took 10 years before a deal was reached last year – the fact that Ottawa is willing to move in that direction is already a welcome sign for Beijing.

“If China can reach a free-trade deal with Canada, it will mean that Chinese products can crack open the North America markets easily,” said Wei Jianguo, a former trade vice-minister and a senior researcher with a government-backed think-tank.

As a multilateral trade system centred on the World Trade Organisation has made scant progress, Beijing has been forced to seek trade deals with neighbouring countries and partners, Wei said. A China-Canada deal would be a key piece in the puzzle.

China is spearheading efforts on free trade negotiations with nations from Southeast Asia to Africa, especially after Beijing was shunned in the TPP pact, which would cover 12 nations. Prospects for the TPP are uncertain, however, as both the Democratic and Republican US presidential nominees, former Secretary of State Hillary Clinton and business mogul Donald Trump, have voiced opposition to the pact.

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China has more than a dozen bilateral trade deals with countries including Singapore, Australia, South Korea, Peru, Switzerland and Iceland. Beijing is also talking to Washington about a bilateral investment treaty. China is now the world’s biggest merchandise trading country and serves as the biggest trading partner for more than 120 countries across the world.

China’s customs data shows China reported an about US$3.2 billion trade surplus with Canada in 2015, but Canadian official data shows a much larger 2015 trade deficit with China – about US$35.5 billion.

He Yafei, a former vice-minister of foreign affairs, said a China-Canada FTA could boost bilateral trade.

“The US is using the TPP as a geopolitical tool to set up new economic rules to exclude China. This is not beneficial to global trade,” he said.

“Free trade agreements should not be mixed up with geopolitics. China will continue pushing for FTAs with both developing nations and developed countries.”

Additional reporting by Wendy Wu