Huawei Drama Sparks Concern Canada's Exports Could Become Target
China is one of Canada’s biggest buyers of agricultural products from oilseeds to softwood lumber.
(Bloomberg) -- Brewing tensions between Canada and China following the arrest of a Huawei Technologies Co. executive have some exporters worried they could be caught in the crosshairs if the Asian nation decides to retaliate.
China is one of Canada’s biggest buyers of agricultural products from oilseeds to softwood lumber and is a growing market for the nation’s banks, insurers and luxury-good makers. Escalating tensions have stoked concern that some companies could see their markets upended after the Chinese threatened “severe consequences” following the arrest of Huawei Chief Financial Officer Meng Wanzhou in Vancouver at the request of U.S. authorities.
While Meng has been released on bail, China’s spy agency detained former Canadian diplomat Michael Kovrig during a visit to Beijing on Monday. Neither Canada nor China has formally linked the cases.
“Everyone in the farm community is worried there might be some retaliation and the retaliation might involve canola,” Neil Townsend, a senior analyst at FarmLink Marketing Solutions in Winnipeg, Manitoba, said by phone.
Canada exported C$21.8 billion ($16.3 billion) dollars in merchandise to China last year, over half of which was agricultural products or natural resources. China is the biggest buyer of Canadian canola, an oilseed used in everything from salad dressing to french fries, and could be vulnerable to trade action, Townsend said.
Canadian canola shipments to China surged 6.8 percent between August and October, government data show. Canada has also been able to grab a bigger slice of China’s wheat and soybean market as the Asian nation feuds with the U.S. Soybean shipments have nearly doubled to 1 million tons between August and October while wheat exports rose 97 percent to 397,200 tons, Canadian Grain Commission data show.
“This is a situation we are watching closely as the political environment is unpredictable and could have significant negative consequences,” Cam Dahl, president of Cereals Canada, an industry group whose members include grain handlers Richardson International Ltd., Cargill Inc., and Glencore Plc’s Viterra unit, said in an email.
The move to grant Meng bail and stay in her Vancouver home as she awaits a possible extradition will hopefully “lead to a little lower heat” between the two nations, said Ron Davidson, executive director of Ottawa-based industry group Soy Canada. The drama has so far not had an impact on the soybean trade and Canadian exports to China are expected to reach a record of more than 2 million tons this year as China seeks out alternative sources to the U.S., he said.
Lumber Market
China is the second-biggest buyer of softwood lumber products and companies have increasingly looked to the Asian market as a destination for shipments amid Canada’s ongoing softwood lumber dispute with the U.S.
Earlier this week, British Columbia’s forestry ministry suspended the China leg of its Asian forestry trade mission due to the “international judicial process” at Huawei, according to a government statement. But three executives from Vancouver-based Canfor Corp., including Chief Executive Officer Don Kayne, have decided to continue with the China portion of the trade mission, according to spokeswoman Michelle Ward.
“There’s still very good demand for Canadian wood in China,” said Kevin Mason, managing director of Vancouver-based ERA Forest Products Research. “The B.C. government officials backed out of the trade mission but executives for the lumber companies continued.”
Luxury Goods
The Huawei fallout also impacted shares of luxury parka maker Canada Goose Holdings Inc., which has been vying for a share of the Chinese market and this year opened a regional headquarters in Shanghai. The Toronto-based company, which has a store in Hong Kong, one to come in Beijing, and also sells online on Alibaba Group Holding Ltd.’s Tmall, has tumbled more than 12 percent so far this month.
Vancouver-based yoga brand Lululemon Athletica Inc. had 17 locations in China as of Oct. 28, while e-commerce sales there grew 76 percent in the third quarter. New Chief Executive Officer Calvin McDonald, who visited stores in Hong Kong, Shanghai and Beijing on a recent trip, told analysts last week that he saw “enthusiasm” for the brand first-hand.
Neither company immediately responded to emails seeking comments.
Some of Canada’s biggest banks and insurers have operations in China, with some ties going back 200 years, including Bank of Montreal, which has a 28 percent stake in a Chinese money manager. Bank of Nova Scotia also has operations in the Asian nation. Manulife Financial Corp., Canada’s largest insurer, has operated in mainland China since 1897, while Sun Life Financial Inc. has a 25 percent stake in Sun Life Everbright, a partnership with the China Everbright Group.
“We continue to monitor the situation closely, but haven’t implemented any formal travel restrictions or other changes," Sun Life spokesman Simon Townsend said.
--With assistance from Erik Hertzberg, Sandrine Rastello and Doug Alexander.
To contact the reporter on this story: Jen Skerritt in Winnipeg at jskerritt1@bloomberg.net
To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Jacqueline Thorpe, Steven Frank
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