Study: Canadian exporters and a booming China

1998 to 2004

Canadian exporters in niche resource industries are fuelling, at least in part, the economic engine that has transformed the People's Republic of China into the world's sixth largest economy, according to a new study.

Since most Canadian firms do not specialize in manufacturing machinery or the kinds of components that Chinese factories assemble into finished products, they have not been significant sources of Chinese imports from Canada.

Rather, the study shows that Canadian businesses have achieved strong sales growth in other areas of high Chinese demand, such as natural resources. Exporting enterprises in niche resource industries are benefiting the most.

The leading sources of growth in Chinese imports from Canada have been raw materials, where growth was driven by rising sales of wood pulp, metals and fertilizer.

Chinese imports of Canadian crude materials have more than tripled since 1998, accounting for nearly one-third of total growth in Canadian exports to China.

Growing demand in China for raw materials to fuel its export industries and satisfy rising domestic consumption has raised global commodity prices. This has increased revenue in Canadian resource industries such as metals by not only increasing the value of exports to China, but also to major customers such as the United States.

The study found that the fastest growth of all commodities exported to China has been in exports of organic chemicals, used in China to make polyester.

At the same time, Canadian firms have profited from rising Chinese imports of iron ore and nickel, key ingredients in steel production. Also, our wheat exports to China rebounded in 2004 after a long period of decline.

China now Canada's fourth largest export market

Canada's economy relies heavily on trade; our exports alone equal more than one-third of our gross domestic product.

While over four-fifths of our exports head south to the United States each year, China has become the fourth largest market for Canadian exports behind the United States, Japan and the United Kingdom.

In total, Chinese imports from Canada have more than tripled since 1998, rising at an average annual rate of 21%. Nevertheless, in 2004, China's total imports of Canadian goods, worth US $7 billion, accounted for only 1.3% of China's total imports. To put that into perspective, China imported more than US $94 billion from Japan alone in 2004.

Feeding the dragon: A huge demand for imports

China's scorching economic growth during the past decade has helped to shore up other economies by sparking a huge demand for commodities, thereby driving up prices. According to Chinese authorities, real gross domestic product increased 9.6% a year on average over the last 25 years.

Chinese exports nearly tripled from US $63 billion in 1990 to US $184 billion in 1998. By 2004, they had tripled again, hitting US $593 billion.

Given its competitive advantage in manufactured goods, China has scoured the world for raw materials, parts and factory machinery. As a result, its imports quadrupled from US $140 billion in 1998 to US $561 billion in 2004.

The biggest winners have been China's neighbours. Japan continues to be the leading supplier of goods to China, accounting for US $94 billion, or about 17% of Chinese imports in 2004. However, it is South Korea and the countries of Southeast Asia that have benefited the most from China's growth. South Korea has surpassed the United States to become the third largest source of Chinese imports in 2004.

Some Canadian exporters seizing the opportunity

China's rapid growth presented an opportunity for Canadian exporters to help supply expanding Chinese industries in areas of Canadian expertise, and the evidence shows Canadian businesses are benefiting.

Between 1998 and 2004, Canadian exports to China more than tripled to over US $7 billion, with annual growth since 1998 averaging 21%.

Given that Canada's exports to the world (in US dollars) grew by less than 7% a year on average over the same period, China has emerged as an important source of growth for Canadian exporters.

Organic chemicals have been the fastest growing Canadian export commodity to China, responsible for 17% of total export growth since 1998. By 2004, Canadian exports of these chemicals had grown to 30 times the levels in 1998.

Most of these exports consisted of ethylene glycol, a key industrial chemical used, among other things, to produce polyester in the apparel industry. Chinese factories have more than doubled their exports of apparel since 1998. One factor in recent years has been the phasing out of international quotas on apparel from China in accordance with an agreement under the World Trade Organization (WTO).

China's imports of ethylene glycol have grown to nearly 23 times their levels in 1998. Canada has emerged as the leader in this market in China, quadrupling its share of Chinese ethylene glycol imports from 0.9% in 1998 to 3.8% in 2004, an impressive achievement given the rapid growth in Chinese imports.

While chemicals have been Canada's fastest-growing export commodity to China, wood pulp is our leading export product. Wood pulp exports have soared on the strength of increasing demand in China, centred in this case in the burgeoning Chinese paper industry.

The elimination of tariffs on wood pulp imports, in compliance with China's WTO commitments, has helped spark a dramatic increase in pulp imports, which have nearly quadrupled since 1998, with Canadian exports also rising sharply.

Canadian pulp exports have shot up from US $251 million in 1998 to US $965 million in 2004. They accounted for nearly 13% of our total exports to China in 2004. China has now become Canada's number two export market for wood pulp behind the United States.

Nickel is a key ingredient in the production of stainless steel, and rapid growth in Chinese nickel imports have made it the third largest importer of nickel, behind the United States and Germany.

Canada has taken advantage of this growth, and has overtaken Russia to become the leading exporter of nickel to China. Our exports, which quadrupled between 2002 and 2004 to US $326 million, now account for 28% of total Chinese nickel imports. However, rising nickel prices have triggered a much larger gain in revenue from Canadian nickel exports to other customers, such as the United States.

China has re-emerged as a top export market for Canadian wheat. This rebound was a welcome turnaround from a long period of decline in Canadian wheat exports to China, which until 2004 had fallen almost every year since 1995.

Definitions, data sources and methods: survey number 2201.

The analytical article "Feeding the dragon: Canadian exporters and a booming China" (11-621-MIE2006037, free) is now available online in the Analysis in Brief series.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Steve Grunau (613-951-0712), International Trade Division.