Asia Economic Update

Canada-Asia Economic relationship is ever- increasing as you may be aware, this area of the world is of particular interest to me and as such, I encourage actions towards strengthening Canada's rapport with Asia.

For many years now, Asia has been a dynamic region and one that has been undergoing significant change. It contains two-thirds of the world's population and 40% of the world's trade, and it has often enjoyed the fastest growing economies of the world. Moreover, China's accession to the World Trading Organization has spawned important new commercial opportunities in that country. Asia has traditionally been an important region for Canadian business, and it offers Canadians impressive long-term potential.

As Asia Pacific Foundation of Canada Vice President Yuen Pau Woo has convincingly argued, Asia presents us with attractive opportunities to expand and diversify our trade and investment flows. It has also become the main source of immigration to Canada Canada, with its long record of positive economic cooperation and contacts between new Canadians and their Asian homelands, has the potential to promote dialogue, play honest broker roles and develop mutually beneficial foreign policies for this complex and dynamic region.

Asia's long term-potential continues to be excellent. The region, for the most part, has recovered from the 1997-98 Asian financial crises and, if history is any guide, a return to high rates of economic growth can be expected.

Japan, China and South Korea are Canada's most important export markets in the region, in descending order of significance. After adding India for its economic potential, one would then have a short list of where Canada's priorities ought to be.

China is an economy worthy of close examination. This economy, the sixth largest in the world, is undergoing a thorough economic transformation that is affecting the entire NE Asia region.

Japan is Canada's second largest trading partner overall and is still the number two economy in the world even if its economy has been stagnant lately. That country's potential as a consumer economy is still vast, even if it is has not opened up to the world as much as China has.

Two other Asian countries are worth mentioning. South Korea who, has rebounded strongly following the financial crisis of the late 1990s.The country is becoming an important export opportunity for Canada.

Second, the Asia region has increasingly become a source of investment in Canada. Over the past ten years, the stock of foreign direct investment (FDI) has risen by an average of 8% annually, with most of this FDI of Japanese origin and concentrated in the automotive sector. Hong Kong is also a sizeable investor in Canada, and China and India represent emerging sources of investment with considerable long-term potential.

With respect to investment outflows, assets are currently there now so it is a good opportunity to buy. Here again, China and India show considerable long-term potential as destinations for Canadian foreign direct investment.

To fully maximize economic opportunities in Asia, Canadian trade policy will have to become more focused on that region, more aggressive in its approach and more innovative in its application. There are several ways in which this could be achieved: increase market share, seek free trade agreements with Asian countries, enhance the awareness of Asian opportunities and the interest of Canadian business in the region, and lastly, focus on the "Rebranding" of Canada within Asia.

For some time now, Canada has been losing Asian market share to both traditional trade rivals and new competitors. Today, Canada's share of that market is only two-thirds of what it was ten years ago. In essence, our trade has not kept up with the pace of Asian growth.

Canada's neglect of the Asian market likely reflects our focus on the U.S. market. While Canada should not turn away from the U.S., it should ultimately re-engage Asia-Pacific as a commercial partner and indicate that the region is important to the Canadian economic and individuals.

One way to send out this signal to Canadians is to aggressively seek free trade deals with Asian countries. As was already mentioned, Asia has become inward looking. Given this trend toward intra-regional economic expansion, it behoves Canada not to be left out of the action.

In the past, Canada has relied on business to provide the impetus for free trade discussions. Perhaps it is time for the Government of Canada to take the lead in this area.
Canada should be actively engaged in bilateral discussions with key countries in the region in the same way that the U.S. and Mexico are both trying to negotiate free trade arrangements there.

There remains a low level of awareness among Canadians of Asia's business potential. Firms already established in Asia with access to their own sources of information about market opportunities do not require assistance. The same cannot be said for those firms that are not yet established there. These, many of whom may possess an outdated view of Asian economies, require access to reliable market information.

Canada can help Canadian businesses that are new to Asian markets penetrate the markets. On the other hand, accessing markets in Asia involves a long-term commitment that some small businesses may be unprepared to undertake. The problem remains that some companies are reluctant to invest in Asia since doing business there involves fairly high costs and success is only gained in the long term.

The Government of Canada is exploring new ways to help Canadian businesses improve direct ties with Asia. Innovative new methods of partnering businesses on both sides of the Pacific are being considered.

Here, reality does meet perception as our exports are dominated by natural resource products and unfinished goods. At the same time, some of the existing perceptions of Canada are beneficial: Asian companies perceive Canada as a desirable place for employees to live given the country's high standard of living and the presence of a sizeable existing population of Asian origin.

Canada can improve its branding and economic relations with Asian countries by identifying key opinion influencers and future leaders and by using new and innovative strategies to alter existing impressions of Canada. Programs that invite Asian students and prospective leaders of tomorrow to Canada can also be useful.

There may be clouds on the short-term Asian economic horizon, but the region's long-term outlook remains sound. Expending greater energy now to strengthen Canada's economic relationship with Asia in the future would represent an altogether wise investment of resources.