Released:December 19, 2017
Project: Z - Canada-China Forum
Observation 1: Disruptive global trends are reshaping our world.
One consequence: the status quo is not a strategy for future success, anywhere. Information technology — — digitization — — has enabled globalization 3.0 and helped drive a broader technology revolution. A second consequence: a large gap has emerged between a world of “tech 4.0” and “gov/pol 1.0”.
- Governance/Policy 1.0 — adapting slowly
- Energy 1.5 — a revolution in demand + supply
- Demographics 2.0 — aging is affecting everything
- Climate change 2.5 — is a game changer
- Globalization 3.0 — a hyper-connected world, led by global supply chains and ICT
- Technology revolution 4.0 — changing everything, everywhere
Observation 2: The new global normal is also characterized by a transformation of global risks
More systemic; more global; more geopolitical; more interconnected; and more insecurity-related. Countries, and companies, need to adjust their “risk management” approaches for these new “global macro risks”.
“Top 5” Global Risks in 2017*
- Environment: climate change; extreme weather; natural disasters; mitigation failures
2. Involuntary migrations: MENA refugees; Iraq, others
3. Conflict: terrorist attacks; cyber attacks; interstate conflicts
4. Populism: unemployment; inequality; social stability
5. Failure of governance: national, international
*World Economic Forum, Jan, 2017
Observation 3: The global economy is finally showing signs of increased strength, matched with increased risks.
Over the medium term the challenge is mediocre trend (potential) growth, due to weak productivity growth trends and aging populations. The IMF’s updated forecast (April 2017) projects an improving global outlook, led by a pick-up in the US, Euro area and Japan, supported by continuing strong growth in China and India. There are three key global uncertainties: geopolitical, political and policy.
*Recent Canadian data have led the Bank of Canada to upgrade its forecast to 2½% growth in 2017 and 2018.
Risks to the Global Outlook
- Will protectionist forces in a number of economies impede global trade flows, and reduce growth?
- Does the new U.S. Administration implement the much anticipated tax cuts, infrastructure spending and deregulation?
- Will rising geopolitical tensions, and increasing populist pressures in a number of countries, increase uncertainty and reduce confidence?
- Will elections in U.K., Europe and the Brexit negotiations affect business confidence and borrowing costs through higher yield differentials?
- Will China find the right balance between debtfuelled stimulus and structural reforms?
Observation 4: Growing distrust
Less than 50% of the general population expresses trust in the core institutions of government, business, and the media in 20 of the 28 countries surveyed by the Edelman Trust Barometer. Trade displacing jobs, technology displacing workers and jobs, short-termism displacing long term investing — — are all elements of this loss in trust. Loss of trust nurtures populist and protectionist movements.
(Dis)trust Factoids
- Only 37% of the general population globally trusts corporate CEOs
- Trust in government globally has fallen to 41%
- 67% of the general population believes CEOs/firms focus too much on short term results
- 59% of the general population in Western countries trusts a search engine more than traditional media
Observation 5: Disruptive technology
Its driving transformation and it is at an inflexion point, with disruptive innovations imminent in many fields. What is most disruptive is the combination of scale and scope of these technologies, and their speed of adaptation. It leads to the gap between “tech 4.0” — “gov/pol 1.0”; it also leads to a gap between “innovation frontier firms” — — those that can adopt at the pace of tech 4.0, and the rest — — the “innovation laggards”.
The consequence of this scale, scope and speed: to be a disruptor or be the disrupted?
•Do we have the technology and entrepreneurial capacity to be at the leading edge of disruptive innovations, which will drive growth and productivity and, at the same time, have we developed the innovative education systems and business education-government partnerships to reskill and retrain the workforce of this future?
•McKinsey estimates that 40+% of current jobs can be automated through these disruptive technologies.
The “Scope and Scale” of Disruptive Technologies
Source: McKinsey
- Virtual & augmented realities
- New computing technologies (quantum, neural, …)
- Nano materials
- Space technologies
- Energy storage
- 3D printing
- Internet of things (linked sensors)
- Blockchain, distributed ledgers
- Neurotechnologies, geo-engineering
- Artificial intelligence (AI) and advanced robots
Observation 6: The Canadian government, and the business sector, understand the need to re-orientate policies for these turbulent times.
Canada has strong macro-economic foundations, a necessary but not sufficient condition for sustainable strong growth. Building on this foundation, Canada needs to better target talent, trade, innovation, foreign investment, infrastructure and skills to strengthen long term growth and diversify the economy.
Strong macro foundations
- Best total government fiscal position in G-7: Canada, by a considerable margin.
- Low inflation
- Low interest rates
- Corporate taxes: lowest in NAFTA; 2nd lowest in G-7
Productivity-enhancing levers
- Focussing on innovation: building innovation superclusters; creating world class technology hubs; focus on entrepreneurship; financing for scaling-up start-ups.
- Attracting top global talent: increasing immigration and fast-track global talent visas.
- Establishing new trade links: CETA (Canada-Europe Trade Agreement) ratified; re-negotiation of NAFTA; pursuing trade agreements in Asia (China, India, Japan).
- Building strategic infrastructure: new National Infrastructure Development Bank with $200 billion balance sheet to enhance productivity and support trade. Further $100 billion for social and municipal infrastructure.
- Attracting global investment: more welcoming approach to FDI, new Investment Promotion Agency.
- Expanding “equality of opportunity”, with focus on skills.
Observation 7: Competitiveness today is defined by world class technology and innovation ecosystems
It is not defined by cheap inputs. The building blocks, in addition to strong research anchors, are: talent, capital, infrastructure, customers, trade/investment and brand plus leadership in selected transformative technologies and depth in key transforming sectors.
Sustainably competitive economies in a “Tech 4.0 world” must aspire to build global top tier innovation ecosystems
Innovation Ecosystem Blueprint
Talent — Develop, recruit, retain
Capital — Start-up, scale-up, grow-up
Infrastructure — Connecting the corridor, densifying the corridor
Customers: Procurement — Strategic procurement (start-ups), DARPA-type tech support
Trade and Investment — Start-ups going global, global tech anchor firms going local
Branding — Strengthen brand: attracts talent, capital, investments
Possible Transformative Technologies. Examples:
- Quantum
- Artificial intelligence
- Internet of Things
- Big data
Possible Transformative Sectors. Examples:
- Advanced mfg.
- Fintech
- Healthtech
- CleanTech
- E-commerce (retail)
Perspective 8: The common challenge of rebalancing, with different characteristics
Both Canada and China are in the process of “rebalancing” key aspects of their economies to respond to lower long term (potential) growth and economic imbalances. An efficient, innovative and trusted financial sector is crucial to successful rebalancing.
China rebalancing…
External rebalancing
- to domestic demand led-growth
Domestic rebalancing
- from industry to services
- from gov’t production to private
- from low productivity to more innovative production
- from high leverage to sustainable debt ratios
Environmental rebalancing
- to pollution mitigation in cities; water mitigation; stricter regulations
- to COP21 commitment
Income distribution rebalancing
- to greater income equality
Canada rebalancing….
External rebalancing
- to trade diversification with Asia and Europe
Domestic rebalancing
- from start-ups to scale-ups to global tech firms
- from average innovation intensity to high innovation production
- from declining labour force growth to increased immigration, top global talent
Environmental rebalancing
- to carbon tax, cap-and-trade, stricter regulations
- to COP21 commitment
Opportunity rebalancing
- to improved lifetime skills, retraining
Perspective 9: Branding matters — — to attract global customers, global investors, global talent and global connectivity.
We can better leverage the “Canada brand” in China, and Asia more broadly. In these turbulent times, when political stability, social cohesion, diversity, open trade and a solid economic base are in short supply globally, our brand should underscore that — — the world needs more Canadas.
Our global brand — Nice Canadians
… or …
Our future global brand — Nice+
- Talent: pool of diverse, well educated, tech-savvy, entrepreneurial graduates
- Knowledge economy:4 research universities in global top 100; leader in AI, quantum, cleantech
- Strong values:welcoming immigrants, diversity, rule of law
- Innovation clusters: 4 in global top 25
- Strong financial system:world-class institutions, fintech innovators Natural resources: energy, agri-foods, minerals & metals
Canada, and the “Canada brand”, have under-realized potential in China and Asia
Concluding observation — — It’s all about stronger and more inclusive growth in the new global normal.
In this changing world — — an era of disruption and uncertainty — — China and Canada have strong economic complementarities, as well as shared histories. It is time to turn the potential of our relationship into a shared reality.
We need a Canadian “smart growth strategy”
- with weak growth and exclusion both real and present problems in many countries, including Canada, rebuilding our potential growth through more inclusiveness and more innovation/productivity driven business is the essence of a “smart growth” strategy
We need a Canadian “global diversification strategy”. With China:
- establish sectoral and comprehensive trade agreements
- enhance tourism and education links
- increase clean tech, agri-food, logistics, engineering services and e-commerce links
- develop cooperation on global trade liberalization and international governance reform
Reports
Diversification not Dependence: A Made-in-Canada China Strategy
Canada can truly diversify its trade and break its dependence on a single partner by pursuing a strategy built on sectoral trade agreements with China.
Articles
Canada-China Session 1: Setting the stage, public opinion trends, approaches to trade
Recap of the first meeting of PPF's Canada-China Forum includes presentations on public opinion by Bruce Anderson of Abacus Data and sectoral trade by Wendy Dobson of University of Toronto
Toward ‘eyes-open’ engagement with China
Members of the Public Policy Forum’s Canada-China forum seek a balanced approach to engagement with China that is economically beneficial and politically acceptable to Canadians
Events
Past Event
PPF Fall Dinner 2019 | Stuck in the Corner: The U.S.-China strategic rivalry and how Canada plays it
Canada already knows what it’s like to be caught between the wills of these two Great Powers. How do we manage their fraught relations? How do we cause the minimum damage to our economy and sovereignty, while standing up for what we believe is right? These are questions we will address with Dr. Graham Allison, one-time Assistant Secretary of Defense and founding dean of the Kennedy School of Government at Harvard University, at our annual Fall Dinner — Nov. 19 at the Shaw Centre in Ottawa.
News
CBC Analysis: NAFTA talks forced Canada to pick a side in U.S.-China trade war
"In signing on for NAFTA 2.0, Canada also joined the Trump administration's China agenda," writes CBC's Janyce McGregor in a CBC Analysis article. "When the Trudeau government agreed to a revised North American free trade deal, the Americans said Canada also agreed to something else: joining Donald Trump's trade war on China."
Tom Walkon at the Toronto Star: How Canada can break its dependence on the United States
In this opinion piece, Thomas Walkom tries to answer the question - How can Canada break its dependence on the United States? A question that has bedeviled both the left and the right since 1945. He writes that PPF's Report “Diversification not Dependence,” makes a compelling case for Canada to escape the “honey trap” of its reliance on the U.S. by moving quickly to boost both economic and political relations with China.
Business in Vancouver: Canada should turn to sector-specific deals with China in light of USMCA, report says
Business in Vancouver's Chuck Chiang writes about PPF latest report "Diversification Not Dependence: A Made-in-Canada China Strategy." The report says Canada should turn to sectoral agreements - that is, deals focusing on specific industries like agriculture and energy - in growing business links with China in light of the perceived “U.S. veto” clause in the new USMCA North American free-trade agreement.
Maclean’s Op-ed: How Canada can work on trade with China—without angering America
PPF's Edward Greenspon and the Vice-Chair of the BMO Financial Group Kevin Lynch share their opinion on Canada-China trade in this Maclean's op-ed. They discuss how the Canadian government must diversify its economy, and China is the obvious target. But that there are risks with such a partnership.
CBC: Canada can avoid offending U.S. by pursuing sectoral trade with China: report
Andy Blatchford writes that the authors of the PPF report "Diversification Not Dependence: A Made-in-Canada Strategy" argue that Canada can do more business with China 'in such a way that should not offend' the U.S. through a a surgical, sector-by-sector approach.
We need a China strategy, so let’s get it right
In this Globe and Mail op-ed, our Forum on China co-chairs argue that with rules-based trade down South on the fritz, it really is time to look elsewhere and that includes China.