A new Asia strategy for Canada

by Alex Paterson. Posted March 30, 2012


For the past 250 years, Canada’s deep and mutually beneficial economic links with its superpower neighbour to the south have stood as a cornerstone of our growth and prosperity. While the US will continue to be a major economic partner and critical ally for Canada, its hegemonic days are likely over. The size of the Chinese economy alone is expected to rival that of the US by 2020 – 2030.  That gives Canada only a decade or two to accomplish a major re-orientation of its economy.

The economic links between Canada and the US are broad as well as deep.  There is a deep web of ‘connective tissue’ that binds the two countries, not just economically, but also socially, culturally, and politically. Asia, on the other hand, feels geographically and culturally distant. Links are sparse and Canadian businesses lag their rivals in terms of Asian penetration: only half of the 20 largest Canadian companies have operations in Asia – 100% of the top 20 American companies do.

Canada has a significant mountain to climb. Recent McKinsey research found that not only did many Chinese consumers not know where Canada was, but that the only reference they had for the country was that it was the “place to go for clean air”.

The re-orientation of Canada’s economy towards Asia is unlikely to happen organically – and certainly not at the speed required. The kind of strategic thinking, action and coordination required to achieve this will be a challenge in Canada’s decentralized system of governance.  But previous challenges have brought Canada’s government, business and civil society communities together to act jointly to address major issues. We must do it again. For without such strategic action, Canada’s future prosperity and political power and relevance are at risk.

A first step is for the Prime Minister to appoint a Minister for Asia and establish an Asia Advisory Council made up of 15-20 influential Asia-based politicians and business people. The Minister for Asia would be a key contact point for Canadian businesses, civil society and Asian governments.

Second, we should seek to build on our strong base of human ties with Asia. Increasing the number of Asian students studying in Canada has benefits beyond the pure economics; it also extends personal links that will bear fruit into the future. At the same time we should increase Asian content in our own education system.

Governments in Asia are very strategic about supporting their own companies. We should take a leaf out of their book, identifying and actively supporting strategic sectors. There are many good candidates, including infrastructure, agri-food, aerospace and financial services.

Canada has some of the most admired infrastructure in the world and China has a huge infrastructure need: by 2025 more than 220 Chinese cities will have over 1 million inhabitants. Our financial system came through the 2008 crisis in stronger shape than those of other developed economies and our regulatory system and banks are globally recognized for effective governance and risk management. Aerospace presents another opportunity. China and other Asian countries are keen to develop aerospace industries.  Bombardier is the third largest civil aircraft manufacturer in the world and we also have many successful suppliers to the industry.

Growing Asian interest in both consuming and owning Canadian resources is inevitable. This presents opportunities and risks for Canada. Overseas investment could help bring down the cost of development, expand and modernize our resource infrastructure and create more jobs for Canadians. To take full advantage of this opportunity Canada must proactively invest in its resource infrastructure. We cannot build an energy link to Asia, nor become an energy superpower, unless pipelines to the West Coast are built and the necessary export facilities and shipping lanes authorized.

At the same time, it is imperative that Canada has in place an effective long-term plan for managing its own resources. Our current policy on foreign ownership is unclear to many. We must also ensure that we are not simply spending the wealth of future generations. The Government of Canada should consider working with resource rich provinces to establish an investment fund, like Norway’s, to ensure that future generations of Canadians benefit as much as Canadians of today.

The world is re-balancing towards Asia; Canada must re-balance with it. This will not happen without strong federal government leadership. Canada’s own Asia century must start now.

Dominic Barton is global managing director at McKinsey and Company.