China comes to call: Canadian companies are connecting with a new market to ensure growth

Abstract:

Chinese Vice-Premier Zou Jiahua visited Canada to promote business relations between the two nations in Apr 1994. During his visit, Northern Telecom Ltd announced it had secured a $180-million contract with China. Other Canadian businesses are also establishing ties with China.

Full Text:

One of China’s top political leaders put smiles on the faces of some Canadian business leaders last week as he toured some of Canada’s biggest telecommunications, transportation and power companies. Vice-Premier Zou Jiahua, the senior minister responsible for China’s ambitious program of infrastructure development, visited such projects as the Port of Vancouver and Ontario Hydro’s Darlington nuclear power plant. At Spar Aerospace, Zou (pronounced Joe), a technocrat who was trained as a mechanical engineer in the Soviet Union and then managed a large factory before beginning his political career, took the controls of the Canadarm simulator, the same instrument used to train astronauts. But it was only after a business breakfast meeting in Toronto last Friday that it became clear how soon Zou’s visit would translate into tangible results. After intense negotiations with Chinese officials last week, Northern Telecom Ltd. of Mississauga, Ont., announced a $180-million deal to develop, manufacture and sell telecommunications switches in China. As well, the federal government announced that it would provide another $200 million to finance Chinese purchases of Canadian-made NorTel equipment. Said an obviously elated Jean Monty, NorTel’s president: “This really gives us very deep anchors in the development of the telecommunication infrastructure in China.”

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In Canadian business circles, Northern Telecom’s announcement–the culmination of 22 years of effort by the telecommunications equipment manufacturer–was the highlight of Zou’s visit. For NorTel’s executives, it was a particularly gratifying victory over its arch-competitor, American Telephone & Telegraph Co., which has not yet been named as an official switch supplier to China. Securing such a significant foothold in the burgeoning Chinese market is considered crucial for telecommunications companies, because China’s economic awakening is creating a fast-growing market of 1.2 billion potential customers. For the past decade China’s economy has been growing at an average annual rate of more than 10 per cent. That compares with forecast growth of only 3.4 per cent this year in Canada.

Zou’s Canadian tour follows a similar visit last year by China’s powerful economic czar, Vice-Premier Zhu Rongji, who was the first senior Chinese official to visit Canada since Deng Xiaoping launched China’s economic reforms in 1979. That trip marked a thaw in relations between the two countries following the Tiananmen Square massacre in 1989. The fact that two possible successors to Premier Li Peng have visited Canada in quick succession is an indication of China’s interest in gaining greater access to Canada’s expertise in infrastructure megaprojects. “We know you are very strong in transportation, telecommunications, energy, electricity, mining, agriculture and forestry,” Zou said in a speech to business people in Vancouver last week, “and these are exactly the priority areas for development in my country.”

Still, selling to China requires more than a Mandarin-English dictionary and an aggressive sales force. Typically, a company must agree to transfer technology and capital to China in order to close a major deal. The Northern Telecom deal signed last week, for example, included a major investment program to establish a large-scale research and development centre and manufacturing, sales and service organizations in China for the Canadian company’s flagship switching products, the DMS SuperNode. Switches are the basis of any telephone system. As part of the transaction, Bell-Northern Research, the Ottawa-based research and development arm of Northern Telecom, has also agreed to establish a telecommunications research laboratory in Beijing. At the same time, International Trade Minister Roy MacLaren announced that the federal government will lend China $200 million to finance the purchase of NorTel equipment made in Canada. Monty said that the government financing will provide jobs at NorTel’s Brampton, Ont., plant, which manufactures the digital switching and transmission equipment that China wants to buy.

Although telecommunications is a crucial sector for China–Zou also named Spar Aerospace as another telecommunications company with which China expects to strike a deal–other industries are increasingly important. Power generation now gets top priority on Beijing’s agenda because energy shortages are starting to impede China’s economic expansion. The central government has set a goal of increasing the country’s generating capacity by 12,000 to 15,000 megawatts a year–an amount equal to half of Ontario Hydro’s total annual generating capacity. Indeed, much of Zou’s Canadian visit, which included stops in Montreal, Ottawa, Niagara Falls, Ont., and Quebec, to inspect a James Bay hydro station, was devoted to power utilities.

With an eye to helping China attain its goal, Canadian government officials say that Ottawa will soon announce the start of negotiations for a bilateral nuclear co-operation agreement. When completed, it would permit Canadian nuclear power companies to sell their equipment and expertise to China. Until recently, Canadian nuclear power companies were excluded from the Chinese market because the central government had opted for less-expensive, light-water nuclear technology. Earlier this year, however, China, under pressure to hasten the expansion of its generating capacity, decided to branch out. And it is now examining the merits of the heavy-water nuclear technology in which Canada specializes. Don Lawson, president of AECL CANDU, the reactor division of Atomic Energy of Canada Ltd., based in Mississauga, Ont., met Zou earlier this year in China. “He gave me an hour’s grilling on the comparative advantages of the heavy-water technology,” said Lawson. “He’s a very knowledgeable individual. He knew what questions to ask and he asked a lot of them.” AECL has sold CANDU reactors to Korea. “Because of their needs, Asia has a different view of nuclear power than we do here,” said Lawson, noting that Korea, Japan and Taiwan are all relying on nuclear power.

But nuclear energy is only one of several types of power being explored by China. Currently, the biggest single power generation project now under way there is the massive–and highly controversial–Three Gorges project on the Yangtze River in central China. Three Gorges, which will be the largest hydroelectric dam in the world when it is completed sometime within the next 20 years, has been compared with damming the Grand Canyon in the United States. About 1.2-million people who live in the valley that will be flooded are now being relocated. Site preparation on the 18,000-megawatt project has begun, partially as a result of a feasibility study funded by the Canadian government and carried out by three Canadian engineering firms in the mid-1980s. But because of the environmental and financial problems of the project–which the Chinese government estimates will cost about $45 billion–the World Bank has not provided vital financial assistance for it. As a result, although several Canadian companies, including firms such as SNC-Lavalin in Montreal and several provincial power utilities, remain interested in Three Gorges, they are not currently involved in the project. However as construction advances into more sophisticated stages of development they may try for contracts.

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In the meantime, Canada’s provincial utilities are contemplating smaller power ventures across China. Jack Li, spokesman for Ontario Hydro International, says that it is reviewing proposals for several projects in the 50 to 300 megawatt size range. “We’ve been talking to a lot of people in various provinces in China,” said Li. “But financing is still the major challenge–getting foreign exchange out and getting paid quickly.” Furthermore, Li noted that Ontario Hydro is having trouble finding projects that provide a return high enough to offset the risks that it perceives in the country. “The real risk in China is the internal stability, the growing gap between the rich and poor provinces,” said Li. “The risk is high, and if you put up that kind of money, you have to be 1,000-per-cent sure.”

While business representatives used Zou’s visit as a chance to pursue profitable opportunities, they weren’t the only ones who took advantage of his presence. The Canadian staff of Ming Pao Daily News, a Chinese-language newspaper connected to a Hong Kong-based chain, joined its parent last week in protesting the imprisonment of one of the group’s Hong Kong reporters, Xi Yang, for “spying and stealing state secrets.” Ming Pao staff in Canada delivered petitions to Chinese consulates here calling for Xi’s case to be reviewed. Xi had been tried in secret and sentenced to 12 years in jail–while his government source was sentenced to life–for printing a story about an upcoming bank rate change in China, a reporting initiative that would have been applauded in Canada. Business connections aside, clearly the differences between the two countries are still vast.

>>> View more: Ron Brown’s V.I.P. junkets

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