In the wake of the global recession and the plunge in the Canadian trade
balance to a deficit position, Canada is working hard to strengthen business
ties with Brazil, Russia, India and China, or the so-called BRIC countries.
They have grown rapidly in the past decade and are likely to exit the recession
as growth leaders once again. Canada, the second-biggest exporter to the U.S.
after China, wants to reduce its dependence on the beleaguered U.S.
economy.
The U.S. has long been the recipient of all Canadian oil exports. However,
as Chinese oil demand surges and the Obama administration favours reduced oil
demand, particularly from the oil sands, Canada is smart to make oil exports to
China feasible. Currently, no East-West pipeline from the oil sands to the
deep-sea ports of British Columbia is available, but it has been in the
planning stages for years and it is now crucial that it proceed
expeditiously.
Finance Minister Flaherty’s trade mission to China last week was the
fourth by a senior government minister over the past four months. Trade
Minister Stockwell Day visited China in April, followed by Foreign Affairs
Minister Lawrence Cannon in May and Transport Minister John Baird last month.
Strengthening economic ties between Canada and China is a major goal and Ottawa
has long been supportive of Canadian direct investment in China, which is much
larger than Chinese investment in Canada.
The prospect of China becoming a major source of FDI has been received with
a mixture of enthusiasm and apprehension in the past. While most economies
would welcome the inflow of long-term equity investment, there are
concerns—especially in industrialized countries—about the
motivations and quality of Chinese capital, including the loss of control over
natural resources in the event of global scarcity and, for the U.S., the fear
of ceding sensitive technologies to a potential military competitor. The public
debate in late 2004 around the proposed acquisition of Noranda by China’s
Minmetals exposed these fears. Likewise, the failed attempt by China National
Offshore Oil Corporation (CNOOC) to purchase a mid-sized U.S. energy company
(Unocal) generated much heat and passion in the States.
Finance Minister Flaherty is now sending strong signals that he will lift
investment restrictions against Chinese government-run entities. The Minister
said he will encourage state-run entities such as China Investment Corporation
(CIC), the country’s nearly $300 billion (as of the end of 2008)
sovereign wealth fund, to list shares on the TSX or to buy stakes in publicly
traded Canadian companies. China established its sovereign wealth fund in 2007
to help manage the nation’s $2 trillion of foreign-exchange reserves.
The CIC has said it will actively grasp investment opportunities this year
after slowing spending in 2008 because of the global financial crisis. CIC had
87.4% of its global portfolio in cash and cash equivalents at the end of 2008,
according to its annual report. It spent $4.8 billion on new investments last
year compared with at least $8 billion in 2007.
CIC made its first major investment in a Canadian company last month when it
acquired a 17.2% stake in Teck Resources, Canada’s largest diversified
mining, mineral processing and metallurgical company. By taking an interest in
Teck, CIC continued its strategic plan to buy foreign resource companies while
they are cheap. (CIC has also made loans in exchange for commodities in the
case of Russia and Brazil.) Another, much smaller deal signed in early June
involves Consolidated Thompson Iron Mines Ltd.’s development in northern
Quebec. Wuhan Iron and Steel (Group) Corporation agreed to invest US$240
million in the company and the development of the Bloom Lake property, and buy
ore from the project once it’s operating.
Canada is among the world’s most important producers of oil and
natural gas, and is a major exporter of nickel, fertilizer and agricultural
products. While Canada sits on the largest pool of oil reserves outside of the
Middle East, China’s state-owned companies have a relatively small
presence in this country’s energy sector. According to the Globe and
MailReport on Business, China Petroleum & Chemical, known as
Sinopec, owns a half share in Canada’s Northern Lights oil project, while
CNOOC purchased a minority stake in privately held MEG Energy Corporation for
$150 million in 2005, a small investment in the oil sands that was intended to
give CNOOC an introduction to the area. (There have been other oil and mining
deals involving Chinese takeovers of TSX-listed companies with international
operations involving only assets based outside of Canada.)
No sooner had Finance Minister Flaherty encouraged China’s state-run
companies to invest in Canadian resource companies, then state-controlled Jilin
Jien Nickel Industry Co. Ltd. made a surprise $148.5 million unsolicited
takeover bid for Canadian Royalties Inc., which is developing the Nunavik
Nickel Project in northern Quebec. It is rare for China to make a hostile bid
for a foreign company.
China is the world’s largest exporter of capital and Canada can
benefit far more in the future from this source. China is also a huge market
for Canadian goods and services, evidenced by the growing presence of Canadian
companies in China. Export links to China have not been fully developed,
especially in the energy sector. Clearly future economic prosperity in Canada
depends critically on enlarging these economic ties.
The Bottom Line: Overall to date, Chinese direct foreign investment
in Canada has been very small. Stats Canada data for the end of 2008 put
Chinese FDI at just $2.75 billion. Canadian direct investment in China, on the
other hand, has been nearly $3.6 billion, almost 31% bigger. Two-way investment
and trade flows will grow rapidly in coming years, providing enormous
opportunity for Canadian businesses and, therefore, Canadian economic growth.
No longer can our export eggs be solely in the U.S. basket.
June 19, 2010 China Loosens Currency Peg In a surprise announcement on Saturday, the People’s Bank of China
(PBOC) announced it would break the 23-month fixed peg in the yuan MORE
June 18, 2010 Fed Easing Coming? The U.S. economy is losing momentum and price pressures continue to fall MORE
June 10, 2010 Err on the Side of Ease The move toward worldwide fiscal restraint runs the risk of weakening the economic recovery MORE
May 14, 2010 Global Credit Crisis Morphs Into a Global Debt Crisis With the onslaught of the credit crisis in the fall of 2008, every country in the G20 agreed to stimulate their economies by boosting government spending and/or cutting taxes MORE
April 23, 2010 U.S. Pessimism is Overblown There is just too much pessimism in and regarding the U.S. these days MORE
April 16, 2010 Productivity Gap Misleading The record productivity gap between Canada and the U.S. has generated much handwringing MORE
March 26, 2010 Health Care Reform Needed in Canada Ironically, while the U.S. is going through the excruciating process of developing a more broadly available health care system, Ontario is working to reduce government provisions to hospitals in an effort to balance the budget MORE
March 24, 2010 Fed Decision Making—Why New Appointments to the Fed Don’t Really Matter According to media reports, President Obama is poised to name economist Janet Yellen to be Vice Chair of the Federal Reserve Board MORE
March 23, 2010 Canada's Disturbing Productivity Performance The Canadian economy has clearly pulled out of recession with 5% growth in the fourth quarter and good momentum heading into this year MORE
March 12, 2010 The U.S. Foreclosure Crisis Without doubt, the U.S. economy is showing signs of significant recovery in many sectors and regions MORE
March 2, 2010 Canadian Calm in a Turbulent Sea Canada’s domestic economy has rebounded strongly from the financial crisis and global recession MORE
January 26, 2010 Don't Rock the Boat Now more than ever, the biggest risk to sustained recovery is the political response to the fallout of the financial crisis and its impact on consumer and business sentiment MORE
January 22, 2010 U.S. Labour's Lost Dynamism For a generation that was known for its job-hopping and entrepreneurial spirit, boomer kids—now in their twenties and thirties—are suffering from significant career malaise MORE
January 8, 2010 The End of the Bull Market in Bonds? Even the most bullish bond fund managers will admit that, in time, U.S. government bond yields will head higher MORE
December 9, 2009 The Tax-Free Savings Account Is a Real Winner In a surprise addition to the 2008 federal budget, the Tax-Free Savings Account (TFSA) was born MORE
December 8, 2009 The Clouds Really Are Parting The much-better-than-expected November employment numbers for Canada and the United States confirmed that the recession has ended and the recovery is underway MORE
December 4, 2009 China Scolds Western Leaders China has been flexing its muscles a lot lately MORE
November 13, 2009 Let's Cut a Deal The falling U.S. dollar is grabbing enough attention these days that the Chinese authorities are signalling they will consider allowing their currency to edge upward once again MORE
October 22, 2009 Sherry Cooper Takes Questions from the Globe and Mail Dr. Cooper joined a forum at the Globe and Mail’s web site to take your questions about small business and the recession. MORE
October 15, 2009 The U.S. Dollar’s Decline Is Not Such a Bad Thing Many have suggested that the fall in the U.S. dollar is reflective of the sad state of American economic affairs replete with surging budget deficits, profligate consumer spending, overleveraged banks, enormous current account deficits and an increasing reliance on foreign capital inflows to finance the overspending MORE
October 2, 2009 Remaking the Retirement Plan, Post-Crisis Well before the financial crisis and recession, the traditional concept of retirement was outmoded MORE
September 18, 2009 U.S. Job Woes: Canada 1990s Redux There is a new kind of unemployment in the U.S.—long duration structural unemployment MORE
September 11, 2009 Pain Not Over Yet By now, it is pretty obvious that the financial crisis is behind us and the global economy is experiencing a synchronized recovery MORE
September 9, 2009 Unbelievable An article in today’s Wall Street Journal highlighted the possibility of the Chinese Investment Corporation (CIC)—the sovereign wealth fund responsible for investing roughly $300 billion (and growing) of China’s foreign exchange reserves—investing in U.S. commercial real estate which is already down roughly 35% from its peak MORE
September 4, 2009 Who's Doing All of the Saving? Are households rebuilding their savings in the wake of the economic and financial collapse or is the rise in savings, measured as a residual in the national income accounts, merely a statistical illusion? MORE
August 28, 2009 Upward Revision in Q3 U.S. Growth We are revising upward our forecast for third quarter growth in the U.S. by
a full percentage point, from an estimated 2.8% to 3.8% MORE
August 21, 2009 An Irresistible Opportunity for Successful U.S. Fiscal Stimulus While everyone knows that the American consumer has been the weak link in
this recovery, in one sector the fiscal stimulus has opened consumer wallets MORE
August 17, 2009 Strengthening Canadian-Chinese Ties In the wake of the global recession and the plunge in the Canadian trade balance to a deficit position, Canada is working hard to strengthen business ties with Brazil, Russia, India and China, or the so-called BRIC countries MORE
August 12, 2009 As Expected, No Fed Policy Change The Fed is more optimistic about the economic outlook than it was in late June MORE
July 24, 2009 Pain Not Over Yet Since 2007, with the beginning of the U.S. housing meltdown and the ensuing financial crisis, there has been a global decline in private sector spending, a dramatic shrinkage in global trade and an unprecedented spike in government spending MORE
July 17, 2009 The Painful Process of Deleveraging The U.S. credit bubble in the 1990s through 2007 enabled a tremendous amount of consumer and business over-spending MORE
July 10, 2009 Let's Get Real Many fear that mounting deficits and debt will trigger inflation in the
future and call for a Fed exit strategy; others are now clamouring for
additional fiscal stimulus MORE
July 2, 2009 Employment and the Fed Those who have been calling for a Fed exit strategy from the extraordinary degree of monetary ease should be silenced by the June employment results MORE
June 8, 2009 Post-Crisis Withdrawal As financial markets heal, banks are shying away from government assistance, betting that they can rely fully on the markets to build capital positions MORE
June 5, 2009 Worst Is Behind Us Signs of improvement in the U.S. housing market, rising consumer confidence and a rally in financial stocks in the U.S. and Canada suggest that the economies are bottoming and the worst of the financial crisis is behind us MORE
May 28, 2009 Bet You Things Are Better Than You Think There is increasing reason to believe that the worst of the financial crisis is behind us and the U.S. and global economies are bottoming MORE
May 15, 2009 Running the Printing Presses to Fund the Deficit Many are concerned that, despite today’s very weak April CPI reading of ‑0.7% year-over-year, the huge monetary and fiscal stimulus in the U.S. will ultimately debase the currency MORE
May 3, 2009 Swine flu threatens to kick economies when they are down In the midst of the longest and perhaps deepest global recession in the postwar period, the last thing we need is rising protectionism, travel advisories and reduced business and consumer activity MORE
April 29, 2009 Fed Still Adding Juice Although the Fed announced no new initiatives today, clearly the tone of the
press release suggests that the Fed will continue to support previously
announced credit easing and expects to do so “for an extended
period” MORE
April 27, 2009 Swine Flu: Let's Not Get Carried Away My phone has been ringing off the hook this morning with media requests to discuss the economic implications of a swine flu pandemic MORE
April 24, 2009 Investing Is No Longer Child's Play The Bank of Canada made it clear this week that our economy is contracting far more than they earlier expected MORE
March 25, 2009 Future of Finance Conference The Who’s Who of finance descended upon Washington, D.C. Monday
for 24 hours of policy analysis MORE
March 18, 2009 More Good News Bernanke is the man, clearly the best spokesperson for the Obama
administration, raising his odds of reappointment this summer MORE
March 13, 2009 Finally, Some Good News No doubt about it, the Canadian employment nosedive in February is bad news, but it is bad news that is in lagged response to what has already been happening around the world MORE
March 11, 2009 More Signs of Hope Needed We are in a negative-news cycle, to say the least, and it is difficult to see a near-term end to it based on incoming data, heated policy debates and wealth-obliterating market activity MORE
February 27, 2009 A More Prudent Society It has now been publicized around the world just how strong our banking system is in Canada MORE
February 5, 2009 The Demonization of Banks The global financial landscape is changing rapidly and perhaps nowhere more
so than in the U.S. MORE
January 30, 2009 Can You Count on Dividends? In the U.S., the answer is certainly no. MORE
January 28, 2009 Fed Does Not Dispel Confusion The Federal Reserve just wrapped up its first policy meeting of the New Year MORE
January 27, 2009 The Advil Budget The 2009 Canadian budget is chock-full of government spending and
rather light on the side of tax cuts, but the truth is that domestic
fiscal stimulus can only ease the pain of the global recession and credit
crisis MORE
January 23, 2009 Deflationary Forces Accelerate Layoffs and reductions in hours worked have been accelerating in recent months and cover firms in virtually every sector of the U.S. economy. MORE
January 9, 2009 Recession Worsens The latest jobs data signal that the year-long U.S.
recession is worsening and the Canadian recession is moving in with full
force MORE
December 18, 2008 One Major Lesson One major lesson learned in 2008 is that financial losses spill quickly into
the real economy MORE
December 16, 2008 Fed Slashes Rate to 0-to-25 bps Range; Historic Use of Fed Balance Sheet to Ease The Federal Reserve has every reason to ease aggressively and it certainly did MORE
December 5, 2008 Forget Old-Time Fiscal Stimulus With today's dismal employment report, there is no doubt that the Canadian economy is in recession and the U.S. contraction is accelerating MORE
December 3, 2008 Tough Times, Aggressive Actions There is growing evidence that the global economic slump is deepening and that consumer and business access to credit is shrinking. MORE
November 21, 2008 Urgent Action Needed Canadians have been far too sanguine thinking that we would be cushioned
from the crisis in credit and the global recession MORE
November 15, 2008 GM Bailout - Part 2 Yesterday, in a note to clients, I acknowledged that there are two sides to
the GM-bailout controversy MORE
November 14, 2008 Should the U.S. Government Bail Out GM? Washington is currently struggling with the issue of whether or not to bail
out the domestic auto industry, most immediately, GM. MORE
November 6, 2008 Recession Darkens With the U.S. election behind us, markets are focussed on the serious
negative impact the financial crisis had on the economy since late September MORE
November 5, 2008 National Catharsis President-elect Barack Obama has won a decisive victory, drawing support
from all regions of the country and all segments of the population MORE
October 16, 2008 The Consumer Recession The sizable decline in stocks in the past two days reflects the growing
awareness that the U.S. economy is going into a deeper and more protracted
recession than expected MORE
October 10, 2008 Paulson and the G-7 Do the Right Thing U.S. Treasury Secretary Hank Paulson just announced that the TARP would be
buying not only troubled bank assets, but will also infuse capital into banks
and other financial firms directly MORE
October 10, 2008 More Action-Crisis Intensifies All overnight indicators suggest that the crisis is intensifying despite ballooning rescue efforts by governments all over the world MORE
October 9, 2008 The Wealthy Boomer interviews Sherry Cooper Jonathan Chevreau of the National Post interviews Sherry Cooper on her book, The New Retirement. MORE
October 8, 2008 Global Rate Cuts... Finally! In the face of intensifying financial market turmoil, major global central banks swooped in this morning with an unprecedented coordinated interest rate cut. MORE
October 7, 2008 Unbelievable Complexity The Fed and Treasury will do whatever it takes to unfreeze credit markets. MORE
October 1, 2008 Quarterly Web Cast and Dividend Stock Screen Sherry's latest web cast, and the latest update of the dividend stock screen featured in Sherry Cooper's book, The New RetirementMORE
September 26, 2008 Economists Weigh In There is nothing I could write at this moment that might not be superseded by events in the next few hours. MORE
September 19, 2008 Stock Market Applauds U.S. Government Plan What a week this has been. MORE
September 16, 2008 No Rate Change, Easing Bias In a unanimous decision, policymakers did not cut the benchmark fed funds rate, despite the market’s call for an easing move. MORE
September 15, 2008 Fed Widens Collateral Judging from my press calls early this morning, there appears to be a good deal of opacity in what the Fed has said regarding a broadening of the collateral it is willing to hold on short-term emergency loans to primary dealers. MORE
September 14, 2008 Wild Day Tomorrow Unfortunately, as of 4:00 p.m. today (Sunday) the news on an orderly takeover of Lehman Brothers does not look good. MORE
September 11, 2008 Recovery Still a Year Away With continued financial instability and the deceleration in global growth, Canada's economy has slowed and the TSX has fallen sharply on the heels of commodity price declines. MORE
August 29, 2008 The New Cold War Russia began the latest flexing of its political and economic muscles as China, with the Beijing Olympics, was about to begin its triumphant coming out party. MORE
August 22, 2008 Hedge Funds Face Shock Waves Things are tough and getting tougher in the hedge fund (HF) business. MORE
August 7, 2008 Fed Policy Tighter than Normal at 2% Fed Funds While the Fed decided to leave its benchmark interest rate at 2% this week, well below the level suggested by the Taylor Rule, credit conditions in the U.S. are much tighter than this rate would suggest. MORE
August 1, 2008 Obama Just Found His Middle-America Appeal With Obama still running behind McCain in the industrial heartland, among both male and female voters in states such as Pennsylvania, Ohio and West Virginia, news widely reported today that Wal-Mart has formally and officially informed managers that a vote for the Democrats is a vote for unionization will not sit well with America’s traditional middle class MORE
July 18, 2008 A Global Presidential Campaign What better evidence is there that globalization is real and permanent than the foreign trips of both presidential candidates? MORE
July 15, 2008 Crisis Widens The U.S. financial markets and the U.S. economy are in crisis and the ramifications for the rest of the world are enormous MORE
July 7, 2008 Next Shock: Currency Crisis? The malaise of the U.S. economy is palpable MORE
