Federal election debate: Harper’s big bet on the Chinese economy

Tonight’s election debate on the economy takes place against the backdrop of the hard-hit resource sector.

Ideally, the debate would touch on how, in September 2014, the Harper government made a big — and thus far spectacularly bad — bet on China.

In 2014 the government gave China a long-term investment treaty (aka the Canada-China FIPA, for Foreign Investment Promotion and Protection Agreement) that is clearly lopsided in favour of China. In exchange, the government presumably got positive signals that China would buy and invest in Canadian resources.

Since the bet was made, resource prices have plummeted and the Chinese economy is in crisis. Chinese demand for Canadian resources has declined, not grown. The bet will not pay off for some time, if ever.

Meanwhile, Canada is now locked in to a lopsided FIPA for a remarkably long and anti-democratic 15-year minimum term. After that, Canada must give one year’s notice to get out of the deal and then wait out the FIPA’s 15-year survival clause.

In other words, the government’s give to China was written in the legal equivalent of 31-year cement, while China’s give to Canada was written in sand just before the tide came in.

Why is the Canada-China FIPA lopsided? Here are a few examples.

Incredibly, the Harper government gave Chinese investors a general right to buy what they want in Canada’s economy without getting the same right for Canadian investors in China. I had never before seen that lopsidedness across hundreds of investment treaties.

The government also exposed Canadian taxpayers to much greater risks of liability — in Chinese investors’ arbitration claims for compensation against Canada — due to the larger volume of Chinese asset ownership in Canada than vice versa.

The government even kept for itself a unique right to keep any costly settlements between the government and Chinese companies entirely secret, where the government decides that secrecy is “in the public interest”.

The FIPA is not all negative for Canada but in striking respects it clearly favours China. China’s handsome take from the deal — basically, a playing field that is tilted in its favour — remains in place for decades.

Why would the government do a lopsided deal?

After examining the public record on the Harper government’s approach to China, I concluded the most logical explanation was that China promised to support Canada’s resource sector, especially the oil sands.

Then, in the months after the Harper government finalized the FIPA in September 2014, the price of oil collapsed. To illustrate, the WTI oil price fell from around $95 in the month before the FIPA’s finalization to around $50 four months later — currently the price sits in the high $40s.

More recently, the Chinese economy has been battered as its stock market and real estate bubbles begin to burst, driving a further decline in global demand for resources.

For anyone interested in the Harper government’s bet on China — and what a future government can do to mitigate Canada’s losses — please see my book, Sold Down the Yangtze, published by Lorimer last month. You can get it in bookstores or online here.