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Junior Team Canada Trade Mission to China 2014

Mission Report

 Junior  Team  Canada  2014  at  the  Great  Wall  of  China

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The Path to Leadership

A Statement of Mission, Vision, and Values.

We will champion the enterprising spirit of young Canadians in the promotion of Canadian industry and culture, as we receive

recognition as a major force in the global marketplace.

Inspired by this irrepressible drive to become world-class, we will provide access to national and global networks for young Canadians to acquire the international development, trade and

cross-cultural experience to become the next leaders of Canada.

Grounded in the enduring principles of integrity, compassion and mutual respect in everything we say or do, we will touch the hearts and minds of Canadians in communities across the land.

       

 

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Executive Summary:

On July 28th, 2014, Global Vision and 27 of the country’s finest young leaders departed Canada for a four-city, fifteen day Junior Team Canada trade mission to the People’s Republic of China to promote bilateral trade and people-to-people ties between the two countries. On the heels of Minister of International Trade Ed Fast’s trade mission to China in May, Junior Team Canada supported the government’s Global Markets Action Plan by engaging Chinese industry, government and civil society leaders to market Canada’s strengths and identify business opportunities for partner-enterprises back home.

In addition to completing individual mandates provided by their Canadian partners, JTC focused on researching the Government of Canada’s priority opportunity industries in the Chinese marketplace: Agriculture, Education, Environmental Remediation, Manufacturing and Natural Resources. The team gathered market intelligence and initiated relationships with key stakeholders in Beijing, Chengdu, Guangzhou and Hong Kong.

Starting with our meeting with Minister of Foreign Affairs John Baird and Chinese industry leaders in Beijing, Junior Team Canada 2014 established a truly Golden Rolodex in China which opened new doors for Canadian enterprises, resulting in real partnerships. In this report you will find on-the-ground market intelligence gathered, business opportunities identified, and a Golden Rolodex of key contacts for any organization or individual looking to break into the world’s fastest growing economy: China.

 Junior  Team  Canada  in  Beijing  with  Minister  of  Foreign  Affairs  John  Affairs

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Contents:

Executive Summary………………………………………….. 2 Report Agriculture………………………………………………. 5 Culture & Business Etiquette……………………….. 8

Education………………………………………………… 10 Environmental Remediation……………………….. 15 Healthcare……………………………………………….. 18

Manufacturing…………………………………………. 20 Natural Resources…………………………………….. 24 Non-Profit………………………………………………... 27

Our Partners……………………………………………………. 28

Golden Rolodex…………………………………… Appendix A.

 JTC  with  Consular  General  David  Perdue  in  Chengdu  (on  Mr.  Perdue’s  first  day  on  the  job)

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Agriculture:

Fifty-five years ago, China experienced a famine that lasted for three years. Between 1959 and 1961 about fifteen million people died due to the extent of the food shortage that swept the country. This event initiated the implementation of many food import partnerships around the world and a Canada-China food trade relationship was established at that time. Canada, a country that is blessed with vast fields of wheat, sent aid to China and that friendly gesture served as the foundation for a future trade relationship between both parties which has grown exponentially. Last year alone, the total amount of exported agri-food goods to China was over 5 million dollars. SUSTAINABILITY & EFFICIENCY

Due to China’s history and their massive population of $1.3 billion people, Chinese farmers strive to maximize their yields. Many Chinese farms are operated in a sustainable manner in an effort to boost efficiency and find methods that will improve food safety and quality. On average, each farmer tends one acre of land while Canadian farmers own up to one thousand acres of land.

One of the sustainable methods used in the organic farms is planting crops

vertically in order to maximize harvest. Crops such as eggplants greatly benefit from this style as it permits exponential growth. With intense competition for space, farmers use up all the land that is available. It is not uncommon for a farmer’s dwelling to be a few feet away from their livestock (mostly pigs) and their crops. The crops, unlike that of Canadian farms, are of a wide range and variety on a single one-acre farm. From horseradish, to green onions and peppers, Chinese farms are more or less a mosaic of various types of food. This system is called permaculture, which became widely used in the 1970s. It is the exact opposite of monoculture, the method most Canadian farmer's use, where only one type of crop is grown in the same field in mass proportion.

In terms of equipment and machinery, the Chinese farms are still very traditional

in operation. It is a norm for harvesting to be done by manpower as well as weeding, watering and seeding. At the organic farms we visited, we noticed the food that is not consumed was gathered into a gas pool or a compost pile. The gas that is extrapolated is then used to fuel the cooking stove and the compost pile is used as a natural fertilizer to nourish the soil. Furthermore, dried bamboo and canola are used as kindling, rendering the functioning aspect of the farm even more ecologically friendly.

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Opportunities

With many existing technical issues in China’s agriculture sector, there are several opportunities available to Canadian enterprises. In fact, the Chinese government has made agriculture one of the main federal policy priorities as food safety continues to be an issue of concern. In addition, the Canadian Trade Commissioner Service has listed agriculture as a priority opportunity industry for China. Listed below are some pressing issues Chinese agriculture faces that presents opportunities for Canadian firms in this industry:

1. In Chengdu, 30% of the landscape is mountainous terrain. This terrain causes

transportation problems for local farmers who need to harvest their crops and get them to market. By developing farm and transportation equipment suitable for this terrain, Canadian companies could gain by selling this equipment to Chinese farmers as well as government agencies dedicated to the agricultural sector.

2. Air pollution and wastewater management is a national issue that the Chinese

government is combating. The Canadian clean technology industry is growing and gaining an internationally recognized reputation. These issues have a direct effect on the agriculture industry and Canadian clean-tech firms have a growing opportunity to fill this demand with their innovative products.

3. Although China aims to be independent in their production of food in the future,

food safety and food security is of great concern and China will continue to rely on international imports to fulfil domestic demand. This will continue to be an opportunity for Canadian food and seed exporters for the foreseeable future.

4. The expansion of the middle class and rising incomes is fostering a higher

demand for luxury goods; for example, organic foods. In this area, many Canadian businesses that sell higher-end, value-added food items such as maple syrup and organically grown fruits and vegetables have an opportunity to position their products in this market.

Learning  about  growing  grains  at  a  farm  in  Chengdu

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Conclusion:

In the years to come, the Chinese will face a major problem: The City Rush. The average salary of a farmer is almost 3x less compared to a citizen who resides in one of China's major cities. Who will take care of the farms? Will this cause the farmers who are left to acquire more landmass? If so, will China eventually convert its current permaculture farm practice to a monoculture one? As the Chinese government places more emphasis on innovation and technology, there are vast opportunities that the Canadian agriculture industry can grasp in order to meet China’s challenge and support prosperous bilateral trade ties.

 Junior  Team  Canada  at  a  sustainable  farm  in  Chengdu

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Culture and Business Etiquette The basic necessity to understanding the rich culture of China begins with the monogram characters and Putonghua. It is believed that language is the basis of culture; if there is no basis of communication, there is no culture. Mastering the experience of living in places like Chengdu, Beijing or Hong Kong, requires learning their native language. Each character written in Mandarin displays a picture. For example, the character of mountain is shaped like three hills. By being able to speak with Chinese people in their own language, one can establish a strong understanding of their culture.

When dealing with business or the economy, there are several components to Chinese customs and mannerisms. Instead of working independently, the Chinese business people focus on unification. They think as a team, and provide benchmarking results based on their efforts altogether. Unlike North American culture where a CEO or Manager would distribute tasks to individuals, the Chinese management team focuses on collectively working as a team, while depending on one another to successfully boost company success. If sales suffer, it becomes a company problem rather than an individual’s fault.

 The  People’s  Statue  in  Tiananmen  Square

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 Local  dishes  in  a  market  in  Chengdu

Employee attitudes have a significant impact on the prosperity of a company. The attitude spectrum runs between the priority of personal life and professional life. The average Canadian working attitude revolves around working to increase their personal standard of living. Generally speaking, motivation for Canadians comes through individual benefits, rather than company revenues. However in China the opposite is true. Generally speaking, in China they prioritize work over their personal life. If a product is imperfect, it is common for Chinese workers to stay overnight to fix the issue. Furthermore, when workers produce ineffective products, they feel ashamed and humiliated for letting down the company and their colleagues. It is customary for workers to be extremely loyal and respectful to authority figures at all times. The greatest cultural difference between the Canadians and Chinese is directness and indirectness. Generally, the ideal way to communicate in Canada is to speak directly about an issue face to face. Furthermore, communicating verbally is the dominative method rather than body language. However, the Chinese culture revolves around speaking indirectly and hinting at an issue. Words are not as trusted as much as cues, pauses, body movements and facial expressions to indicate an opinion. Some have attributed this reliance on body language and nonverbal cues to the multitude of languages and dialects spoken and used for business in the Asian region. Often the beginning of a business relationship will require several meetings and/or social outings before issues are directly discussed. In addition to the directness of a conversation, when discussion of new business arises in China it is customary that it is done over a meal. In Chengdu for example, it is tradition to discuss a new partnership or talk business while eating the region’s traditional dish: spicy hotpot. In Beijing negotiations rarely take place in the boardroom but rather in a restaurant or a bar. It is rarely done in the office. In China, it is crucial to develop relationships, even friendships, with business partners. Trust in a business partner is often more important than a more lucrative deal for the Chinese.

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Education

With over 700 000 students choosing to study abroad each year, China currently leads the world as the top market for international student recruitment. Economists predict the number of Chinese studying internationally to increase over the foreseeable future with some estimating the number to grow as much as 20% per year over the next three years. Canada’s share of international students from China has grown steadily with an estimated 56 900 Chinese international students in a Canadian secondary, university or trade school in 2012. However Canada’s proportion of Chinese international students still lags behind other OECD countries such as Australia, the United Kingdom and the United States.

The Government of Canada has made the recruitment of international students a priority, pledging to double the number by 2020 through strategic recruitment in “priority markets”- one of which is China. On our mission, Junior Team Canada’s supported the government’s international recruitment initiative in China by partnering with Canadian universities, colleges and high schools to make the case to study in Canada in discussions and presentations with Chinese students, school officials and international recruitment agencies.

JTC took the initiative to connect with international recruiters and schools in the cities we visited in China. Specifically, we wanted to obtain knowledge about the international student market. Acknowledging the importance of building good “guanxi” (relationships), we strived to foster meaningful relationships with the stakeholders we met in hopes of establishing partnerships in the near future. In all, we sought out recruitment firms and international schools through networking and in-person meetings.

 

JTC  Education  Team  with  Ms.  YoYo,  Summer  Coordinator  at  Humei  Bond  International  School

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Key Opportunities:

Through meetings and engagements with partners listed below, we discussed opportunities for student recruitment and collaboration for our Canadian education partners. Key findings included:

Education Expos: The China Education Expo is the largest gathering of international educational institutions in China. The Beijing Expo brings the largest crowd, and also has the largest presence from Canadian Schools. During our discussions with Consul-General David Purdue, he emphasized that although 70+ Canadian institutions are present for the Beijing Expo, less than 10 have booths in the other fairs. Major city centers like Guangzhou, which draws a large crowd to the Expo, and emerging cities like Chengdu, where an increasing number of students are looking to study abroad, are cities that are often overlooked but hold great opportunities for international student recruitment.

Focusing Locally: A majority of long-term opportunities exist in the second and third tier cities. A majority of the schools (90%+) are under the purview of the local governments, which therefore makes selecting the right regions crucial to an institution’s strategic recruitment and brand development. Institutions should focus resources on contacting specific schools (i.e. Canadian Curriculum Schools) within a region or province in order to maximize return on investment. Energy focused on specific schools allows for school guidance counselors and teachers to become familiar with the Canadian institution and keep it top-of-mind for promotion for multiple years.

EAP Programs: Education Abroad Programs are a great way to provide a sense of comfort, knowledge and home for students who are looking to study in international markets. International education can be tough on students and their families. Beyond the distance factor, they also have a language barrier to face. EAP programs establish an environment where students are able to learn, experience and develop relationships with other students in similar situations.

Challenges:

Education Permit: This remains one of the, if not the, largest barrier for Chinese students to enter the Canadian education market. Canada requires 12 months of financial history in order to apply for the permit whereas other competitors such as the United Kingdom only require 3 months and no financial history required for Australia. In a market where every detail may be a competitive advantage, requiring 12 months of financial history seems to be limiting the number of international applications to Canadian institutions. Promoting new programs for students to

Promoting  Bishop’s  University  at  Humei  Bond  International  School  in  Guangzhou

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alleviate this problem, such as the purchase of a $10 000 GIC from the China Construction Bank, is necessary to encourage more students to study in Canada.

Maclean’s Rankings: These rankings are the first -and most important- aspect Chinese parents and students look towards when selecting universities in Canada. While speaking about the importance of Maclean’s University Rankings to education representatives such as the Dragon Horse Education Group and a guidance counselor from the Sino-Bright School, it was evident that no other rankings had as much weight if they are used at all. They also explained that it was very difficult to promote a Canadian school with a poor ranking from Maclean’s. Maclean’s Rankings are crucial when it comes to attracting students from China and their importance cannot be trivialized.

Changing Regulations: Canadian regulations regarding exchange students have changed numerous times over the previous years. While there may be many reasons for this, it is hurting Canadian university recruitment efforts. Education professionals mentioned how many recruitment agencies no longer suggest studying abroad in Canada as they either can’t keep up with the changes or fear that the regulations will change while they are working with a student. This “instability” in procedures has had a negative impact on the image of studying abroad in Canada.

Meetings with Key Sector Stakeholders in Beijing and Chengdu

International Centre for English Academic Preparation

ICEAP prepares Chinese students for international English schools through EAP courses. They have strategically partnered with many institutions in Canada, such as Bishop’s University, University of Prince Edward Island and Cape Breton University, and are looking to send more students to other Canadian institutions, primarily in the eastern provinces of Ontario and Quebec. Currently they indirectly recruit close to 500 students to Canada each year.

Canadian University Application Centre

The Canadian University Application Centre (CUAC) works with many top Canadian institutions to facilitate and encourage international applicants into Canadian schools. They operate in many countries, with several offices in India, Malaysia, Indonesia among others. The uniqueness of the CUAC is the additional services they provide to applicants, such as cultural mentorship, career advising and computer access. They pride themselves on being the “one-stop-shop” for Chinese applicants to Canadian schools. They are exploring opportunities to work with Canadian high schools, as the demand from Chinese parents to send their children abroad for an international education continues to expand younger ages.

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Canadian Trade Commissioner Service

Peter Liao is an expert in education at the Canadian Consulate General in Chongqing. Mr. Liao is responsible for promoting Canadian education, life sciences and science and technology in the Southwestern Chinese provinces of Chongqing, Sichuan, Yunnan and Guizhou. Throughout our meeting he discussed the importance of streamlining the application process for international students. Specifically, he mentioned the recent changes in financial criteria for international students that will simplify international student applications. Under the previous structure of the application process all applicants were required to demonstrate financial means over a period of twelve months to pay for one year’s tuition via a savings or checking account before acquiring a study permit from the Government of Canada. This demonstration was difficult for many and impossible for some due to their need for cash for day-to-day expenses and a preference for holding their assets in less liquid forms. A new program to increase demand for Canadian study permits allows students who purchase a $10,000 GIC from the China Construction Bank to use that as sufficient financial means proof. Further details regarding the requirements for a study permit can be found here: http://www.cic.gc.ca/english/study/study.asp.

Kenneth Wong is the Counselor for Education at the Trade Commissioner Service in Beijing. Wong has oversight over all major education directed programs with a special focus on international recruitment and development. Wong discussed the different challenges that schools face while attempting to directly recruit at local schools, one of many being that most Canadian universities simply don’t have a large enough brand presence. Specifically he mentioned the priorities currently set by a majority of Canadian education systems have been only in a small section of the overall Chinese market.

Chengdu International Institute of Education

The Chengdu International Institute of Education is focused on fostering international citizens by providing private foreign language education in China. This is a market that has developed rapidly, due to the emphasis of a quality English education in Chinese households. Through our conversations, we learned that private investment is highly encouraged in non-core education sectors. This includes student summer camps, and pre-school education, and in this case - language training. This market is undergoing rapid development in China to meet the huge demand for higher education, which public universities cannot currently meet. However, the quality of private institutions varies, and its market share still cannot be compared with developed countries.

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Beijing Language and Cultural University

A Junior Team Canada delegation focused on the education sector visited the Beijing Language and Cultural University to meet with local Chinese students. During the visit, we discussed the differences between the Canadian and Chinese education systems. During this enlightening experience, Chinese students shared components of their education and culture that better allowed us to understand the perspective of international students. Questions were directed towards the opportunity to attend Canadian institutions for research, exchange, or an additional degree. This meeting proved to be an enlightening experience for our team, and we hope to convey their questions and attention to our respective education sponsors.

Humai-Bond International School

The education team had an opportunity to visit the Humai-Bond International School in Guangzhou and represent our education sponsors in a multimedia presentation to their students. During our time there we were fortunate to have a chance to learn about what programs and courses students were interested in. We found that students were primarily interested in pursuing studies in business, engineering, computer science, natural sciences (physics, chemistry and biology). The timing of recruitment activities is key to the success of an institutions’ ability to capture students. At the Humai-Bond International School we found that students between Grades 10 and 11 are primed to be approached by Canadian institutions. This will allow the students to further gather information about the institute, prepare for examinations, and also prepare for the international experience.

 

JTC  with  representatives  from  the  Canadian  University  Application  Centre  in  Beijing

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Environmental Remediation: During the Junior Team Canada (JTC) Trade Mission 2014 to China, JTC ambassadors learned firsthand about the significance of environmental sustainability, particularly at an office visit to McKinsey & Company in Beijing. The following information was obtained through the McKinsey office visit, research findings and knowledge acquired from other meetings and briefings. As China continues to take the world stage it will need to ensure that it has the energy resources to fuel its growth. At the same time solutions to mitigate the impact on the environment without comprising its economic development goals and living standards of its people is a top priority for the federal government.

Environmental sustainability with a focus on urban development in China is an important issue that will continue to have long term economic, resource and social impacts. As the world’s second largest economy as well as the most populous nation, China faces great stresses on its resources and environment The tremendous double-digit yearly rise in its economy does have a downside, and that is the toll on China’s fragile environment.

China’s unsustainable greenhouse gas emissions can be most notably seen in cities such as the capital, Beijing. An investigation on the issue including best practices to combat was undertaken through a detailed research project organized by The Urban China Initiative working through a joint partnership with McKinsey, Tsinghua University and Columbia University.

The Pressing Issue

Through extensive research it was found that in Beijing, the air pollution (level of SO2 emissions) is on average twenty times the emissions of other major world cities. The humid temperatures and smog are concrete examples of this environmental degradation that is impacting modern China. When comparing Guangzhou to Beijing in regards to air pollution for example, Guangzhou fairs better. However, this is somewhat counterintuitive as Guangzhou is located in the manufacturing hub of the country. The primary explanation for this is that the geographical position of Guangzhou is further south and nearer the ocean than Beijing, where smog is less easily trapped than in the North.

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Solutions – 4 Critical Steps

Through the extensive research, potential solutions to a more sustainable China were found. These include:

1. Replacing Coal with Clean Energy Sources

The investment and deployment of clean energy technologies into wind, solar and nuclear technology is potentially one of the most important solutions to the pressing issue. Clean energy technologies will require considerate investment ranging close to 200 billion on a yearly basis and incremental investment that could reach 50 billion. There are social issues that need to be considered as well with clean energy such as employment dislocation, government administration costs, information and transaction costs.

2. Adopting Electric Vehicles

Transportation is a massive source of China’s greenhouse gas emissions. A plausible solution to combat the large increase of greenhouse gas emissions due to vehicles in China would be widespread access to electric vehicles. Although in many cases electric vehicles are more expensive at face value they can greatly help with reducing emissions and provide greater fuel savings over time. China has a proven success in rechargeable battery technology and if more drivers in China adopt electric or energy efficient vehicles it would have a significant impact on emissions.

3. Managing Waste in High-Emission Industries

Much of China’s air and water pollution is caused from insufficient physical and wastewater management systems. It is imperative that in high emission industries more innovative waste-management techniques are explored and government and industry have made a concentrated joint-commitment to implement more sustainable waste management systems nationwide.

4. Designing Energy Efficient Buildings

China has undergone one of the biggest building booms in the history of all mankind. The scale of infrastructure that has been built over the past decade is tremendous. With a rising middle class and standard of living, consumers have begun to demand larger living and work spaces. With the anticipated arrival of millions more people into coastal cities, China will require even more rapid urbanization. Energy efficient designs in newly-constructed buildings is also a priority China. Buildings that are designed environmentally sustainable with efficient ventilation and lighting systems is a step that China is beginning to implement and plans to get more aggressive on.

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Conclusion

As China continues to urbanize and expand at this unprecedented rate the population found in urban centers will cross well beyond 50 percent of the total population soon. Market analysts predict that close to 350 million individuals will be migrating from the country and rural cities to major coastal urbanized cities in China over the next 15 years. While this urban migration must be accommodated, China has explicitly stated it plans to so keeping environmental sustainability top of mind for new infrastructure projects. Opportunities for Canadian firms to help fill the gap between growth and sustainability are countless. By supplying China with products that address this challenge (environmentally sustainable engineering systems, wastewater management solutions and alternative energy to coal such as natural gas, wind and solar), Canadian firms can use their ingenuity to help address China’s sustainability problem, whose outcome will have a global impact, while they enhance their brand in this growing market and provide employment and prosperity back home.

 Smog  outside  of  the  McKinsey  &  Co  Office  in  Beijing

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Healthcare: A healthy population is a nation’s greatest resource. It is crucial that China, with a population of 1.3 billion, has a health care system in place to promote wellbeing and thus aid productivity, contributing to economic stability. China’s current system is a two-tier one composed of both public and private hospitals. Healthcare Reforms Expensive privately owned hospitals are used almost exclusively by the wealthy Chinese and ex-patriots, whereas state owned hospitals are used by the majority of the Chinese population. The result means that utilizing public hospitals, serving millions of people, often involve lengthy wait times. Unlike Canada, the costs associated with hospital admittance are not completely covered by the Chinese government. The government covers a portion of the cost. Initially, a form of insurance was put in place to cover 20-30 percent of medical costs for the uninsured population. China’s one child policy, mandated in 1979 coupled with China’s aging population is creating financial stress on many younger Chinese families. This “4-2-1 problem”, a result of China’s tradition of elders being supported by their children and grandchildren, has made it very difficult for the younger generation in single-child homes where the young adult may find themselves solely responsible for the cost of obtaining medical services for their parents and grandparents while providing for their own young families. Every five years, China’s central government creates a five year plan for their social and economic development initiatives. China’s 12th five-year plan outlines reforms to improve health care coverage and access. This includes an increase in subsidies for the New Rural Cooperative Programme and the Urban Employee and Urban Resident Basic Medical Insurance Programme. Traditional Chinese Medicine In terms of treatment methods, China’s health care system is based on the integration of traditional Chinese medicine and western medicine. Traditional medicine includes various plants and herbs like elderberries, Sichuan peppers, and chili peppers as well as alternative therapies such as acupuncture and cupping Privately owned businesses generally employ Chinese medicine solutions. Physicians in the public hospitals often prescribe both types of medication, depending on the ailment. Although most Chinese people value their traditional way of therapy, western medicine can produce more immediate results that is often interpreted as more effective. However, it is common for physicians in China to rely on western medicine to treat serious illnesses quickly, and enhance therapy with natural, Chinese remedies. At home, Chinese people typically rely on traditional therapies for minor ailments.

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Opportunities

The differences in healthcare practice and each nation’s expertise create opportunities for Canadian companies.

1. Healthcare is one of the four sectors of focus for Export Development Canada (EDC) within China. The opportunities highlighted within this sector by EDC include the development and sales of Canadian technology and medical equipment to China and the design of hospitals by Canadian companies.

2. Canada could learn from China about the use of traditional Chinese medicine

today and how the use of natural remedies combined with Western medicine can enhance the wellbeing of a population.

3. Canadian companies could provide consultation services about western

medicine to practicing traditional Chinese medicine physicians.

4. Canada’s education system continues to have a positive international

reputation. Canadian universities can entice students from China to apply for their healthcare professional programs as Western medicine and techniques become more widely used in China.

Conclusion Over 5,000 years, China has formed a deep understanding of their healing methods and has proven the benefits through positive outcomes. Since Canada’s system is based on western medicine, providing health care is another opportunity for the development of a mutually beneficial trade relationship through the exchange of expertise from both parties. This enhances the potential to make improvements in the system to provide optimal care for patients in both countries in sustainable, economically beneficial ways.

Meeting  with  a  Canadian  Trade  Commissioner  in  Hong  Kong

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Manufacturing: Market Trends: Increasing Labor Costs Manufacturing in China is facing a shift. This shift can be seen in an increase in labor costs in coastal cities such as Beijing. As one of the main Chinese competitive advantages in coastal cities evaporates, the result is a manufacturing industry moving deeper into Mainland China and abroad to other countries. In April 2011, the Chinese Association for Automation and Chengdu’s municipal government organized the China Seminar and International Exposition on Automation and Instrumentation with more than 200 business chiefs in the industry in attendance. This type of event with widespread participation from industry in a city like Chengdu would have been unheard of only a few years prior. The shift is slowly putting an end to the first-mover advantage present in inner China in cities such as Chengdu. The change in human capital is also leading to a greater automation in the manufacturing process. With such cities facing tremendous growth and an increase in purchasing power, the attraction to move to these mainland cities that have less competition than the costal megalopolises is growing.

Environmental Regulation   Environmental regulations are starting to shape the Chinese manufacturing landscape. Mixnin Pei, Professor of Government at Claremont Mckenna College, states in his articles that China spends about $91 billion or 1.3% of its GDP each year enforcing environmental regulations. With an increasing number of environmental regulations, low cost production is threatened and high-polluting industries are forced out of major urban centers. In 2007, the World Bank produced a report estimating the cost of pollution in China in terms of its GDP to be at 5.8%. These costs are generated from health care costs, premature deaths and material damages. The report also notes that on average, 700,000 citizens lose their lives each year due to pollution. With a growing concern for not only public health but also for China’s economy, swift actions need to be taken in order to halt this enormous problem. The policy response to address these problems will surely continue to affect the Chinese manufacturing industry.

A  factory  worker  at  Canadian-­‐owned  Komaspec  Manufacturing  in  Guangzhou

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Intellectual Property Rights

Intellectual property rights (IPR) protection is also increasingly problematic as China attempts to change its economy to an added-value economy. Indeed, intellectual property rights continue to be the top concern for Canadian manufacturing firms looking to move into the Chinese market. With the inconsistent IP laws/regulations coupled with a weak dispute resolution mechanism, Canadian firms looking to move their intellectual property into China may face the unavoidable fact that their design or product will be replicated.

As Junior Team Canada discovered through an Embassy briefing, Canadians have a much lower risk tolerance than most when it come to this touchy topic. Kirk Barlow, an agricultural consultant in Beijing and former KPMG analyst, noted, “If you’re worried about your IP being stolen in China, then don't come. It will get stolen, replicated and sold. This is inevitable.” As an experienced entrepreneur also looking to move his product throughout China, this is one of his primary hurdles.

However, Canadian firms can mitigate the risk of IPR theft by partnering with a third party Chinese manufacturer and by consistently innovating their technology. Additionally, the Canadian Trade Commissioner Service in Hong Kong recommends firms involved in this industry in China set up a small office base in Hong Kong and sign all legal partnership and patent documents there as they are more easily enforceable in Hong Kong’s common law legal system where the judicial process moves more quickly than even in Canada.

Industry Opportunities

Automobile Industry in Chengdu In Chengdu and the surrounding region, the manufacturing sector has been focused on the automobile industry specifically. As Mr. David Perdue, Canada’s newly appointed Consular-General for the region, mentioned at a meeting with Global Vision in Chengdu, the Sichuan province was the third most important area in China for automobile manufacturing. According to a report from the Canadian Delegates Service, the annual growth of the automobile industry in this region has reached 20% since 2010.

Working with Manufacturers in Beijing and Chengdu

Finding a contract manufacturer in China can be daunting. In our meetings with manufacturers throughout Beijing, Chengdu and Guangzhou we discovered some key information that Canadian enterprises should keep top-of-mind when doing business in this market. First, accurate prototyping can be a challenge. If a company says that they can produce a certain product, ensure that they prove it by making multiple, high-quality prototypes. Many manufacturers value speed and volume over quality. It must be communicated clearly that quality is valued above all else. With regards to negotiating payment terms, Canadians should be aggressive. For instance, it is recommended that 50-75% payment should not be given until after the goods have been delivered. Rather a deposit of 30-50% is adequate to demonstrate commitment to the manufacturer.

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Insights from Visit with Komaspec Manufacturing in GuangZhou Junior Team Canada had the opportunity to visit a Canadian-owned manufacturing firm in Guangzhou during our stay. Komaspec, owned and operated by Québec entrepreneur Maxime Bérubé, manufactures a wide variety of products ranging from pressure washers to high-end bike carriers. He explains that Komaspec has been successful as a “Tier 2” company focusing on manufacturing assembly and sub-assembly; the long term goal however, is to become a product design and manufacturer. During our visit, the team was introduced to the numerous components required to run a successful manufacturing firm and the challenges an entrepreneur will face:

Strategy

• Vertical integration and in-house part manufacturing.

• Organizing a one-piece flow manufacturing & assembly line (otherwise know as lean manufacturing).

• Companies must invest in technology.

• OEM manufacturing integrator.

Challenges

- Strategy and planning.

- Language and culture.

- Difficulty for SME’s to get financing.

- Grey legal and regulatory system.

- Realistic goals and having the capability to execute.

- Difficulty acquiring executive level staff.

- Lack of mentorship for North Americans.

Manufactures enticed to relocate to China or entrepreneurs desiring to start-up in the country may be blessed with lesser regulations, large numbers of suppliers leading to lower-costs and a growing middle-class market. However, they must face the obstacles of obtaining financing which is practically unavailable to foreign companies in China, tackle the challenges of recruiting middle-management staff or training them in-house as well as deal with a shady legal system.

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While the current federal government is attempting to weed out corruption, there are many laws that contradict one another making it nearly impossible to avoid fines even if precautions were taken to ensure legality. Maxime Bérubé, president of Komaspec, who used legal services from his own sister’s firm founded in Asia was unable to avoid such fines. “If you ask how to correctly do the same thing in ten different government offices, you will get ten different answers,” Mr. Bérubé said.

Conclusion Even with the historic attraction of hard-working low-cost labor disappearing –especially on the coast- and the Chinese government’s focus on transitioning towards an added-value economy, China remains an attraction for many foreign manufacturing companies. The growing middle-class, competition amongst suppliers and loosely regulated industry continues to attract businesses from around the world. Through the establishment of partnerships and prudent planning, Canadian firms are well positioned to export their ingenuity and expertise in this industry in the Chinese marketplace.

 Steel  manufacturing  in  Guangzhou

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Natural Resources

The region of Southwestern China has a population of over 200 million people,

and a rapid 12% annual GDP growth. This rapid economic development is partly due to the movement of company operations from coastal cities into the more inland South Western provinces as wages increased on the coast.. One of the major provinces in the area, Sichuan, is known as the “province of abundance,” due to the many natural resources (mainly metals) it is known to have. Sizeable deposits of the following metals have been discovered and are being mined in SW China: Tin, Molybdenum, Mercury, Antimony, Platinum group metals (platinum, palladium, etc.), Gold, Silver, Lithium, Beryllium, Niobium, Tantalum, Strontium, Tungsten, Cobalt, Iron, Manganese, Chromite, Titanium, Vanadium, Copper, Lead, Zinc, Bauxite, and Nickel. The government of Canada has prioritized the mining industry in the region, working to help Canadian businesses to flourish in the area.

Over the past decade, China’s mining industry has seen rapid growth and

development from the demand created in the energy, manufacturing, and construction sectors. Nonetheless, due to the serious pollution brought upon by loose environmental regulations and inefficiency of mines/mining methods, the government of China has prioritized an ecologically sustainable policy for the mining industry. Investing in the Chinese Market

Upon speaking with enterprises and representatives from the Canadian Trade Commissioner Service, a comprehensive overview of the primary challenges and opportunities for the Canadian mining industry in the Chinese marketplace was obtained: Challenges

The Chinese mining industry is a restrictive industry, heavily controlled by the government. This makes foreign investment more difficult as the government has strict control over the leasing and drilling rights and is known to favour state-owned enterprises. Additionally, there are minimum investment requirements for obtaining leasing and drilling rights, often making smaller companies’ start-up capital requirements unreasonably high and therefor preventing their entry into the market. The mining equipment supply business is also very competitive in China. The primary motivation for purchasing decisions is price, which is often valued more than the quality of the equipment. Given production and shipping costs, generally Canadian manufacturers wouldn’t be able to compete with Chinese suppliers on price point alone. However, there are opportunities for companies with innovative features not available from Chinese suppliers. It is thus very important for any Canadian supply firm looking to break into the Chinese market to be constantly using new technologies to innovate their product so it remains more advanced than what is domestically available.

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Understanding the legal system in China is crucial for any business. Licensing ventures, projects, and extracting rights can be confusing for foreign firms operating in China due to the different application of the law in different regions of the country, duplicative legislation and corruption. One way to mitigate risk of fines and legal battles is to partner with Chinese mining firms and conduct joint ventures. Many Chinese firms are very open to the idea of working with foreign companies, especially Canadian ones, as they see are interested in a mutually beneficial partnership where they can observe the more experienced Canadian mining practices and have access to technologically advanced equipment.

Access to data is also another key challenge in China. Geological information cannot be accessed publicly, and is very difficult to obtain unless undertaken independently.

Opportunities

In line with it’s ecologically sustainable mining policy objective, the central government provided an incentive in their Five Year Plan allocating a $75 billion CNY fund for support of environmental performance and remediation.1 Canadian mining firms are world renowned for their care of the environment and their sustainable mining practices. Seeing that the Chinese government would like to further develop its industry in this area, Canadian mining companies are well positioned to take advantage of this opportunity.

For mining equipment manufactures and suppliers that are interested in the Chinese market but are unprepared to dedicate necessary resources into developing clientele overseas, there are many Chinese equipment-producing companies looking to buy intellectual property designs of foreign-made products. Often Chinese manufacturers have fewer employees than Canadian firms with the high-tech manufacturing training and expertise necessary for product innovation, and rely on replicating foreign products when they are able to.

Canadian mining consulting firms are well regarded in China since they generally have more experience and expertise than Chinese firms in the industry as well as international contacts and knowledge. Many Chinese mining companies are interested in exploring deposits abroad (including in Canada) and are interested in obtaining consultant services that can provide expertise and a network of contacts in the given market.

                                                                                                                 

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Oil & Gas

For years China has relied on coal to meet its energy demand, however a rapidly growing population coupled with the negative impact coal fuel has on the environment has made this a less and less attractive energy option. Driven by its goal of reducing carbon emissions and pollution, China has looked to oil & natural gas as a means of diversifying its energy supply and the federal government has set an aggressive goal of increasing natural gas consumption from 3% of total energy supply in 2012 to 10% by 2020. This targeted shift in energy supply presents an opportunity for natural gas & oil producing regions worldwide, as China’s current deposits are predicted to be able to meet less than half of the targeted demand. China will increasingly rely on liquefied natural gas & oil imports from foreign companies and many domestic Chinese companies are actively searching for leasing and development opportunities abroad to meet the increasing energy demand back home.

Canadians can expect an increasing amount of investment from Chinese

companies in this sector over future years. As JTC has observed throughout our mission, the majority of Chinese energy companies are state-owned, as energy is one of the strategic imperatives of the federal government. The Canadian Embassy in Beijing noted that since Xi Jinping replaced Hu Jintao as China’s Chief Executive, the Chinese government has increasingly consolidated more power over energy resource management. As the Chinese government continues to centralize this power, Canadians can expect China to pursue more deals that are of strategic importance to the sustainability of China’s national energy policies. This can best be illustrated by the recent approval by the Canadian government towards SOE – PetroChina, with a majority share in two Canadian projects worth 1.5 billion. Even more recently the contentious CNOOC-Nexen acquisition was the largest foreign takeover by a Chinese SOE ever. According to KMPG Beijing, the deal price was inflated with a government-imposed premium, which was used to deter the easiness of future acquisitions.

In terms of oil & gas extraction in China, the opportunities for Canadian companies are much more limited. Given the sheer size of China’s population and with it the massive demand on its energy resources, it is likely that China will continue to erect barriers of entry for foreign companies looking to extract their resources for sale on the international market. However, Canadian companies do boast impressive track records of developing energy platforms. Therefore, these processes, expertise, and machinery can be looked at as future export opportunities for Canadian companies in energy resource extraction projects within China.

In summation, the link between the Canadian supply of energy resources including oil and natural gas is only just beginning to develop. Based on our analysis, we can expect the trajectory to continue, even amidst the heavy regulations on both sides.

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Non Profit:

Communication, loyalty, patience, and commonalities – the building blocks of a relationship – allow for more than just a mere partnership. In the world of business affairs between Canada and China, a valuable relationship is required to facilitate appropriate relations, and build on the needs of both parties. When one country can build on the strengths of the other, a common ground is formed and Canadian industries can thrive in the soon to be largest economy in the world.

The non-profit sector in Canada is one held to a very high standard in countries across the world. Through developing relations between China and Canada in the non-profit sector, the strengths of Canada can be shared worldwide. There have historically been challenges that Chinese face when trying to set up a non-profit, or what Canadians know as an “NGO.” This is due to the pre-determined government mindset that NGOs are related to protest, and angst. In China, “Government Organized Non-Government Organizations” (GONGO) comprise the non-profit and civil society sector in China. The organizations are comparable to Canadian NGOs, however they do not enjoy the same kind of autonomy. With the rise in Chinese philanthropy following the traumatic Sichuan earthquake, empathy is on the rise and the usual Chinese business market will experience new ideology in the non- profit sector. Despite the challenges faced with predetermined ideas of NGOs, the China Foundation Center and the One Foundation Philanthropic Research Institute at Beijing Normal University are two excellent examples of up-and-coming NGOs, representing the overall need for greater coherence in the sector, greater discipline in non-profit management, and greater rigor in the theories and strategies that guide organizations in this sector.

A visit with NPO Service Park in Chengdu gave excellent insight into the world

of non-profits. This start-up hub and incubator for NPOs facilitates funding, organizes support, and helps with administration and government regulations. According to the NPO Service Park, nonprofit organizations were not typically popular in developing cities or countries until after the Sichuan earthquake in 2013 when NPOs because a main focus of civil society in that relief effort and greater awareness as to their motivations and administration was shared widely within China. The idea of volunteer work was also brought up in our meeting with the NPO Service Park and officials there explained how volunteer work is a very foreign concept to the Chinese. The desire to volunteer to gain professional experience (as is common amongst Canadian youth) is not prevalent in China, which makes finding manpower to implement NPO programs a greater challenge than in Canada.       JTC  Ambassador  Michelle  

Sempowski  with  Director  of  NPO  Service  Park  in  Chengdu  

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Thank You to Our National Partners!

               

     

 

                   

     

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 Thank You to Our Community Partners!

Calgary Economic Development Agency Barrick Gold SRK Consulting CAMESE Votorantum Ontario Mining Association Roulotte E. Turmel Érablière Chabot Entretien Benrard Université de Laval Elliott Inc. Pharmacies Government of Newfoundland & Labrador Scotia Bank Memorial University of Newfoundland University of Saskatchewan Government of Saskatchewan Capital Cares Saskatchewan Chamber of Commerce Pierre Cardinal Halliburton Canadian Avatar Investments Dome Britannia Properties Alberta Energy Regulator University of Calgary Bombardier Recreational Products Bishop’s University Students’ Representative Council Saskatchewan Trade and Export Partnership Toronto District Catholic School Board Hamilton-Wentworth District School Board Startup Weekend New Brunswick Department of Economic Development Fredericton Airport Authority Gigie Dela Cruz WealthManager.com Manulife Financial Huron University Stork Holdings BMB Distributions (Lefebvre Group) Jeanne Sauve Foundation Bronfman Foundation KPMG TD Canada Trust J.C. Sulpher Construction Nutri-Lawn Access Rigging Services

Manderley Cartier Place Suite Hotel Benestone Beijing Venture Environmental Engineering Co. Ltd. Ning Bo Cafeteria Furniture Florence Studio FSIC Jefo Kingston Economic Development Corporation Kingston School Board Queen’s University Universel Sporting Games York University Glopec International University of Windsor St. Clair College McInnes Cooper Western University KPMG LLP Rotary Club- Oakville Exposoft Dentons Law LLP Sheridan College Asia Pacific Foundation of Canada University of Toronto TBM Partners Intact Financial Gluskin Sheff Boardwalk REIT Parkland College City of Hamilton University of Prince Edward Island Giant Tiger City of Fredericton University of Waterloo Re/Max Crossroads K-OS Promotions Invest New Brunswick Knowledge Park Planet Hatch Power Corporation of Canada University of King’s College