Recently, Foreign Affairs Minister John Baird said: "Canada is emerging as a destination of choice for Chinese investment and Chinese investors and we welcome that". He didn't go into specifics beyond that and on its own merit, that's not a news story. The only thing that first jumped out at you is "Isn't Ed Fast the Minister for International Trade?" But with such a big cabinet, who can keep track? It was a signal that Canada was open to additional Chinese investment. What's wrong with that?
Nothing. Nothing at all. But give it just a bit of time, will you?
 |
Traffic cops equipped with their own binoculars. |
Concern about China has been growing as of late. This started when economist Nouriel Roubini issued warnings about the health of the Chinese economy in April. It's important to note that if we look at the aggregate of predictions made by economists, those that are unfulfilled outnumber those that become fully realized. A study looked at the “consensus forecasts” and determined that 97% of economists' predictions were unable to forecast correctly any country's incoming crisis a year in advance.
Roubini is part of the 3%.
He foresaw the US sub-prime mortgage crisis coming a mile away and warned other economists, investors and the IMF on September 7th, 2006. A year later, investment banks started collapsing.
So when he wrote an op-ed about that the Chinese economy was headed in the wrong direction back in the middle of last April, people took notice this time.
Roubini, known as Doctor Doom, pointed to the “sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.” Besides the eye test, he notes that the "problem, of course, is that no country can be productive enough to reinvest 50% of GDP in new capital stock without eventually facing immense overcapacity and a staggering non-performing loan problem". He predicts that this overcapacity will lead to a slow down in their economy around 2014.
But that's really far away right?
More recently, short-seller Carson Block of the firm Muddy Waters issued a report in early June. He claimed that the forestry “Canadian company” Sino-Forest – based in Hong Kong and Mississauga but operating in China's Yunnan province – was falsifying the amount of timber it claimed it could produce. Think "Bre-X". Sino-Forest went from around $19 to currently trading at $2.67 on the TSX. This is making investors skittish of Chinese companies. It's possible that Muddy Waters is wrong as they were about another company they shorted: Orient Paper Co. Still, some independent investigation by the Globe and Mail revealed that Carson Block was likely on the money. Other Chinese companies are being researched by Muddy Waters.
It's not that foreign direct investment (FDI) isn't welcomed but it should be scrutinized a little more. It's worth remembering that the Canadian government was hacked by a "foreign power". And make no mistake about it, the computers who performed the cyber-attack originated from China. Their targets were the Finance Department, the Treasury Board and Defence Research and Development Canada.
No one has been held accountable and, in fact, denies hacking the Canadian government.
John Baird should brush up on his international relations handbook on Israel and Palestine and not try to run the government all by himself. Coincidentally, Minister of International Trade Ed Fast was appropriately enough in Brazil and Paraguay working on promoting Canada's commercial relationship with MERCOSUR countries. With emerging markets in South America gaining greater prominence in the world economy, Canada would do well to look to increase trade with countries that share a similar ideological outlook than with China.
Someone should send John Baird that memo... or is he in charge of writing all of those too?
No comments:
Post a Comment