Canada and China: What Happens Next?
Canada’s arrest of Huawei CFO Meng Wanzhou on a provisional US Department of Justice warrant on December 1, and the subsequent retaliatory detention in China of two Canadians, Michael Kovrig and Michael Spavor (and now reports of a third Canadian detainee), raise the obvious question as to what damage has been done to Canada-China relations over the short and longer term–and what will happen going forward. You would have to have a crystal ball to divine the inner workings and thinking of the leadership of the Chinese Communist Party, who after all are the ones ultimately calling the shots on this, but looking at past precedents as well as the state of play of current issues allows us to make some educated guesses.
First the detention of at least one Canadian in a tit-for-tat measure was predictable, given the experience of Kevin and Julia Garratt. The Garratts, long-time residents of China who were running a coffee shop on the China-North Korea border, were picked up and detained on national security charges in 2014 shortly (in effect held hostage) after Canada had facilitated the extradition to the US of a Chinese national resident in Canada accused by the US of cyberespionage. It took almost two years of lobbying for the Canadian government to get the Garratts released. Therefore the knee-jerk reaction by the Chinese of detaining a Canadian after Meng’s arrest did not come as a surprise, as much as it was unjustified and reprehensible. What was a bit more surprising was China’s detention of a second Canadian a few days later, Michael Spavor, like Kovrig apparently accused of violating China’s notoriously vague national security laws. Now a third Canadian has reportedly been detained, and while the charges appear to be different from the two earlier hostage cases, one can never be sure. It is common practice for China to respond quickly to what it regards as “provocations”, in part for internal consumption to show that the government and Party are “standing up for the Chinese people”. Chinese public opinion is important despite a lack of direct democracy in China, and the government is expected to defend Chinese interests vigorously. Moving beyond detentions, China has other measures that it can employ ranging from delaying or cancelling high level visits to making life difficult for Canadian companies operating in or exporting to China by invoking various regulatory measures as harassment. This kind of action has been employed in the past against Japanese, Korean and Norwegian companies.
So far, Chinese response has not moved to the next level, although Tourism Minister Melanie Joly delayed her planned trip to China to mark 2018 being Canada’s “year of Chinese tourism”. China is not going to be welcoming any Canadian cabinet ministers to celebrate the closeness of bilateral ties until the Meng situation is resolved, although high-level dialogue is badly needed. There have been suggestions that Foreign Minister Chrystia Freeland should go to Beijing but there is little point in her doing so until the Chinese indicate they are ready for dialogue. Until there is a clearer indication of Ms. Meng’s fate, this is unlikely to happen. The Chinese will be looking for signs that she will be released but that decision, in the first instance at least, rests with the Canadian courts not the Canadian government.
What is likely to happen next? If common sense prevails China will hold off on any further escalation, allowing time for the legal process in Canada to run its course. There appears to be a reasonable prospect that the US may have difficulty in convincing a Canadian court that Ms. Meng has violated Canadian law, a necessary precondition for extradition to the US. China is doing itself no favours with its hostage tactics, sending signals to the international community that anyone working in China is potentially vulnerable. Another factor is the issue of Huawei’s access to participation in building out Canada’s 5G network, with Canada not yet having made a decision to follow the US lead and block Huawei as a security threat. Worth considering is that much of Huawei’s 5G research is conducted in Canada and the company has invested heavily in R&D here, so the economic consequences for Canada in blacklisting Huawei are greater than for the US. Sooner or later however Canada will have to announce its decision, and the timing of that decision could trigger a further Chinese reaction if the decision is negative. At the same time, the more China plays hardball with Canada over Ms. Meng, the more they risk pushing Canada into the US camp regarding Huawei.
(The US could play an important role in resolving the situation. If US-China 90 day trade truce leads to positive results, there would be a considerable lowering of the temperature. The US could also play a more active behind the scenes role in convincing China to release the Canadians in detention and cease targeting Canada with further measures. Canada has taken a bullet for the US but the extent to which Washington is prepared to actively help defend Canadian interests is an open question.)
Canada and China have had a robust diplomatic and economic relationship for many years and both countries derive significant economic benefit through bilateral trade in goods and services, investment, tourism and student exchanges. That relationship has weathered storms in the past, and over the longer term it is likely that the Meng affair will not cause permanent damage. However, China’s new assertiveness and retaliatory tactics, combined with unhelpful comments and lukewarm response from the US, and Chinese unwillingness to accept that the Canadian government cannot just “make this go away” risks further escalation over the short term. Both Canadian individuals resident in China and Canadian businesses should be cautious until the Meng case is resolved, making sure that their personal affairs in China are in good order.