Regional forecast, global view: China and Northern Ontario.

• Author: Robinson, Dave
• Position: ECONOMICALLY SPEAKING

Success with the China portfolio is one of the keys to Northern development for 2005. But who has that portfolio? Who has the game plan?

In the twentieth century Northern Ontario was an American resource colony. Today Northern Ontario is suddenly a lot closer to China. Inco is opening plants and building partnerships in China. China Minmetals is negotiating to buy Canada's biggest mining company. Mining supply companies are looking for ways to get into the China market.

United States trade deficits explain part of the way the world is changing its shape. The U.S. has been borrowing to buy Chinese goods. China buys raw materials to build the goods it sends to the U.S.

Now China is holding hundreds of billions in U.S. currency. Experts expect the greenback will fall by as much as 40 per cent against the Chinese currency Yua. China's state companies are trying to spend those dollars before they shrink.

The best way to use U.S. dollars is to buy U.S. assets in countries like Canada and Chile. Assets outside of the U.S. are attractive because they will depreciate less than assets inside the U.S. In 2003 Chinese companies made plays for a western-Canadian pipeline, Husky Oil, and Noranda. As the currencies adjust, the growth of the Chinese economy may slow, but Chinese purchasing power will rise. Demand for Northern metal and for northern companies will continue to grow.

Over the last decade Northern Ontario has expanded its exports of mining supplies and services. With high metal prices and increasing foreign ownership, the North could fall back into its old dependence on resource exports. That is a recipe for continued decline. It would be a disaster to concentrate on exporting resources and let our new export sector and our growing technological strength whither.

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To avoid the resource trap, we need to understand the way China's state-owned firms do business.

The offer from Minmetals grew out of a long process of cultivating trade relations. When Jean Chretien met with Miao Gengshu, the president of China Minmetals at Minmetals' headquarters in China on November 9th its was one more step in the deal-making process. It was Chretien who led a trade mission to China in 2001, and who visited China in 1994, 1996 and 1998. Chretien may not be prime minister anymore, but he still has solid connections with corporate leaders. Brascan in particular has contributed...