China is increasingly becoming an “uninvestable,” according to former Canadian diplomat Michael Kovrig.
In an interview with BNN Bloomberg Monday, Kovrig said Canadian companies need to change the way they view the prospects of doing business in China because the risks may outweigh the rewards.
“If you are able to … take your ball and bat and go somewhere else,” he said. “If you can invest elsewhere just as easily you should be prioritizing other markets.”
“If you have to be in China then you need an exit strategy.”
Kovrig has first-hand experience in navigating the geopolitical tensions and risks tied to China.
Along with fellow Canadian Michael Spavor, he was detained for nearly three years in an apparent retaliation for Canada’s arrest of Huawei’s Chief Financial Officer Meng Wanzhou on a U.S. extradition request.
The “two Michaels” as they became known were released in September 2021 after Meng struck a deferred prosecution agreement with U.S. authorities and returned to China.
Since his release in 2021, he has served as a senior adviser for Asia at Crisis Group, a non-profit research organization focused on conflict prevention.
While Kovrig is aware of recent efforts to improve relations between Canada and China – such as Foreign Affairs Minister Melanie Joly’s summer trip to China – he says the geopolitical landscape has become more complicated since his detention.
“The risk-adjusted rate of return of a lot of involvement … is not worth it,” he said. “The Chinese market has become increasingly uninvestable, both in terms of its likely expected rate of return but in particular the geopolitical risk.”
For businesses, Kovrig sees a tricky trade dynamic unfolding, highlighted by a recent round of tit-for-tat tariffs.
China has begun an anti-dumping probe into canola imports from Canada after the Trudeau government imposed tariffs on Chinese-made electric vehicles, steel and aluminum.
With uncertainty surrounding the China relationship, Kovrig seems certain that efforts towards a more integrated North American economy are likely to continue.
“What we need to do is strategically derisk our economy,” he said, to “ensure that they don’t have the capacity to hurt us and that in some cases requires trade barriers and tariffs.”
But those tools need to be used “in an intelligent and careful way,” he said, “because trade barriers can cause escalation and they can be self-harming.”