It hasn’t happened yet, but Prime Minister Stephen Harper’s lieutenants are laying the foundation for a fall 2009 visit by Canada’s top elected official to the country that looms as the most significant X-factor in the global economy.

As a February Fraser Institute study concluded, and as China’s Ambassador to Canada Lan Lijun noted in early March, trade relations between the two countries have yet to even approach full potential. Though bilateral trade between Canada and China has certainly exploded during the last 10 years, there remain considerable opportunities to expand the relationship.

Mr. Harper was notoriously absent from the 2008 Beijing Olympics, and his rhetoric up to now has focused on matter such as China’s human rights reputation. Criticisms by Mr. Harper’s Conservative government of China and his 2007 meeting with the Dalia Lama are sore points for the Chinese, triggers for what Mr. Lan described several weeks ago in testimony before the Canadian Senate’s foreign affairs committee as a “downturn” in relations between the two countries.

But Trade Minister Stockwell Day spent seven days in China in April, and Foreign Affairs Minister Lawrence Cannon last week concluded a five-day visit. Mr. Cannon met with his counterpart, Chinese Foreign Minister Yang Jiechi, and also spent nearly an hour with Vice-President Xi Jinping. The Canadian foreign minister returned to Ottawa with a formal invitation from Chinese officials for Mr. Harper to come to China.

As the reality of a severe global downturn exposes the need for Canada to diversify its economic relationships away from near total dependence on the US, however, engaging China more aggressively is now imperative.

While Chinese officials are to some degree leery of Mr. Harper’s Conservative government, they too recognize the vital role Canada can play in contributing to their country’s economic development.

In a March 6, 2009 address to the Canada China Business Council-Hong Kong Canada Business Association Luncheon, Mr. Lan noted:

With crisis comes opportunity. A stronger tri-partnership between China, Hong Kong and Canada is the call of the times.

Trade between China and Canada, however, has fallen short of vast potential for mutually beneficial trade, investment, and broader bilateral opportunities.

As the February Fraser Institute paper detailed, while China’s share of Canadian trade has tripled since the mid-1990s, only 2 percent of Canadian exports went to China in 2007, while nearly 80 percent went to the US. Canada’s foreign direct investment (FDI) in China is 0.3 percent of its total FDI, while China’s FDI in Canada is just 0.1 percent of its total.

The most obvious areas of potential growth are natural resources–the bulk of Canada’s exports to China at present consist of minerals and forestry products.

Canada is one of the world’s leading exporters of iron ore; China, the world’s biggest consumer, boosted imports of the material to a record 57 million metric tons in April.

And China’s purchases of copper and copper products reached a record 399,833 metric tons last month, up from 374,957 tons in March.

Sinopec (NYSE: SHI) recently purchased an additional 10 percent interest in the proposed Northern Lights oil sands project from Total (NYSE: TOT); the Chinese could make further moves in the oil sands because they believe oil prices will rebound, while the cost of investing has declined from two or three years ago, when the sector was booming. China, now the world’s second-biggest energy-consuming country, increased crude imports by 14 percent in April.

The opportunities to expand the bilateral relationship extend beyond iron ore, copper and oil, however. Mr. Lan also pointed out in his March 6 speech:

Canada is known as an energy superpower, with vast riches in energy resources, and more importantly, home to many cutting-edge technologies in clean energy and environment protection. It is among world leaders in aerospace, information and communications technologies (ICT), wireless technology, and health sciences–areas like biotech, e-medicine and biomedical equipment. Canadian companies with infrastructure and transportation technologies enjoy a long and solid reputation in China.

Canada-made high-speed locomotives and buses made with Canadian hybrid engines are running on the streets of Beijing. Stage III of the Qinshan Nuclear Power Plant includes the construction of a CANDU reactor design supplied by Atomic Energy of Canada. Canada-based Manulife Financial (TSX: MFC, NYSE: MFC) and Sun Life Financial (TSX: SLF, NYSE: SLF) are taking advantage of the expanding Chinese middle class’s demand for insurance products, and Royal Bank of Canada (TSX: RY, NYSE: RY) and Bank of Montreal (TSX: BMO, NYSE: BMO) are capitalizing on China’s liberalized rules about foreign bankers operating in the country. The ubiquity of Research in Motion’s (TSX: RIM, NSDQ: RIMM) BlackBerry extends to the Mainland.

The effort to improve and expand trade begins with more engagement and more dialogue. Mr. Harper is scheduled to visit Singapore in mid-November for a summit of Pacific Rim leaders, but significant hurdles must be cleared before Beijing is added to the itinerary.

For example, China would like to see criticism of its human rights record cease. And it will certainly be paying attention when the Dalia Lama visits Ottawa again in September. A repeat of the scene during the Dalai Lama’s previous audience with Mr. Harper, when the Tibetan flag was in prominent view, could derail any hope of significant progress in 2009. On the trade front, Chinese officials want to know that their state-owned firms will have unfettered opportunities to acquire Canadian oil or mining interests–they’d like assurances they’ll be subject to the same rules as any other company.

From Canada’s perspective, Mr. Cannon would like to revisit the Canada-China Human Rights Dialogue, a series of closed-door sessions between officials. Conservatives criticized previous rounds of these meetings as “ineffective.”

These issues require care, but recent events suggest Mr. Harper’s government has a new vision for Canada’s relationship with China. There’s still work to be done, but it’s possible the prime minister will himself engage directly with Beijing sometime in 2009.

Speaking Engagements

Eight score and one year ago, with the onset of the California Gold Rush, San Francisco earned a reputation as a prospector’s town. It’s time again to seek paths to prosperity–and to enjoy one of the most beautiful natural settings in the US, if not the world.

Venture west for the San Francisco Money Show Aug. 21-23, 2009, at the The San Francisco Marriott and discover how Roger Conrad, Elliott Gue and GS Early can help you profit in these adventurous times.

Roger will discuss utilities, Canadian income and royalty trusts as well as his new service focused on exploiting the greatest spending boom in history, New World 3.0.

Elliott will detail the new direction for Personal Finance and provide his forecast on energy markets for 2009.

GS, a constant at PF for two decades, will be there to speak on emerging tech, nanotech and defense tech.

Click here or call 800-970-4355 and refer to priority code 014310 to register as a guest of MLM.

The Roundup

Here’s the final set of summaries of first quarter earnings reports from Canadian Edge Portfolio recommendations.

Next week we’ll get back to covering news from the CE Portfolio and the How They Rate universe

Conservative Holdings

Artis REIT (TSX: AX-U, OTC: ARESF) reported a slight decline in portfolio occupancy during the first quarter, from 96.5 percent as of Dec. 31, 2008 to 95.8 percent as of Mar. 31, 2009. One tenant unexpectedly vacated 31,900 square feet of retail space in British Columbia, while another left 18,300 square feet on schedule. The latter space is already covered by a new tenant.

Despite this, Artis reported a 12.2 percent increase in revenue, while same property net operating income was up 6.3 percent. Funds from operations (FFO) rose 9.1 percent, while distributable income (DI) grew by 4.5 percent. The payout ratio for the period was 62.8 percent, down from 65 percent during the first three months of 2008.

Artis had recorded with its year-end 2008 filing a future income tax asset of CAD11.1 million; during the first quarter, it reorganized in a manner that qualifies it as an exempt real estate investment trust within the meaning of the Canadian federal government’s new rules covering specified investment flow-through trusts (SIFT), so the CAD11.1 million future income tax set-aside was reversed. Essentially, Artis won’t be subject to the 2011 SIFT tax. Artis REIT is a buy up to USD10.

Atlantic Power Corp’s (TSX: ATP-U, OTC: ATPWF) distributable cash declined from CAD29.8 million to CAD18 million on a decline in cash flow from operating activities. Earnings before interest, taxes, depreciation and amortization (EBITDA) at several of Atlantic Power’s projects varied from the first quarter of 2008, resulting in a CAD11.4 million decline in overall adjusted EBITDA.

The November 2008 Auburndale acquisition and better comparables at Orlando helped matters, but the expiration of the contracts that provided Onondaga’s cash flow expired in the second quarter of 2008, a reduction in EBITDA at Pasco due to lower rates on a renegotiated contract, and non-recurring distribution in the first quarter of 2008 from Gregory hurt the comparable figure.

Operationally, however, the projects continue to perform up to expectation and generate solid cash flow. Atlantic Power declared CAD13.3 million in distributions in the first quarter, for a payout ratio of 74 percent, up from 54 percent a year ago.

Management reiterated its guidance that cash distributions will remain stable into 2015, a reasonable forecast given the potential of the Rollcast acquisition. This new biomass venture represents 250 megawatts of generating capacity and is a low-risk, high-reward proposition for the company. Atlantic Power Corp is a buy up to USD10.

Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) reported a 49 percent increase in net income for the first quarter of 2009, to CAD13.8 million (CAD0.98 per unit) from CAD9.2 million (CAD0.66 per unit) a year ago. Total revenue rose to CAD218.9 million from CAD213.5 million on a 2.7 percent increase in construction revenue.

Management also announced a 24 percent increase in the monthly distribution, from CAD0.12 per unit to CAD0.15 per unit. Bird’s backlog as of March 31 was CAD982.8 million, down from CAD1,104.7 million on Dec. 31, 2008.

Still in a strong position despite ongoing economic uncertainty, Bird Construction Income Fund is a buy up to USD24.

Canadian Apartment Properties REIT’s (TSX: CAR-U, OTC: CDPYF) same property net operating income was up 3.4 percent, while FFO was up 1.9 percent and DI rose 2.5 percent. These numbers were driven by acquisitions and increases in average monthly rents across the REIT’s portfolio.

Overall portfolio occupancy at March 31, 2009 was 97.3 percent, compared to 98.3 percent a year ago. Weak residential market conditions hurt occupancy in Alberta and Ontario, while operational issues caused problems in British Columbia. Operating expenses increased to 51.7 percent of operating revenues, compared to 50.8 percent in the same period in 2008, primarily due to increased repairs and maintenance costs relating to a new garbage levy introduced in Toronto in late 2008 and implementation costs for waste recycling programs. These increases were partially offset by lower realty taxes and utility costs, as a percentage of revenues, compared to the prior year’s first quarter.

The REIT’s payout ratio for the period was 94.6 percent of DI, up from 88.1 percent a year ago. The ratio of total debt to gross book value remained stable at 61.8 percent. The weighted average interest rate of the REIT’s total mortgage portfolio was 5.27 percent as at March 31, while the weighted average term to maturity was 4.9 years. Approximately 95.1 percent of CAP REIT’s mortgages are Canada Mortgage and Housing Corporation-insured.

Canadian Apartment Properties REIT, its portfolio focused on relatively stable Eastern Canada, is a buy up to USD15.

Energy Savings Income Fund (TSX: SIF-U, OTC: ESIUF) added 15,000 customers in its fiscal fourth quarter, while sales increased 9 percent to CAD713.6 million. Distributable cash rose 33 percent to CAD72.2 million. The payout ratio came down to 56 percent from 61 percent in the comparable period a year ago.

For its fiscal year, Energy Savings’ customer base grew to 1.8 million, a 6 percent year-over-year increase. Distributable cash for the year was up 15 percent to CAD195.5 million, while the payout ratio for the year came down to 82 percent from 84 percent in fiscal 2008.

Management also announced that the name of the company will become Just Energy Income Fund in June 2009. Energy Savings Income Fund is a buy up to USD11.

Great Lakes Hydro Income Fund (TSX: GLH-U, OTC: GLHIF) generated revenue of CAD58 million, a 13 percent year-over-year increase; net income for the period totaled CAD17.2 million, a decrease of CAD1.7 million compared to the same period last year, though income before non-cash items actually increased 10 percent.

Depreciation and amortization expenses for the quarter were up CAD5.2 million due primarily to the depreciation on the acquired assets of Prince Wind farm and Pingston Hydro station and the amortization of the difference between the fair value numbers allocated to the outstanding debt of Prince Wind farm and Pingston Hydro station and their nominal values.

Total generation for the quarter was 1,163 gigawatt hours (GWh), consistent with the 1,161 GWh of output a year ago and slightly above the company’s long-term quarterly average of 1,051 GWh. Generation from hydroelectricity in the quarter was 1,081 GWh, a decrease of 7 percent from the exceptionally strong first quarter of 2008 but 11 percent above Great Lakes’ long-term average.

First quarter distributions to unitholders totaled CAD16.2 million (CAD0.31 per unit), compared to CAD15.1 million (CAD0.31 per unit) in the first quarter of 2008. The payout ratio for the period was 96 percent. Great Lakes Hydro Income Fund is a buy up to USD15.

Northern Property REIT (TSX: NPR-U, OTC: NPRUF) experienced increases in vacancy and operating costs but still reported revenue growth, a rise in distributable income and a decline in its payout ratio.

The decline in drilling activity in Western Canada is no doubt impacting the REIT, but revenue grew by 11.6 percent, FFO was up 15 percent, and DI grew 16 percent. The REIT paid out 69.6 percent of DI, down from 80.5 percent during the three months ended March 31, 2008.

The weighted average interest cost continued to decline to 5.02 percent compared to 5.13 percent in the fourth quarter of 2008. Debt to gross book value was up slightly to 58.1 percent from 57.7 percent at the end of 2008 because acquisition and development activity has taken place without issuing additional equity.

Northern Property is seeing higher vacancies, but recent rates reflect normalization from extremely tight conditions. It remains exposed to favorable markets, and this well-run REIT will benefit from a return to normal global economic growth. Northern Property REIT is a buy up to USD20.