In the first Canada China Business Forum, held in 2005 during a visit by President Hu Jintao to Canada, the two governments set a target to increase bilateral trade to USD30 billion by 2010. That goal was met in 2007, when trade between the two countries climbed to USD30.38 billion.

According to statistics from the General Administration of Customs of the People’s Republic of China, the volume of bilateral trade between China and Canada reached USD34.52 billion in 2008, a year-over-year increase of 13.8 percent. Canada’s exports to China reached USD12.73 billion, a 16 percent increase over 2007, while Canada’s imports from China stood at USD21.79 billion USD, a 12.6 percent increase over 2007.

Meanwhile, China has continuously expanded its investment in Canada. In 2008, China had USD950 million of non-financial direct investment in Canada. As of the end of 2008, China’s accumulated non-financial direct investment in Canada was USD3.84 billion, in industries such as natural resource development, industrial production, construction contracting, agriculture, farming and fishing, food and beverage, scientific research, technological and cultural communications, traffic and transportation, as well as consulting services.

In 2008, China approved 410 additional investment projects in Canada. During that period, Canada had USD540 million of investments in China. By the end of 2008, Canada had invested in 10,891 projects in China, with the amount of completed investment reaching USD6.37 billion.

In terms of development and promoting cooperation, the Canadian International Development Agency confirmed in April 2007 that over the next three years, the gross budget fund of Canadian aid to China will gradually drop each year from USD25.6 million a year to USD17.7 million a year. Those funds will be devoted to developing cooperative relationships on issues such as human rights and environmental policy.

China is now Canada’s second-largest trading partner, trailing only to the US. But, according to a recent Fraser Institute study of the economic relationship between China and Canada, “There are unexploited opportunities for further gains from trade that can enrich both countries.”

Canada’s engagement with China actually goes back to the 1960s, when Prime Minister John Diefenbaker promoted wheat sales on credit to communist China. This was followed in 1970 by Prime Minister Pierre Trudeau’s visit to and official recognition of China In 1973, the governments of the two countries signed a trade agreement that was followed by the establishment of the Canada-China Trade Council in 1978. Since then, the two countries have signed a wide range of agreements and memorandums of understanding about trade, investment, insurance, tax, environment, and criminal matters.

Economic relations between Canada and China have certainly begun to flourish. Trade in merchandise between the two countries has increased dramatically over the past decade.

Canada’s trade dependence index (the ratio of Canada’s overall trade with China to GDP) increased from 1 percent in 1998 to 3 percent in 2007. China is now Canada’s third-largest export market and its second-largest source of imports. During the period from 1998 to 2007, Canada’s exports to China increased by 272 percent. Compared to 1998, overall trade with China grew by more than 350 percent by 2007, while trade with the world, excluding China, grew by only 33 percent over the same period.

Note that even during years of recent global recession (2001-02), China’s import growth remained fairly strong. In fact, imports increased by almost 20 percent between 2001 and 2002, suggesting that the strength of Chinese demand for imports may have reduced the severity of the global downturn on various economies. It’s possible that this will occur again in the present global recession, with China’s relatively faster economic growth supporting economic activities elsewhere.

Recent data suggest China has in fact begun to rebound, news that drove a short-lived rally for global equity markets this week.

China’s manufacturing Purchasing Managers’ Index (PMI) strengthened for a third consecutive month in February, climbing to 49.0 percent from 45.3 the previous month, and marking a three-month rebound from November’s low of 38.8.

All sub-indexes were higher than their respective levels in the previous month, though many were still lower than the critical level of 50; a reading below 50 indicates contraction, while a figure north of 50 indicates growth.

In particular, both the Output Index and the New Orders Index rebounded to the expansionary zone of higher than 50 for the first time since September 2008. In addition, the New Export Orders Index grew strongly by 9.7 points to 43.4 in February.

Andrew Pyle of ScotiaMcLeod, noted: “Estimates for the country’s growth outlook in 2009 have also started to levitate from the alarming 5 to 6 percent suggestions earlier this year back to 8 percent. Not as lofty as what we have been used to, but firm enough to put a floor under commodity prices …”

The improved PMI numbers, together with the possibility of further stimulus spending by the Chinese government, likely mark a trough in China’s GDP growth cycle. And Premier Wen Jiabao said this week his government will “significantly increase” investment to boost the economy, on top of the USD586 billion stimulus package announced in November.

The prospects for resource-focused economies such as Canada’s are strong in the long term because of the enormous potential demand from an emerging Chinese middle class. For example, Su Shulin, the chairman of China Petroleum & Chemical Corp, China’s biggest oil refiner, said domestic oil demand has shown signs of recovery. Daily fuel sales have risen to about 310,000 metric tons, compared with a record low of 280,000 barrels in December.

And the Chinese government plans to tap its USD1.95 trillion currency reserves to secure resources. Chinese state-run companies have been told to acquire resources abroad as prices of commodities, led by energy and industrial metals, decline.

 The Chinese believe good and bad follow each other closely. It’s therefore comforting to learn that the Year of the Ox is a sign of prosperity. Will China’s command economy come to the Western world’s rescue? Only time will tell, but there are signs of hope rising in Asia.