Canada is the world’s sixth-largest oil producer and has significant energy reserves

Almost 1.5 million people living in Canada described their background as Chinese or part Chinese in the 2011 census, reflecting more than a century of close cultural ties. The trading relationship between the two countries has also grown over recent years. China overtook the UK to become Canada’s second most important trading partner in 2012, behind the United States.

Canada’s economic relationship with the US remains vital. Three quarters of businesses see the US as their main trading partner, according to the latest HSBC Trade Forecast. However, China’s continued growth offers new opportunities.

China overtook the UK to become Canada's second most important trading partner in 2012

Canada is the world’s sixth-largest oil producer and has significant energy reserves, while China’s future energy needs are expected to be significant. A burgeoning trade in energy may open the door to other Canadian companies – including accounting, legal and financial services, logistical and infrastructure firms. The average Chinese worker’s income will increase sevenfold by the middle of the century, according to HSBC Global Research, creating a vast new market for goods, from foods to pharmaceuticals.

But only 5 per cent of Canadian firms say that they have conducted business using the Chinese currency, the RMB, compared with 17 per cent of US firms and a global average of 22 per cent, according to a 2014 survey carried out by Nielsen on behalf of HSBC.

International use of the RMB has grown rapidly since Chinese authorities began reforms at the end of the last decade. The RMB is now used to settle around 18 per cent of China’s total trade, up from just 3 per cent in 2010, according to HSBC Global Research.

Using the RMB could boost other countries’ trading relationships with China. For example, pricing in RMB can help Chinese firms manage risks and costs. They may, therefore, look favourably on potential partners able to quote in RMB. Importers sourcing raw materials or services from China may be able to negotiate better terms, while Canadian exporters may find that quoting in RMB helps secure the goodwill of potential buyers.

A number of organisations in Canada are working together to increase awareness of these potential benefits. In November 2014, the Bank of Canada and the People’s Bank of China signed a memorandum of understanding to support two-way trade and investment denominated in RMB. The provincial government of British Columbia, on Canada’s west coast, has also been active. In November 2013 it raised funds by issuing an RMB-denominated bond with a value of RMB2.5 billion. This allowed the province to widen its investor base and diversify its currency portfolio.

HSBC expects that the RMB will be fully convertible by as early as 2017. We think many more Canadian firms will make RMB part of their everyday business as the link with China becomes more important. By 2021, China is set to be both the biggest growth market for Canadian exports* and the fastest growing source of imports into Canada.

*Refers to Trade Forecast September 2014, period 2021-30