Canada-China spat could affect businesses, but Canadian reputation strong: Experts

·3 min read

Souring relations between Ottawa and Beijing could affect Canadian companies in China, potentially tarnishing the appeal of Canadian brands for some Chinese consumers, experts said on Tuesday.

Companies like Canada Goose, Roots, Lululemon and Tim Hortons have expanded in China in recent years, leaning into Canada's reputation as a source of quality goods and often featuring the red maple leaf in store and product branding.

China is central to the growth plans of many Canadian companies eager to tap into the country's compelling consumer market, retail analyst Bruce Winder said.

"If you look at the drawing boards of those companies, China's a big factor in the growth strategy," he said. "It's a huge market. There are over 1.4 billion people and folks in China are getting rich, so you have a massive middle class."

But a diplomatic spat between Ottawa and Beijing could spur a "soft boycott" of Canadian brands in China, Winder said.

"Canada's supply chain is very dependent on China, but consumer-facing Canadian brands in China could be at risk too," he said. "It's something that could potentially impact the future growth prospects of Canadian companies in China."

Beijing declared a Canadian diplomat as "persona non grata" on Tuesday in retaliation for Ottawa's expulsion of a Chinese consular official over allegations of foreign interference.

China's Foreign Ministry said in a statement posted to its English website that China was deploying a "reciprocal countermeasure to Canada's unscrupulous move,'' which it said it "strongly condemns and firmly opposes.''

Sarah Kutulakos, executive director of the Canada China Business Council, said diplomatic relations between the two countries have been strained for years but the economic relationship has remained.

"These sort of diplomatic issues happen and they're playing out right now," she said. "We are always hopeful that trade doesn't get thrown into the mix of other complications in the relationship."

The bilateral non-profit business council, which has seven offices in Canada and China, encourages both governments to resolve their differences "and where there are irreconcilable differences, understand the other side's perspective," Kutulakos said.

She added that Canada's reputation in China remains strong, and hostilities between the two countries have not impacted the impression of Canada in the past.

"Tim Hortons in China looks more Canadian inside than any Tim Hortons in Canada," Kutulakos said, noting the abundant red maple leaves and other Canadian decor inside the coffee shops in China.

Tims China chairman Peter Yu said in February that the coffee and doughnut chain had 600 locations in China, with plans to grow to a thousand by the end of 2023.

Lululemon had 117 stores in China as of the end of January, according to the company's most recent annual report.

Calvin McDonald, Lululemon CEO, said during the company's fourth-quarter earnings call last month that the retailer's potential in China is significant.

The company is planning to open up to 35 new stores in international markets this year, with the majority planned for China, Lululemon's chief financial officer Meghan Frank said during the call.

Meanwhile, Roots has more than 100 partner-operated stores in Asia, including many in China, the retailer said in its annual report in January.

"Our focus on international expansion continues to remain in the U.S. and China, where we see long-term potential for the brand," Meghan Roach, Roots CEO, said during a recent earnings call.

Canada Goose appointed Larry Li as president of its China operations last year, part of what it called a new phase of expansion in China.

This report by The Canadian Press was first published May 9, 2023.

Brett Bundale, The Canadian Press