Made in Terrace: What would a deal with Chinese manufacturers mean for the local economy?

Made in Terrace: What would a deal with Chinese manufacturers mean for the local economy?

Written by Josh Massey for The Terrace Standard, February 12 2014

This is the second of a two-part series exploring the prospect of a Chinese economic development zone setting up shop at the Skeena Industrial Development Park.

If premier Christy Clark and her provincial Liberal government are banking on liquefied natural gas as a route to prosperity, a much smaller road map to prosperity conceived by the City of Terrace and the Kitselas First Nation could one day take hold here.

Based on a broad agreement signed between the two and the state-owned Qinhuangdao Economic Development Zone last fall, the latter could set up manufacturing facilities on as much as 1,000 acres of land it would buy within the Skeena Industrial Development Park located off of Hwy37 south of the Northwest Regional Airport.

It’s part of a swing away from now-familiar “Made in China” tags on any number of products.

More and more Chinese companies are choosing to set up in countries with cheaper land closer to end markets to save on, for example, shipping costs.

Terrace is one of the first places in British Columbia to be approached by Chinese manufacturers drawn by the affordable land zoned heavy industrial that offers unfettered access to the North American marketplace with rail, highway and sea close by.

The prospect of selling a large section of the industrial park, approximately half of the land currently available, is what drew a delegation of Terrace and Kitselas political and governmental representatives to China last fall.

Terrace and Kitselas are partners at the park, agreeing to split profits from land sales once expenses are accounted for.

Based on an average $10,000 an acre from previous land sales at the park, a deal for 1,000 acres could bring in $10 million to the city and Kitselas.

A key feature of the agreement between Terrace and Kitselas will be building up a water infrastructure fund so the city can supply water to the location.

City planner David Block says providing water is a key cost consideration.

“The city’s sale of industrial land there has always been premised on land being sold with a portion of the sale price allocated to a water infrastructure fund.

“The only revenue to come out of it is the increased taxation. That’s where the city and Kitselas will see some profit,” said Block.

But if this potential development really is what previous Terrace mayor Jack Talstra called the “big fish” that justifies the city’s long term investment in the industrial park, then what might landing it look like and what are the implications of having a large foreign manufacturing presence come to town?

According to Kenny Zhang, a senior analyst from the Asian Pacific Foundation, this type of prospective development would be unique in B.C.

The upshot for Chinese companies doing business in Canada is that many of the complications associated with international trade are solved by inhabiting the economy in which the product is to be sold.

“It’s like moving into a fully furnished house,” said Zhang.

“Things manufactured here have much more ready access to the North American market. They don’t have to go through import restrictions,” added Block.

However, there exists a new set of hurdles that a foreign developer must overcome.

“Whether this model will work or not is very much conditional on how the local businesses will react. Will they treat them like another part of the business [community] or treat them differently,” Zhang cautioned.

How the local community will react depends on what type of manufacturing outlets could open at the industrial park and how many jobs they can guarantee to the local labour force. Current Terrace mayor Dave Pernarowski is already trying to allay fears that a flood of foreign workers will take jobs away from locals, dedicating a section of his November/December 2013 newsletter to the issue.

According to the provincial program that guides the entry of the foreign companies into B.C. a foreign company opening up in Canada can bring in key staff members from abroad.

But three jobs have to be created for local people for every key staffer being brought in. These staff members can then be fast-tracked to become full permanent residents after an initial two-year work permit is issued.

This three-to-one rule should provide relief to residents who worry about a situation where temporary foreign workers run the manufacturing outlet at the expense of local jobs, according to the mayor.

“Our federal immigration laws and the provincial nominee program are designed to ensure we are protected and gain maximum benefit from this type of international investment,” wrote Pernarowski.

Pernarowski, along with Kitselas chief councillor Joe Bevan, led the delegation of Terrace and Kitselas officials to Qinhuangdao, a trip that was hosted and partially sponsored by Chinese business and state powers.

Led by interpreters, the group toured various manufacturing outlets—wood processing, healthcare equipment design and testing facility, aluminum product production, and agricultural processing.

The group also toured a pipeline construction facility.

Of all the industries toured by the group, Bevan said the aluminum wheel manufacturing looked the most promising.

With Rio Tinto Alcan producing raw material next door in Kitimat and with the North American buyers in close proximity, Bevan said he could easily see aluminum products being developed here.

“That seemed to be a really good fit,” Bevan said about the potential for an aluminum wheel manufacturing plant in Terrace. “There’s Kitimat right down there who is an aluminum manufacturer. These guys need aluminum to do these wheels. They sell them all to General Electric so it makes sense they would move that business to here.”

There’s also the potential for a forestry based industry that would add value to the area’s forest resources.

Bevan said the Chinese have had their eye on Terrace for several years and that he expects an investment decision to be made soon.

“They have obviously done the math and decided, hey, why don’t we just create that business over there in North America where the raw resources are instead, so we don’t have to ship back and forth. They could have gone anywhere in North America but they chose here,” he said.

“If I know China, they don’t make a move unless they know this is a for sure thing,” added Bevan, who has experience doing business with Chinese companies from his time with a local forestry company, Kalum Ventures.

“They seemed very long term. Where we talk about 20 years as a long time, they are saying 30, 40, 50 years,” said Bevan.

“They’re going to push hard and probably in the spring they are going to make a decision,” he added.

A visit here by the Chinese is possible before a deal is struck.