Canadian trade with China represents just a miniscule portion of Canada’s overall international trade and we have a long way to go to fully take advantage of the opportunities presented by one of the world’s fastest growing economies, suggests a report released on Thursday by the Fraser Institute.

Just 2% of Canadian exports were sent to China in 2007 compared with 80% of Canadian goods exported to the U.S.. In terms of imports, Canada imported 9% of its goods from China, with more than 50% originating in the U.S.

“For many years now, we’ve been hearing about the opportunities presented by the Chinese market. Yet so far, Canadian companies have failed to fully capitalize on these opportunities,” said Mark Mullins, Fraser Institute executive director. “And while many Canadians may think everything we buy is ‘Made in China’, the reality is far from the truth. Even though China’s share of Canadian trade has tripled in the past decade, it is relatively small and narrowly based.”

The study paints an even worse picture when it looks at trade in services and direct foreign investment.

Canadian services trade with China represented only 1.2% of Canada’s overall services trade in 2005 (the last year of available data at the time the report was written), while its services trade with the U.S. accounted for 58% of overall services trade in the same year.

Similarly, Canada’s direct foreign investment in China is just 0.3% of the total while China’s direct foreign investment in Canada is a paltry 0.1%. By comparison, almost 44% of Canada’s worldwide investments went to the U.S. in 2007 with 58% of overall investments in Canada coming from the U.S.

The study notes that Australia, which has a similar resource and economic base as Canada, has established much stronger ties with the Asian super power. And China’s neighbour Japan has a far larger share of the Chinese market. In 2007, 2.7% of China’s overall imports came from Australia, while 14% came from Japan. Just 1.1% of China’s overall imports came from Canada.

The study also points out that at present, Canadian exports to China consist mainly of natural resources such as minerals and forestry products. Within that trade envelope, Alberta stands out with its trade surplus and a concentration on chemicals and petroleum products.

“If Canada is to be more than hewers of wood and providers of minerals, we need to expand and focus on finding Chinese markets for our retail trade and services sector among China’s growing middle class and its burgeoning cities,” Mullins said.

The study concludes that Canada has a number of advantages that it is not fully utilizing in its quest to gain a larger share of the Chinese market; among them the country’s varied natural resources, superior technology, an energetic business sector, and a growing local Chinese population.

“The Chinese market offers great opportunities but Canada is competing with every other nation on the globe to reach that market. If Canada is to strengthen its trade relations with China, it needs to make better use of its comparative advantages,” Mullins said.