Evidence of meeting #66 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was chinese.
A recording is available from Parliament.
9:25 a.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
And deeper synergies and cooperation between our capital markets as well.
What is the potential impact on Chinese investment in Canadian real estate?
9:25 a.m.
MingXuan (William) Zhu
It's more convenient for Chinese investors to explore the Canadian real estate market because it's easy to move the money out. Currently the Chinese regulator gives them convenience for the capital in RMB to moving it in and out. It will definitely help them and support them to invest in the Canadian real estate market.
9:25 a.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Mr. Gavsie, for BMO and other Canadian banks, what is the potential impact on your wealth, management, and private banking activities, in terms of working with high net worth Chinese and Chinese family offices?
9:30 a.m.
Managing Director, Global Head of Foreign Exchange Products and China Capital Markets, BMO Capital Markets
As Mr. Zhu alluded to, the free flow of RMB between China and Canada will certainly be an attractive opportunity for them as they are primarily denominated in RMB. It will give them the automatic ability to transact. However, as we increase our services as a bank—and every Canadian bank has been on this path of offering immigration services to their private wealth management clients and investment opportunity services—I think that things like the RQFII program as well as the Hong Kong connect with Shanghai equity component will increase the flow of securities. For the private wealth client who has investments as well as personal funds with the bank, the ability to conduct those transactions easier will certainly be an attraction.
9:30 a.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Mr. Zhu, the CNOOC Nexen transaction was seen as an important decision in terms of the tone of Canada as an environment for Chinese investment in the natural resource sector. How do Chinese investors and state-owned enterprises view Canada as a place to invest? Where do you see the relationship today compared to pre-CNOOC Nexen?
9:30 a.m.
MingXuan (William) Zhu
It's a good question.
It's very important. It's now harder to evaluate whether it's a success or not. We witnessed lots of Chinese investors, especially SOEs in the Canadian mining sector. Until now I haven't seen many success stories because of a totally different investment environment in Canada. We need more time to evaluate because for the oil sands industry it's a long-term investment. It's harder to evaluate it now because Canada changed the investment act, so it will be not so good in fact for Chinese investors to invest in Canada.
9:30 a.m.
Liberal
Scott Brison Liberal Kings—Hants, NS
Do you see Canada as a less predictable environment for Chinese investment than it has been?
9:30 a.m.
MingXuan (William) Zhu
It depends. It is hard to evaluate because we have aboriginal issues, infrastructure, environmental protection, and labour unions here. That kind of stuff is totally different from China, so they need to know how to face those challenges. That is a big challenge for Chinese investors.
9:30 a.m.
Conservative
February 17th, 2015 / 9:30 a.m.
Conservative
Joyce Bateman Conservative Winnipeg South Centre, MB
Thank you, Mr. Chair. I also want to thank all our witnesses.
Your testimony this morning has been so very helpful and very important for us to have as a framework.
Mr. Zhu, you were quoted as saying:
While we want to help Chinese investors start businesses and invest in Canada easily, we also want our local Canadian companies to see the vast opportunities investing in China can bring to them.
I am wondering if you could speak briefly to what steps small businesses and big businesses such as financial industries can take now to make this happen to our mutual benefit.
9:30 a.m.
MingXuan (William) Zhu
I think small companies are facing more challenges than big companies to cross-border investment. I think a good way for them to do that...first, they can rely on big companies like SNC-Lavalin or Bombardier. They are already investing in China, so they can be their supplier and use those vehicles to explore the Chinese market.
Second, the PM just took a trip to China, to my hometown, Hangzhou, where he met Jack Ma.
I think e-commerce would be a very nice place for small companies to explore China...so like all banks providing e-commerce platform in China as well. I think we are more than happy to help small local Canadian companies explore the Chinese market because Chinese people need high-quality services and products. The Canadian small company, even the smallest company in Canada, provides the highest of standards in products and services. That will be very welcome in China.
I think both ways will be very good for them to explore Chinese markets.
9:35 a.m.
Conservative
Joyce Bateman Conservative Winnipeg South Centre, MB
Thank you so much.
Mr. Gavsie, you wrote some great articles. There was one in the National Post in October. You noted that the hub will also enhance Canada's brand around the world. In fact, your direct quote is:
Canada's banking system has already been rated the soundest in the world for the past seven years by the World Economic Forum, and Bloomberg has ranked Canada in second place in its list of the most attractive destinations for business.
Becoming the RMB hub will obviously help that.
Could you expand on that a little, in terms of how it impacts your industry in particular and all the industries?
9:35 a.m.
Managing Director, Global Head of Foreign Exchange Products and China Capital Markets, BMO Capital Markets
Thank you for the question.
It is a big subject so it's tough to narrow it all down. I'll address it from the financial industry first, and then I will talk about some others.
On financial industry competitiveness, we already have such a great brand and reputation, we being the Canadian financial system. It's not as though we are re-creating that; we are adding to it. We're adding products and services for a system that is sound, solid, and run well, but typically operates just on Canadian dollars. We're now adding a product to the mix to be able to run additional services for our client base to help them become more competitive in RMB.
We are currently trading in proxy RMB currency. It is sometimes tough to think about, but the CNH, which is the currency that settles in Hong Kong and trades as a proxy to the RMB, we are already trading that with our clients, and we are seeing a considerably jump in increased volumes.
As the commercial market through the hub adds direct demand to the financial industry's client base, predominantly Canadian commercials, that will give us an automatic increase in that activity. That puts us more on the map globally speaking as we trade with other institutions around the world, not just onshore China, for that product.
9:35 a.m.
Conservative
Joyce Bateman Conservative Winnipeg South Centre, MB
Obviously, if your clients are picking up between 5% and 8% on every trade, they have more money to do business with instead of just paying fees.
9:35 a.m.
Managing Director, Global Head of Foreign Exchange Products and China Capital Markets, BMO Capital Markets
That's correct. Yes.
That's the financial industry.
Other industries which act on a global basis...for those that compete against other countries in the world, where they are buying product or service from Chinese suppliers' shelves to put onto their own, it now gives Canadians the competitive edge to be able to participate in those markets rather than having to pay in U.S. dollars and potentially pay the extra 5% to 8%.
It should make them not only better-run businesses—economic growth created, jobs created here in Canada for them—but it puts them on the map from a competitive growth scale as well.
9:35 a.m.
Conservative
Joyce Bateman Conservative Winnipeg South Centre, MB
It does for sure.
You also mentioned that total trade with China has doubled and even tripled, in countries with similar agreements, in the first year after they have been made. Wow.
9:35 a.m.
Managing Director, Global Head of Foreign Exchange Products and China Capital Markets, BMO Capital Markets
Yes, it's significant.
We watch the U.K. hub, as a very close example to the way we picture ourselves, as having the financial industry requirements to deliver product to the European base. Now, since that was set up in the U.K., Luxembourg has come online for investors. Frankfurt has of course come online, and France and Switzerland are in talks. So, there are plenty of other areas from which Europe is going to be able to get their RMB. But just watching the U.K.'s growth alone has been significant, and it is from that, that many of those numbers are cited.
Being the only North American provider of RMB services at this moment, I would say that we're going to have quite an influx of business coming in from south of the border.
9:35 a.m.
Conservative
Joyce Bateman Conservative Winnipeg South Centre, MB
On that point, obviously if you trade on the TSX, that's great. How would it affect companies such as Diageo that trade on U.S. markets?
9:35 a.m.
Managing Director, Global Head of Foreign Exchange Products and China Capital Markets, BMO Capital Markets
Diageo may have to purchase RMB or even hold an account in RMB as it does its business over there. Instead of converting back and forth every time they need to make a payment or convert a receipt, they can now do it in RMB and can fund their business through RMB.
9:35 a.m.
Conservative
9:35 a.m.
Managing Director, Global Head of Foreign Exchange Products and China Capital Markets, BMO Capital Markets
Yes, it certainly is.
9:35 a.m.
Conservative
Joyce Bateman Conservative Winnipeg South Centre, MB
Thank you very much. I appreciate your comments.
9:35 a.m.
Managing Director, Global Head of Foreign Exchange Products and China Capital Markets, BMO Capital Markets
Thank you very much.
9:35 a.m.
Conservative
The Chair Conservative James Rajotte
Thank you, Ms. Bateman.
Mr. Dionne Labelle, the floor is yours. You have seven minutes.
9:35 a.m.
NDP
Pierre Dionne Labelle NDP Rivière-du-Nord, QC
Thank you, Mr. Chair. Good morning, gentlemen.
We are talking about a medium-term opportunity for Canadian investors to have access to RMB-denominated bonds, equities, exchange-traded funds, warrants and mutual funds. So these are Chinese funds.
My question is for the Chief of Bank of Canada's Financial Markets Department. How confident are we in the Chinese banking system? I will elaborate.
We recently saw quantitative easing measures in the amount of $50 billion to save regional Chinese banks, and that initiative was more or less successful. All those products will be denominated and offered through your hub. Can you assure us that this will not lead to asset-backed commercial paper? What kind of a guarantee can the Bank of Canada provide that small Canadian investors will not become victims of things they do not understand or assets that aren't really assets and are fragile?