Finance Committee on Feb. 19th, 2015

[The Chair, Conservative, James Rajotte]

Mr. Dubourg, your time has expired. Thank you.

We'll go to Mr. Cannan.

Welcome to the committee, Mr. Cannan. I believe it's your first meeting joining us.

Mr. Cannan is replacing Mr. Richards.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair, and thanks also to my colleagues across the way.

I'm new to the committee for finance, but I've been on the trade committee for nine years, and I appreciated it, Mr. Harder, when you mentioned the Canada-China FIPA that's been in the works for a number of years, probably when you were working on it in the department.

I know that business likes the confidence, the stability, and some certainty that's provided by FIPA. How will this, the RMB combined with the FIPA, help our bilateral relationships with China?

[Peter Harder]

I think it's another gesture of confidence in establishing the frameworks. I guess I would say it's a compliment to the fact that we have a FIPA and the RMB centre, in that the American chamber of commerce and the American counterpart to my organization, the U.S.-China Business Council, have as their top priorities that the United States should have a FIPA and that the United States should seek an RMB centre. We have those advantages, and I hope that we take early-mover advantage now, because the United States will accomplish those things, although not this year or next, so that gives us a few years of a head start.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

From the chamber's perspective, do you think this enhances the trading opportunities? What impact will it have on the Canadian economy?

[Hendrik Brakel]

Absolutely. To build on Mr. Harder's comments, at our last annual general meeting, the 150 businesses voted unanimously in favour of endorsing the FIPA, so business really thinks there are enormous advantages here.

Looking at the long term, it is a big advantage. So we want to have this first move or advantage over the U.S. It's a big advantage for our banking sector in terms of pulling in more trade finance deals. It's a big advantage for Canadian business in sort of having that extra push for those closer relationships and that structure and framework around it.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

You mention Peller Estates. I'm the member of Parliament for Kelowna—Lake Country, and we have sort of a wine caucus. Obviously it's a big economic driver, not only for British Columbia but all of Canada. I had the honour of going to South Korea with the Prime Minister last March for the signing of the free trade agreement. South Korea has the highest price point for red wine. We know that's the Asia-Pacific gateway and corridor that we're working on, so $50 million right into through South Korea and into China.

This leads me to Mr. Hopkins. Thank you for being here this morning. Congratulations on a third consecutive balanced budget to you and Minister de Jong, who was with several members of Parliament who met on the Hill last year advocating for this RMB. I appreciate his leadership and yours. My colleague, Mr. Saxton, alluded to the second successful bond that was just recently launched.

I want to follow up on the potential with this RMB trading hub coming into effect basically next month, the time aspect. What will this do for our cultural ties, specifically for the Asia-Pacific gateway?

[Jim Hopkins]

It builds on a foundation that was set earlier in the decade by this government. We have a very large Asian community in British Columbia. The fact that there is such a large community and such a large exchange of peoples, as well as now tourists who travel between China and British Columbia, this only will reinforce that and build on it. I see it as very positive.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

So there's a pan-Canadian perspective. You mentioned you're working with the Ontario government, and there's a coalition in Vancouver, and Mr. Harder alluded to some of the members. What's happening as far as expanding from western Canada to across Canada goes to help prepare Canadian SMEs and provincial perspectives and partners to get this RMB into effect next month? From what I've read, there are three or four years of a short window for us to maximize the opportunity of this hub.

[Jim Hopkins]

Right. We would agree with that. That's why from the outset Minister de Jong made it a mission to connect with the Province of Ontario, particularly with Toronto, which is currently the financial centre in Canada. We quickly concluded with the Toronto Financial Services Alliance, the Province of Ontario, and with the federal government that the most successful platform for the RMB hub is one that truly operates on a pan-Canadian basis, one that operates coast to coast in hours of business across the country.

The hub is not a city event; it's not a one city event. Certainly ICBC is headquartered in Toronto, and the settlement and clearing centre will be based in Toronto. But ICBC is also advising that they're planning to have a dedicated team in Vancouver, which will ensure that settlement and clearing can occur during west coast hours as well.

I think that serves the success of this whole initiative, that you engage a part of the country that is trading 30% of exports for Canada. That, I think, is the intent of all the parties, which is very positive.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thanks.

I have one last question to Mr. Brakel. I know that Mr. Harder talked about Canada China Business Council and their members working to try to prepare to take advantage of it. Is the chamber working with SMEs to educate them about this opportunity that's forthcoming?

[The Chair, Conservative, James Rajotte]

Just a brief response, please.

[Hendrik Brakel]

Absolutely.

We actually did a joint event with CCBC, where we were speaking to business. There was a lot of enthusiasm. It is incumbent on the banks and all of us to work together to spread the word about this because there's been an issue of awareness. We all have a responsibility, absolutely.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Cannan.

Mr. Dionne Labelle, you now have the floor. You have seven minutes.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Thank you, Mr. Chair. Good morning, gentlemen.

My first question is for Mr. Harder.

In your presentation, you said that the hub is a non-controversial element that can maximize trade while minimizing costs for Canadian businesses. You also referred to the bilateral 2012 study in which the Chinese government said it was interested in developing free trade with Canada, but that the Canadian government has not wanted to do so.

In your opinion, which conditions are not being met right now and are in the way of a free trade agreement with China?

[Peter Harder]

I should first of all specify that the economic complementarity study was released by representatives of both governments. It stated that six priority sectors had been selected for negotiations on reducing tariffs. In my opinion, it was to Canada's advantage to undertake negotiations and benefit from the availability and the openness suggested by the study.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

If I understood correctly, you believe that we will bring our values to China by trading with it. However, we do a lot of trade with Saudi Arabia. Nevertheless, I don't have the impression that our values have taken root over there.

Can you explain to me how, in your opinion, the fact of doing more trade with China and increasing our investments there will mean that our values will be upheld there?

[Peter Harder]

It is by doing responsible trade and respecting the laws. In my opinion, economic provisions are the most sophisticated aspect in China. After joining the WTO, China adopted many laws to ensure that it respected the rules of that organization. These changes in Chinese legislation are consistent with a clear and transparent legal framework. Canadian businesses in China respect the law and put their values in practice. Magna International, for instance, has 10 manufacturing facilities in China. The values that are practised in those plants are the same as in Canada or in Europe. That is one way of—

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Allow me to add a nuance on this topic.

[Peter Harder]

It is a way of transferring one's commercial culture.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

I would like to put the following question to all of our guests.

You say that this trading hub will further greater market openness and access to Chinese financial products such as bonds, funds, and so on. Mr. Harder, you say in your document—but the question is also addressed to the other witnesses—that this will allow pension funds, among others, to participate more easily in the Chinese financial market.

However, I am sure you know that in Quebec, the Caisse de dépôt et placement lost $40 billion, a third of its assets, because of derivatives that were sold to us by well-known banks. What are we to think of the Chinese products whose sale will be facilitated? Will our pension funds not be taking risks by investing in Chinese products, in light of the situation of Chinese banks?

As we know, in November, China introduced quantitative easing measures because several banks were having liquidity problems. Among other things, there is a real estate bubble. I do not believe that investing in China is a very safe thing to do for pension funds, local investors and Canadian consumers.

[Peter Harder]

Let me be clear. There are risks in investing anywhere.

This gives us an advantage in the QFII, the qualified investors, a larger pool of capital to invest directly in China. That saves on transaction costs and it allows the participation of those Canadians that choose to invest in China to have the protection that this offers. They'll have to make their individual decisions on individual actions.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

I will put my question another way.

Would you advise my mother to purchase bonds from certain Chinese banks, given the context and situation in China?

[Peter Harder]

Let me simply say that there are many global investors investing in Chinese corporations directly and indirectly, and they're doing that because they're making the judgment that those are good investments.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Thank you.