Canada-China Relations Committee on April 24th, 2023

[Dr. Mathieu Arès]

No, I'm saying that firms make recommendations regarding promising sectors and such. An intermediary is often involved. It is then possible to ask the right questions and obtain the information.

This ties in with your first question. It's important to understand something: right now, the financing of Chinese firms is very opaque. As you know, banks are not independent, so if a sector isn't doing well, it can be bailed out with Chinese government money. That's what we are seeing now with the massive real estate bust. It's a disaster. Right now, the financial information isn't there.

If you're looking for social data, which is more or less the point of this evening's meeting, they are available. Everyone likes chocolate cake. That said, you'll have a hard time gathering very detailed information on the practices of our factories, to determine whether they are respecting human rights and labour standards. You won't see that kind of information.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

If I understand both of you correctly, it's more or less anything goes. The money is invested without anyone knowing what exactly it's being invested in, whether the companies are reliable or whether they respect human rights and so forth. There are no meaningful data to guide proper investment decisions. Is that right?

[Dr. Mathieu Arès]

It could be better.

For instance, today, just for fun, I was trying to find Statistics Canada data on Canadian investments. Other than general statistics on foreign investment, Statistics Canada has no information on which sectors Canadian companies invest in or how many of them are in China. That information is hard to find. We are talking about Statistics Canada.

I figure a private investor, or even an institutional one, doesn't know all that much more, except of course for information they can gather themselves from country or sector experts.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

Thank you, gentlemen.

[The Chair, Liberal, Ken Hardie]

Thank you very much, Mr. Trudel and Dr. Arès.

We'll now go to Ms. McPherson for six minutes or less.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Thank you very much.

Thank you to both of the witnesses for being here. This is very interesting for me.

I have to tell you that I am not well versed in investments, so forgive me if I need you to be very clear with me.

What I heard from you, Mr. Arès, is that basically there is not enough information for Canadians who are trying to invest, for Canadian companies and for investment funds to know whether or not forced labour, slavery and all of these things are happening within supply chains. This is, of course, a bit of a challenge, but it's more important than just knowing that those things are happening. That's one piece of it, isn't it? However, having just that knowledge doesn't mean anything if there's nothing that compels investors to act upon that knowledge and if there are no enforcement mechanisms in place.

Right now in Canada we have the CORE ombudsperson, who, despite being put in place in 2018, has done zero investigations into abuses that apparently Canadian companies have done abroad. We have very little ability to do any sort of enforcement of any of these things at this point.

Perhaps I'll ask both of you this. How do we solve this problem where Canadian companies and investors can neither find out, nor actually be asked to act on, that knowledge, even if they did have it? We also have no ability to enforce it, even if we had legislation that told them.... You can see that we're a long way from a solution here.

Mr. Arès, can you provide your thoughts on that?

[Dr. Mathieu Arès]

You summed it up well.

I think the approach has to be collective, similar to dealing with tax avoidance by multinational corporations. There's the U.S., of course. If Canada goes it alone, there are two risks. First, Canadian investment in China doesn't represent a lot. It's a lot to us, but it's not a lot to the Chinese. In addition, generally speaking, this could encourage some Canadian companies to relocate, so they could carry on business as usual somewhere else, without having to meet certain requirements. There is a risk of tax evasion, or even a risk of the company moving out of Canada if the bulk of its operations are based outside the country. Take the mining sector, where that's very often the case. Under Canada's special regime, Canadian mining companies with almost no Canadian operations are still registered in Canada for tax and legal reasons.

There is a risk, so I think the best approach is to work collectively with our partners to promote new practices. A long time ago, the UN Global Compact was launched. It's an honour-based initiative that brought together companies pledging to respect and strengthen human rights. It has yet to produce results.

You're right, there are no easy solutions. We can condemn abuses, but it's a hard problem to manage.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Thank you very much for that. I guess one of the things we are seeing is that the regulations we have in place aren't being applied; they aren't working, and the things that could be helping, aren't.

I have another question for you. This is another big concern I have.

I just got back, with many of the people in this committee, from a trip to Taiwan. Obviously there are increased tensions in the region. At this time, how vulnerable are Canadian organizations investing in China? Considering the potential for increased tensions between Taiwan and China, the increased need for Canada to perhaps apply sanctions and the fact that the PRC, in fact, may impose sanctions on Canadian companies, how at risk do you think Canadians are with regard to investment?

Mr. Payette, I'll start with you, and then I'll go to Mr. Arès.

[Dr. Alex Payette]

First, we need to determine if this risk is imminent. That's still unclear considering what we know about the party and how the party operates. We should maybe tone this down a bit. We should not believe this is imminent.

In terms of risk, if you were to apply sanctions, China is basically preparing or at least laying down the foundation for something it has done before, which is some form of civilian military integration. It could tilt toward a military or a more war machine kind of economy and then, of course, seize assets. This has been done before. It could happen in the event that we do something like that. It could happen.

Never forget that in China, especially from the perspective of the party, you are there only because the party allows you to be here. This applies to the private sector in China as well. That's why money remains common to a certain degree. You have it because you're allowed to have it. If you operate there, it's because they let you operate there.

If they decide you can't, it's just the way it is for the party. There wouldn't be a second thought on whether they decide to do it or not, regardless of the consequences. The party as it stands right now is willing to go further than the previous administration in terms of risk-taking and, let's say, pushing western democracies to a certain degree. It wouldn't be beyond the scope of the current administration to do something like that.

Now, there would also be dramatic consequences for doing something like that, and the party could not really withstand such a blow, I would say, in the medium term to long term. This is not a viable thing to do for the party. If it does this, it might lead to systemic issues, if I can say it like that.

[The Chair, Liberal, Ken Hardie]

Thank you, Ms. McPherson.

We'll now go to our second round.

We'll lead with Ms. Dancho for five minutes or less.

[Raquel Dancho, Conservative, Kildonan—St. Paul, MB]

Thank you, Mr. Chair.

Thank you to the witnesses for being with us today.

I have just a few questions. You've answered similar ones, but I'll ask a few questions a bit more directly.

Mr. Payette, would you say it's possible for Canadian pension funds to invest in any company with the PRC without indirectly supporting the PRC itself? Are there companies that don't have any ties or responsibilities to the PRC? Are there any we'd be safe to invest in that you can think of?

[Dr. Alex Payette]

Yes, there are companies you could invest in that are somewhat safe. However, we always need to remember that.... Again, that's why we always mention it's public and non-public. We try to avoid the word “private”. We say public and non-public sectors because there's always a capacity for something that's not public to become public, and that could become an issue.

It's really about the appetite for risk that you're willing to bear, to a certain degree. To say that something is 100% safe would be a stretch.

[Raquel Dancho, Conservative, Kildonan—St. Paul, MB]

Are you confident that Canadian pension funds could invest in Chinese companies without supporting the Communist Party itself, indirectly or directly?

[Dr. Alex Payette]

Some, yes.

[Raquel Dancho, Conservative, Kildonan—St. Paul, MB]

Okay, thank you for that.

Are there any companies you can name in the PRC that are linked to notable human rights abuses that any Canadian pension fund has invested in? Are there any examples you can provide the committee?

[Dr. Alex Payette]

I'm not allowed to, no.

[Raquel Dancho, Conservative, Kildonan—St. Paul, MB]

Okay. You have nothing you can share publicly.

[Dr. Alex Payette]

No, but we could probably discuss it privately.

[Raquel Dancho, Conservative, Kildonan—St. Paul, MB]

Okay, so it's fair to say there are public pension funds in Canada that have invested in companies in the PRC that are directly linked to human rights abuses. Is that a fair statement?

[Dr. Alex Payette]

The fairer statement would be to say more indirectly, not directly.

[Raquel Dancho, Conservative, Kildonan—St. Paul, MB]

It's indirectly. Pardon me. Well, that's still very significant.

Dr. Arès, I just saw your hand go up. Did you have something to add to that question?

[Dr. Mathieu Arès]

I actually wanted to answer the question before.

As was mentioned, pension funds are going to make fewer and fewer investments directly. In China, there's what I might call an independent sector. It's nothing very significant. It doesn't involve sensitive technologies or what have you, but there's still a link and there can be a risk for Chinese partners or foreign companies. It's like the sword of Damocles hanging over their heads.

Nevertheless, it's important to understand what the statistics show. Despite the talk of withdrawal, trade with China actually went up, but investment has more or less been stagnant in recent years. That's probably due to COVID‑19. However, companies continue to invest in China, so they are assuming this risk.

[Raquel Dancho, Conservative, Kildonan—St. Paul, MB]

Thank you both very much for that feedback.

I know that Canada has had a lot of struggles with living up to its values in this regard for a number of years. I don't know if any administration has gotten it right, but I don't believe we've successfully stopped any shipment of goods from China that has been manufactured using slave labour from these Uyghur Muslim work camps, with all the horrific conditions they're having to deal with, which have been well documented. Unless someone, either of you, can correct me, I don't believe Canada has been successful in stopping even one ship from bringing in goods made by the hands of those working against their will.

I suppose my confidence level in the pension funds' ability to ensure they're not indirectly supporting any company that may be associated with this is not high. Certainly that's been underlined by the limited information you can provide, Mr. Payette, which I do appreciate.

If you have anything to add, Mr. Payette, just on this area, I'd be happy to provide you my last 15 seconds to do so.

[Dr. Alex Payette]

Again, from our perspective, the onus should be on Canadian companies to work with regulators to engage in really extensive due diligence. If it hasn't been conducted, there should be some form of penalty for people who invest directly or indirectly in these index funds, FOFs or anything that's traded or from Chinese issuers. There should be more work done, at least more co-operative work, including by regulators and Canadian companies.

[Raquel Dancho, Conservative, Kildonan—St. Paul, MB]

Thank you very much to both of you.