Finance Committee on Feb. 19th, 2015

[Raymond Côté, NDP, Beauport—Limoilou, QC]

At a committee meeting, Mr. Zhu spoke to us about another concern regarding the thresholds and the quotas that have been set. He seemed to be saying that the quota might potentially be insufficient in light of the volume of transactions in goods and services with China.

Do you share that concern about the agreement?

[Peter Harder]

If the quotas are used this means that the businesses want to invest and benefit from this opportunity. Perhaps the quotas can be increased when they have been used up.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

I see.

I'd like to discuss another aspect.

As Mr. Zhu indicated, as a trading hub linked to the bond market, Canada is a medium power. Economically speaking, it is not a major player who can influence the course of events. That also is a challenge for Canada, which must have a sufficient volume for this type of market in order to justify the trading centre. Do you share that concern?

Perhaps Mr. Hopkins would also have an opinion on this?

[Peter Harder]

The Chinese government invited Canada to take part in this initiative. I think that businesses are going to use this tool. William Zhu and his bank have benefited from this initiative.

It is true that we are not a great power, but we have quite a good record in our economic relations with China.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Mr. Brakel, what do you think?

[Hendrik Brakel]

I'd like to add something to Mr. Harder's comments.

Regarding the volume of transactions, since there is quite a large clientele in the United States, if Canadian banks could increase transactions with the United States and see to it that many of those transactions and trades with the United States are done through Canada, the volume could increase. We are quite optimistic in that regard.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

I have to admit that I share the concerns of my colleague Pierre Dionne Labelle. We should not deceive ourselves; China's current position is due to the fact that it developed its economy through a type of leap forward. They put a great deal of emphasis on job support job, but they did not respect international trade rules.

China is now complying with international trade rules, but there are still concerns related to the real estate bubble and the fact that the Chinese domestic market has to convert in a massive way.

Do you also have concerns about the future? China was seen as an economic growth engine for the future. But we may find ourselves dealing with a rift due to this Chinese growth.

[Peter Harder]

Let me very briefly remind everybody that China has been in the WTO now for over 10 years. It has been an active member and has taken a number of issues to the WTO for adjudication, and others have taken China there. In each case, China has upheld whatever the decision has been in that process. That shows that the WTO accession and the rule of law in commerce is important internationally.

The second point I'd make is that what China is doing under President Xi in this new five-year plan is exactly what we've advised China to do through the World Bank study and the NDRC World Bank study, and that is to grow their domestic market and not just be an export economy, and to lower their growth rates to a more sustainable level. It is doing that.

That transition will have a lot of grind in it, but the overall direction is one that will ensure a more stable and sustainable Chinese partner in a global economy where it will represent 25% of global GDP.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Bateman, please.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you very much, Mr. Chair.

Thank you to all of our witnesses this morning. I really appreciate your comments.

I'd like to start with Mr. Harder.

You referred several times in your remarks to us this morning about the early-mover advantage, the head-start advantage. You said in another example that you recounted that the early-start advantage gives us the opportunity to brand ourselves, to secure that market, to make something happen. You said that we must act collectively and broadly.

Could you put a little more meat on those bones, some specifics?

[Peter Harder]

Sure.

I'll give you a classic opportunity that is before us. Australia has just concluded a free trade agreement with China. We don't have the particulars yet because the agreement has not yet been made public. We have pieces of it. But Australian barley farmers, for example, will be able to export their barley to China without a tariff. Canadian barley farmers will have that tariff.

Why aren't we negotiating actively with China to have access, particularly in those sectors that both sides have agreed ought to be a priority?

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Who is the “we”?

[Peter Harder]

I mean the Government of Canada.

China has offered, and the Government of Canada has said they're too busy. I think Canada should take the opportunity to engage. It won't be a quick negotiation. This will take some time, but the first step is the first step.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

What about the specifics of a small business?

Mr. Brakel, I so appreciated your example of the small business that was going to benefit from the renminbi centre, the virtual centre, with the museums, for example, and the small organizations.

How do we embrace the financial sector? In Winnipeg South Centre, for example, at the corner of Niagara Street, how do we walk down to that bank and perhaps assist a business person in my riding to access this opportunity, which is immense?

[Hendrik Brakel]

It is exciting, and it is about small business.

During the Prime Minister's trip to China, our CEO, Perrin Beatty, hosted a moderated talk with Jack Ma, the head of Alibaba, which people often call the Chinese Amazon. In fact, Amazon only has $90 billion in revenue, and Alibaba has $240 billion, so this is massive. He was saying that Alibaba and the electronic commerce is really about empowering small business. It's not that you have to have a big retail thing or a big multinational. You can go and list and use those electronic tools, even if you're in Mississauga or Winnipeg or Charlottetown. You can use those things.

When you speak to your banker, the local banker will call in the trade finance department at head office and say that renminbi exists. One of the challenges for the banks is to push these tools and this knowledge out to the local branches and local people.

We say, firstly, that there are a lot of electronic commerce tools available to SMEs, but also it's to talk to your bank and ask what tools are available to you.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

We're very well positioned, then, with the strength of our banking sector and its ability to reach out and support the various agreements that the government has put in place.

[Hendrik Brakel]

We hope so.

We've heard from the banks that they're excited about it, and they want to get geared up and make sure that they have—

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

What are you hearing is the plan? March 23 is fast approaching.

[Hendrik Brakel]

Well, yes, but March 23 is ICBC actually launching and saying that this hub is available. The banks have, I think, already started making sure that they have the services in place. When we were doing our report on the renminbi, what we wanted was to have companies announcing that they were planning to do or thinking about doing business in renminbi. The challenge is that they want to have all their ducks in a row and all of the arrangements made in advance.

Yes, we think there will be a pretty strong uptake, but it will take time.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Good stuff.

Mr. Hopkins, at the end of your remarks you spoke of the importance of marketing to and educating Canadian businesses.

What is your perspective on how best to achieve that?

[Jim Hopkins]

Well, it's meat and potatoes. It starts with forums. For example in Vancouver, our counterpart to the Toronto Financial Services Alliance—a group called AdvantageBC—will host a forum for business and financial institutions in Vancouver to showcase the RMB hub opportunity. Our government is setting aside a small budget to help in these endeavours.

They will also be doing workshops at the sectoral level. The business dynamics of a forestry company, by comparison with those of a mining company or a high-tech company, are unique, and we think that workshops that are sectorally focused will be helpful in getting traction with businesses in terms not only of their appreciating the opportunity but, at a granular level, of knowing how you contract with a Chinese counterparty. It's easy to say, but it doesn't just happen; you really must have that granular appreciation. We think that's very important.

The other thing I'll add is that, from our reading of the literature, another opportunity for getting better traction on this is trade missions into China itself to switch on Chinese businesses to the opportunities that exist to do business with Canadian companies in RMB and to invoice in RMB, because you have counterparties here in Canada who may be interested in engaging with you in RMB-denominated trade. There is also a missing link in that these Chinese companies don't fully appreciate what is happening in Canada and that we are open for business in RMB-denominated form.

It will take years of working this initiative, but this, we believe, is the first step.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Bateman.

We'll go to Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Chair.

Thank you for being here. I have a few questions.

I want to go to you first, Mr. Brakel. You made a statement to our honourable member from the NDP. When he talked about wine, you said it's better to receive RMB than U.S. dollars. I have a whole whack of questions, but can you tell me why there's an advantage there?

[Hendrik Brakel]

It's just the conversion costs. The Chinese buyer has to convert into U.S. dollars, and then someone has to convert into U.S. dollars. So it's just the conversion.