Good morning, Mr. Chairman, committee members. Thank you for the invitation to appear before you to discuss the Canadian Renminbi Trading Centre, or RMB hub.
The Canadian Council of Chief Executives represents 150 chief executives and leading entrepreneurs in all sectors and regions of the economy. Our members collectively lead companies that administer $6 trillion in assets; have annual revenues in excess of $850 billion; and are responsible for the majority of Canada's private sector exports, investment, and training.
The CCCE strongly supported Canada's efforts to secure an RMB hub, as we believe it will deliver significant benefits to Canadian businesses, financial institutions, and the economy. I'm going to begin today by discussing some of the benefits of the RMB hub and then conclude with recommendations on what Canada needs to do to ensure the hub is a success.
To start with the benefits, the most significant benefit to Canada of the RMB hub is its potential to facilitate trade. Canada and China have a large and growing trade relationship. China is Canada's second largest national trading partner, while Canada is China's 13th largest trading partner. Despite historically resource-intensive trade between Canada and China, trade is diversifying with services trade trending upward, increasing more than 50% from 2007 to 2012. There is also a shift toward trade in value-added goods like manufacturing exports. But there is room for significant growth in our trade relationship, as Canada remains a much smaller partner to China than other countries with similar complementary sectors. For example, China's imports from Canada only represent 1.3% of total imports, which is low when compared with those from Switzerland or Germany where imports are 1.5% and 5.1% respectively.
A number of sectors hold great potential for increased trade. Canada only provides 0.2% of China's total petroleum and gas compared with Saudi Arabia at 19%, Angola at 14%, and Russia at 9%. Similarly, China has significant export capacity in industries such as machinery and equipment, manufacturing and electrical machinery, but only supplies 10% and 16% of imports to Canada compared with the U.S., which provides 56% and 46% respectively.
The RMB hub has the potential to improve Canada's trade with China by reducing foreign exchange costs for importers and exporters, facilitating both trade and investment. Dealing in RMB also gives Canadian businesses a competitive advantage when selling to Chinese trading partners that prefer RMB-denominated transactions. According to estimates from the Canadian Chamber of Commerce, whom you heard from last week, denominating exports in RMB has the potential to grow Canadian exports to China by an additional $21 billion to $32 billion over the next 10 years.
In addition to benefiting both importers and exporters, the RMB hub creates new opportunities for Canadian financial institutions. Along with the Mexican peso, the RMB has witnessed the most significant rise in market share among major emerging market currencies. The RMB is expected to become one of the three most traded currencies in the world in 2015. This will take China's financial integration with global markets to a new level. Securing the first RMB hub in the Americas gives Canadian financial institutions a distinct first mover advantage and the provision of RMB-denominated financial services to Canadian businesses and firms in the western hemisphere that have commercial ties with China. Such services can include corporate RMB accounts, lines of credit, and facilities to transact foreign exchange and make payments in RMB.
Now moving on to what needs to be done to ensure the success of the RMB hub. As you heard last week from the ICBC, Canada has a relatively short window of three or four years to take advantage of its RMB trading hub before China is expected to liberalize its capital account, reducing the competitive advantage that the hub creates. To make the most of this opportunity, Canada must establish a long-term vision for deeper Canada-China engagement that includes the following two actions. One, it must create a strategic partnership with China. The lack of a more developed and on-going China strategy in Canada is a major gap in our economic portfolio, especially considering that China is Canada's second largest trading partner after the U.S. Without such an agreement we risk falling behind our competitor nations. Two, it must launch free trade negotiations with China. Canada must take the next step in our trade relationship by launching bilateral free trade negotiations. Eliminating trade and investment barriers will give Canadian businesses a competitive advantage.
In conclusion, the CCCE congratulates the government on securing an RMB hub in Canada. Canada has the opportunity to be a market leader but we must act quickly.
I'd be happy to answer any questions. Thank you.