Evidence of meeting #69 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was renminbi.
A recording is available from Parliament.
Principal Officer and General Manager, Toronto Branch, China Construction Bank
Yes, I think the Chinese government will take major steps to liberalize the RMB in the future.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Okay, thank you very much.
Bryan, can you tell us what the impact is going to be on the Canadian financial sector? What preparations are banks taking to get ready for this trading hub?
Managing Director, Head of Market Infrastructure, Royal Bank of Canada
Certainly we are in the early stages, as I mentioned in my remarks, so the potential of this over time will continue to grow as we better understand the advantages that will come from it in trade and investment facilitation.
Again, because this is largely a book entry oriented facilitation and a regulatory privilege facilitation, a huge, direct investment in the financial system is not required here. It's mainly going to be helping end users and clients and others in being able to transact, either financially or commercially.
As I've mentioned before, this is very much like a lubricant that will help facilitate and reduce transaction friction for participants, in that the transaction volume will grow over time as there's more awareness regarding the advantages and there's more ability to leverage the advantages from it.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Thanks.
The training in RMB is going to go through your current currency department, I presume. Will there be a need to hire new people specific to this particular trade?
Managing Director, Head of Market Infrastructure, Royal Bank of Canada
In the short term, I don't think there will be. I can't speak for the other banks. I don't think there will be a significant employment pickup from the financial sector. We actively trade in 30 currencies now, including the renminbi and the CNY, or the offshore version of the renminbi, the CNH. So in many respects, a lot of the services being provided are already there. This will be a facilitation to accelerate what can be done in this space, but don't expect it to contribute significantly to a—
Conservative
Andrew Saxton Conservative North Vancouver, BC
Okay, thank you.
Professor Curtis—who I just found out went to the same elementary school as I did—do you have anything to add about how this is going to help with the trade with China?
Conservative
Liberal
Scott Brison Liberal Kings—Hants, NS
Thank you very much.
Thank you very much to each of you for joining us today. I appreciate your insight and the importance of the renminbi hub for Canada.
The whole question of China-Canada relations and two-way investment flows is an important one to Canadians. Some Canadians are asking, what should our treatment be of state-owned enterprise investment in Canada? It's an important question and I'd appreciate your insights on that.
There's a range of views. Some people say that as long as they're abiding by Canadian regulations and paying royalties, whether it's labour or environment or whatever the rules are, we ought to effectively treat them as equal to other investors.
I would be interested in your views.
President and Chief Executive Officer, AdvantageBC
I'll jump in first. My quick answer would be that I don't think we should treat the SOEs any differently from how we treat non-SOEs. I also think that when it comes to the renminbi settlement issue, there may be an advantage to working in partnership with the SOEs in that they're probably in a better position to offer better price advantages to Canadian exporters and importers than perhaps some of the non-SOEs are able to do. So I think some of the SOEs may be much more aggressive when it comes to giving Canadian companies price advantage.
Managing Director, Head of Market Infrastructure, Royal Bank of Canada
I think it would be very situation specific. I don't have broad views on the subject.
Consultant and Adjunct Professor, As an Individual
I'll add a very brief point to say that SOEs and the way they are treated in the international trade system is under negotiation in several fora internationally, particularly the trans-Pacific forum. I think the answer to your question will emerge as various negotiations emerge.
Liberal
Scott Brison Liberal Kings—Hants, NS
Jim Prentice, former federal minister and now Premier of Alberta, in a speech in London, in December 2013, said that the tone must change in terms of Canada's approach to foreign investment, specifically Chinese investment. He said that Canada's new takeover rules were scaring off foreign investment and he cited the CNOOC-Nexen precedent and the ambiguity created by that precedent, specifically that foreign investment or direct investment in Canadian natural resources fell off a cliff in 2013, dropping by 92%.
Do you have any thoughts on how we should add more clarity to our foreign investment rules in order to attract more investment as opposed to scaring it off?
President and Chief Executive Officer, AdvantageBC
There was a chill, and I think it comes down to communication, because in anything to do with international business, international finance, companies and countries are looking for certainty and they're looking for stability. I think just the fact that Canada changed its policy would cause concern and people would want to know what the new direction would be. I think we're getting past that and people are understanding that.
Initially, right afterwards, we certainly had Chinese companies asking whether Canada still welcomed their investment renminbi. The answer would be yes. Rules are changing and they need to understand that, but I think we're now getting to a new sense of stability.
Principal Officer and General Manager, Toronto Branch, China Construction Bank
That's an interesting question. My Chinese clients asked me, I think in the past year, especially after the great Nexen deal was finished and Canada announced some information to the Chinese enterprises. Those kinds of messages slowed down the investment activity from China because the message conveyed to the Chinese enterprises in the natural resources ore industry was that maybe Canada wanted to slow down investment activity and also the MMA activity from China.
I think we need to change this message and give new information to Chinese enterprises and let them know more about the new policies and strategies of Canada. For example, next week we will have PDAC mining conference in Toronto. You could send more messages through this conference and convey a more positive message to the Chinese enterprises.
Consultant and Adjunct Professor, As an Individual
I'll be very quick. I learned this in the public service and elsewhere. While politics always influences and is an element of commercial activity—and I would suggest you look at point one of my presentation—ultimately investment and trade depend on the economics, on what's worth doing and what is not worth doing. That's really the key point.
Liberal
Scott Brison Liberal Kings—Hants, NS
Sure.
So when the Prime Minister said, “Canadians have not spent years reducing the ownership of sectors of the economy by our own governments, only to see them bought and controlled by foreign governments instead”, that may not have been helpful at the time, but perhaps a new tone will emerge in terms of the attitude towards Chinese investment.
In terms of renminbi bonds, is there potential to finance some of Canada's infrastructure needs through bonds issued in renminbi? I'd be interested in the potential for that. We require a lot of investment, even for projects like the Ring of Fire and Plan Nord. Is there potential?
February 26th, 2015 / 9:30 a.m.
Conservative
Managing Director, Head of Market Infrastructure, Royal Bank of Canada
I'd be pleased to answer that.
The access to bond markets, in virtually every currency, is often a function of what price the issuer can get. RBC Capital Markets, for example, issues bonds in a variety of currencies. We may have European issues in Australian dollars or foreign investors in Canadian dollars. They may or may not hold on to the original currency; it may be swapped back into other currencies. Ultimately it's a function of the cost of the borrowing in that currency and whether it creates the right distribution of investment in the liabilities of the issuer.
The offshore market for the RMB has much lower rates than the onshore market, so some of the suppression and activity in the dim sum market is because there is a difference between the onshore and offshore rates driven by regulation.
The hub and the RQFII and the liberalization will eventually diminish that difference. I would basically say that it's a cost decision that's driving a lot of it now. The appeal of the swapped dim sum issue may not be as attractive as other alternative financing methods, but if it were attractive, it would certainly be an alternative. I wouldn't rule it out, but I think cost is going to be a principal driver.
