January 19, 2007

Archived - Speech by the Honourable Jim Flaherty, Minister of Finance for Canada, to the Canada China Business Council

Beijing, China

Check against delivery

 

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This is my second visit to China and I am, of course, struck by the tremendous growth and the promising economic opportunities available for both of our countries-for Canada and for China. China's appetite for natural resources, which has been the subject of a number of my discussions here, for professional services, for skilled labour-these are enormous demands and they continue to expand.

Canada, for its part, is well positioned to help meet these growing needs. Our Canadian economy is strong, I'm happy to say as Finance Minister, and it's getting stronger. Canada has a highly educated and skilled workforce. We are an emerging energy superpower. We are a centre of excellence in science and technology. We are a natural gateway to the largest market in the world in North America, and a modern financial services centre.

In addition, although geographically China and Canada are a world apart, we've had a profound influence historically on each other. Some 1 million Chinese have emigrated to Canada over the last century, making a significant contribution to our social fabric and helping develop the Canadian values of tolerance and generosity that we live by each and every day.

Canada has also contributed to the rich history of China. Canadian missionaries built hospitals and schools here, as you know, more than four decades ago. Despite the strong pressures that Canada faced during the Cold War period, it was a Conservative Government of Canada that negotiated the first wheat sales to China. Companies like Manulife pioneered economic networks throughout this country over 100 years ago. And Canadian enterprises like Bombardier, SNC-Lavalin and Nortel have been operating successfully in China for decades.

China is now Canada's second-largest trading partner, after the United States, and we have become Pacific Rim economic partners through APEC. I had a very productive meeting with Minister Jin at the APEC meeting in Hanoi last year, and again a very productive meeting yesterday with him. Clearly, we share a long and proud history, and we are working toward a future that is mutually beneficial to both countries.

Not surprisingly, today most of Canada's large financial institutions are active in China and they are looking to expand. During a breakfast meeting yesterday morning, one of our senior bank executives said something-I think he put the issue rather succinctly when he said: "In order to succeed globally, we need to succeed here in China." I think that's true for my country, Canada.

That message, I can assure you, has not fallen on deaf ears with the Government of Canada. Canada's New Government is actively working to strengthen the Canada-China relationship. We want to engage the Chinese and open doors further for businesses in both countries. That's why I'm here and that's why my colleague David Emerson, the Minister of International Trade, was here earlier this week, and that's why two other Cabinet colleagues were here last year.

I did have some pains the last couple of days to try to explain what minority government is like, which is what we have in Canada, and the fact that we can't travel. Those of us who are in Cabinet are also Members of Parliament, and while Parliament is sitting we're tied to our chairs in Ottawa, because we have to be available to vote so that the government doesn't get defeated, which is one of those unusual features of our system. Those visits though are important, and when we've had the opportunity, as we do during this month of January when our Parliament is not sitting, it's important that we be here, and that is why we're here.

I think you'll agree that China and Canada can achieve far greater success by building relationships and working together to advance the dialogue on economic and financial issues.

For most of its history, China has been one of the most powerful and innovative and highly developed nations on earth. Long before there were markets in Venice and London or anywhere else in the Western world, China was actively trading with markets in India and the Arab world.

Today China has re-emerged as a global economic power. China's GDP has increased sixfold since 1978. Foreign investment here has soared, as you know, since the 1990s. Since China's succession to the WTO six years ago, its trade volume has tripled; it's expected to continue to soar in 2007 and beyond. In fact, China is now the world's third-largest trading nation and will soon be the third-largest economy.

The global economy will, to a considerable extent, be shaped by what China does and by the leadership it provides as it assumes greater responsibilities. Clearly, the Government of China is not taking future success for granted. It recognizes that there are challenges that must be overcome, including those which are enumerated, highlighted in the 11th Five-Year Plan:

• building a better social safety net;
• achieving greater environmental sustainability;
• using energy efficiency and other innovative measures to increase scientific development; and
• opening wider the financial sector.

We in Canada are confident that China can address its challenges bilaterally through deeper engagement and integration with countries such as our own, and multilaterally by helping to renew essential global institutions.

So my message to you today is simple: Canada's New Government understands that to make the strong Canadian economy even stronger we need to engage China and build upon the great potential of this important relationship. By working together we can become partners in global economic growth, new scientific innovation, energy and environmental sustainability, and financial services trade. This was the theme of the conversations I had with my colleague the Minister of Finance, with the Governor of the People's Bank of China, with senior officials of China's regulatory commissions for insurance securities and banking, and with other officials.

Now let me take a moment, if I may, to talk about the opportunities to expand trade and investments. We can and we should be cooperating on reaching our economic goals and building on each other's strengths. Canada is increasingly being seen by Chinese business leaders as a natural investment destination. In a recent survey of Chinese businesses by the Asia Pacific Foundation of Canada, Canada ranked fourth worldwide in its attractiveness for Chinese investment. It is seen as the country most open to Chinese investment, bolstered by the fact that we are a gateway to North and South America. The Pacific gateway is an integrated system of ports and airports, road and rail connections, that link us deep into the heart of the North American marketplace. And, in fact, as many of you will know, the west coast ports of Canada in Vancouver and Prince Rupert are two to three days closer to key Asian ports than our American competitors. At the same time, the Foundation found that only 19 per cent of Canadian companies have a China strategy.

So clearly we need more Canadian companies in China. We need to boost trade and investment by showcasing Canada's business advantage, by marketing our innovative, scientific and technical capacities in areas such as aerospace, wireless technology and health sciences. These mutually rewarding investments will grow even further once the Foreign Investment Protection and Promotion Agreement-FIPPA is the acronym-is concluded between our two countries, which hopefully will happen later this year; those discussions are going well.

We also need to do a better job of educating potential investors about the strong Canadian economic position in the world. Canadians, those of you who are Canadians, should be proud of Canada and proud of our economic performance. Our economic fundamentals are rock solid.

Let me tell you about a few of our strengths.

• We are on the best economic and fiscal footing of any G7 nation.
• We have the lowest debt burden in the G7.
• We have the highest employment rate in the G7. We have the lowest unemployment rate in over 30 years.
• We have the highest rate of participation in the labour market in Canadian history.
• We are in the midst of the second-longest period of economic expansion in our history-the 15th year of economic expansion.
• We are making significant progress in lowering taxes on families and businesses. In our spring budget last year-Budget 2006-we made reductions in every way the federal government taxes Canadians: consumption taxes, income taxes, corporate taxes, excise taxes-all were reduced.
• Our government is also committed to balanced budgets, debt reduction and reducing the regulatory burden on business.

Our government has made significant progress in just a little under a year, but we aren't about to rest on our laurels. The world is not standing still, and this competitive global economy requires political determination; it requires will; it requires vision; and it requires a solid plan of action.

So we created a plan in the past year called Advantage Canada, which we announced and published in November. It is a medium-term economic plan that sets out a bold and exciting course for a strong, united and outward-looking Canada, a Canada with purpose and passion that believes in itself and is a shining example to the world of what a great nation can be.

Our Advantage Canada plan focuses on creating five key advantages for people across Canada:

• a tax advantage first of all, by reducing taxes for all Canadians and establishing the lowest tax rate on new business investment in the G7;
• a fiscal advantage by eliminating Canada's total government net debt in less than a generation-we will eliminate the net debt by 2021, 15 years from now;
• an entrepreneurial advantage by reducing unnecessary regulation-red tape-and by increasing competition in the Canadian marketplace; we'll reduce the paper burden by 20 per cent;
• a knowledge advantage by creating the best-educated, most-skilled and most flexible workforce in the world; and
• an infrastructure advantage by building modern world-class infrastructure that ensures that we can move people and goods in and out of Canada.

You know, Canada is a great trading nation. Throughout history, from fish to furs to cars, we have sought out and developed global economic partnerships. Our Advantage Canada economic plan will help us build and expand this vitally important tradition. It will also guide us as we seek out and encourage additional foreign investment, and I had a lot of discussion about that the last couple of days. I want to reaffirm clearly that Canada is open to foreign direct investment. We believe our best interests are served by being open to the world, by reaching out and attracting the best and the brightest.

Now, greater openness is not just about trade and investment, it's also about partnerships in other areas such as education and research and development. That's why it's so gratifying to see our two nations building new partnerships. In education, for example, China is now Canada's second-largest source of foreign students. One of our universities, the University of British Columbia, has seen its Chinese student enrolment grow nearly 10 times in less than a decade. In research, a major new step forward took place this week when my colleague, the Minister of International Trade, David Emerson, and China's Minister of Science and Technology, Xu Guanhua, signed the Canada-China Science and Technology Agreement.

In energy-this is another area where Canada and China can work together, not only in the best interests of our own countries but also in the best interests of the global economy-we need international cooperation to ensure the world's energy and other resources are used in a way that not only sustains long-term economic growth, but also the long-term health of the planet.

The growth of China and other nations is creating unprecedented energy demands. China accounts for 4 per cent of global GDP but also for 12 per cent of global energy consumption. China is rightly concerned about future security and sustainability of the world's energy resources.

Canada strongly believes that such a secure and reliable energy resource will only be possible through open global markets that work for all. Well-functioning markets are the route to more efficient investment-the wiser use of resources, more sustainable production methods, and the development of promising technologies that can benefit the environment while encouraging growth and development. As an emerging energy superpower, Canada offers China and other nations a stable, secure and sustainable source of energy resources.

The facts regarding our growing energy strength speak for themselves. Canada has the second-largest oil reserves in the world; only Saudi Arabia has more. Canada is now the seventh-largest producer of oil in the world and has surpassed Saudi Arabia as the largest supplier of oil to the United States. Canada is the third-largest producer of natural gas in the world. The number-one producer of clean hydroelectric power. The world's largest producer of uranium. Between now and 2015, energy investment in Canada is projected to be about $400 billion. The production from Alberta's oil sands stands at approximately 2.5 million barrels a day now and is on its way to 4.6 million barrels per day by 2015.

And that's not all. Beyond energy resources, we're the world's largest producer of potash, the world's third-largest producer of nickel, aluminum and diamonds, and the largest exporter of forest products in the world. So our potential is truly enormous.

Canadian-listed companies lead the world in raising equity for exploration and mineral development, while about one-fifth of the world's mineral exploration spending is targeted for Canada, surpassing all other countries.

Now, most people outside my country, and even many within it, don't realize all that Canada has to offer, yet in an uncertain and often volatile world Canada is a secure source of the commodities most in demand, and we're making the investments necessary to unlock the true potential our resources can offer. And I can assure you, we will do so in a sustainable and environmentally friendly way.

Canada recognizes that the issues-I call them the three E's-of the environment and energy and the economy are inextricably linked together and must be dealt with together-the environment, energy and the economy. As a result, we are taking unprecedented steps to protect Canada's environment for future generations. We introduced clean air legislation recently in the House of Commons in Ottawa, doing three things that haven't been done before in Canada.

First of all, we will regulate air pollution-smog. This is as opposed to greenhouse gas emissions. We will regulate air pollution, smog, in Canada. That's the first time that's ever happened.

Secondly, we will reduce greenhouse gas emissions in Canada not by buying credits from other countries. We will do it within our own nation, reduce our own greenhouse gas emissions.

And thirdly, this is the first-ever federal clean air regulation of all industrial sectors in Canada, which is a major step, to regulate all sectors including the resource sector, including the automobile production sector in Canada. It has not been done before.

So we'll continue to focus on improving the environment and improving the quality of life for the benefit of Canadians.

Canada also looks forward to working with China in further opening up the country's financial sector as it becomes more efficient and responsive to the growing needs of its citizens. As countries such as China introduce ambitious market reforms to their financial sector, the potential benefits across the economy and society are substantial. And we have a great deal to offer in this area.

In my responsibility as Minister of Finance, I'm also the Minister responsible for the Greater Toronto Area, which is the financial centre of Canada, with tremendous employment in the financial services sector. Our financial services sector is among the most innovative in the world. Importing more of our Canadian knowledge and expertise would be a great benefit to the people of China.

Clearly, increased foreign financial service investment brings with it additional capital and knowledge and skills and technologies. By setting financial sector reforms into motion, the results are more confident consumers, a more balanced economy less reliant on exports, improved productivity and higher living standards.

To an unprecedented extent, China is doing that. By implementing WTO commitments, China is removing geographic restrictions on the establishment and operation of foreign insurers in the Chinese market, allowing foreign financial institutions to offer services to customers, and permitting foreign financial service providers to establish securities and fund management joint ventures with Chinese partners. By doing so, China is creating new opportunities for its citizens and businesses, as well as foreign institutions, to add value based on their experience and expertise. Canada encourages China to maintain this momentum by fully implementing its WTO commitments and to ensure a transparent, predictable and efficient regulatory environment.

Canada's financial institutions are playing their part in the sector's transformation. A couple of examples-the example of Manulife, a Canadian financial institution that first invested in China in 1897. Today, it is making further inroads through Manulife-Sinochem Life Insurance, the first joint venture life insurance company established in China, which began operations here about a decade ago. Or consider Sun Life's joint venture with China Everbright Group, which began in Tianjin in 2002 and was the first joint insurance venture in northern China.

Canada's banks are also participating in the development and growth of China's financial sector. The Bank of Montreal, Scotiabank, the Royal Bank of Canada and the Canadian Imperial Bank of Commerce all operate in China and plan on increasing their presence.

In addition, Canada's stock exchanges are building bridges to partners in China. There are currently 32 Chinese companies listed on one of the two TSX Group equity exchanges and a further 21 companies located in Canada, with a majority of their assets in China. The Montréal Stock Exchange, meanwhile, has announced memoranda of understanding with four Chinese exchanges, arrangements which bring the promise of cutting-edge technology to help develop highly efficient Chinese derivatives markets.

Canada's New Government sees these initiatives as good for China and good for Canada, but clearly we can do more. These are goals of my visit: to build greater and more open bridges between the financial sectors of both our countries, to reduce regulatory barriers, and allow commercial enterprises to freely compete and expand. The Financial Sector Policy Dialogue, which is our ongoing partnership on regulatory issues that China hosted during this visit, is just one example of how the officials of our two nations are working together for further economic growth and prosperity.

We've only scratched the surface of what our two nations are capable of accomplishing together, not just to attract investment today, but to ensure prosperity tomorrow.

Another area is pension reform. I note that China's goal under the 11th Plan is to ensure social fairness and reduce inequality through measures such as a nationwide pension system, and I've had some discussion over the last two days with my Chinese colleagues about that. This is another area that will benefit immensely from financial sector reform. It is also a domain where Canada has a rich and positive experience to share with its Chinese partners. Our public pension plan system, the Canada Pension Plan together with the Quebec Pension Plan, is considered sustainable at current contribution rates until at least 2078. That's after taking into account to effects of an aging population.

Canada quite simply is considered to have one of the most well-developed private pension and retirement saving systems in the world. We consider our pension system an economic as well as a social policy success. Given that the proportion of the income Chinese citizens devote to savings is greater than the savings rate in Canada, the benefits to China of enhancing pension security for its workers while channelling savings to productive use in the economy are enormous. By following such a path, China can create its own virtuous circle, with increased wealth that can be further directed to strengthening the social safety net and toward investments in education, health care, infrastructure and the environment.

So I hope I've demonstrated that through constructive partnerships with Canada and other countries in trade, investment, energy and the financial sector, China can be better equipped than ever to overcome the challenges it has identified and to play a leadership role at the centre of the global economy.

But we believe China's engagement and leadership are also needed on another front, specifically to help make essential international institutions, such as the International Monetary Fund and the Group of 20, more relevant and effective in the years to come. Canada is deeply committed to making these international institutions stronger, and we see China as an important partner in this endeavour.

The recent reforms of the International Monetary Fund offer a compelling example of our two countries, of Canada and China, working together and demonstrating true leadership.

The first stage of IMF reform, which resulted in an ad hoc voting share increase for China and three other nations, was an important milestone, which was reached at Singapore at our last meeting, not just for the IMF or just for China, but for the entire world. With this reform and a second phase of reforms to come, the valid complaints that these countries' voting weights should better reflect their spectacular economic growth are finally being heard. With increased input of course comes increased responsibility. With better representation at the IMF, China must now play an even more critical role in ensuring a more flexible, market-based international financial system.

Another area where China can make a real difference on the international stage is in the fight against money laundering and terrorist financing. It's an issue where Canada is once again playing a leading role, particularly since this year we are the chair of the Financial Action Task Force, or FATF. The FATF can only gain, in my view, from a stronger Chinese presence and participation, and China being a voice at the table.

So Canada's comprehensive relationship with China involves engagement not just on commerce but in a wide range of areas including human rights issues. As a pluralist, democratic society, Canada and Canadians believe in all freedoms, from economic to personal. My colleague, the Minister of International Trade, stated during his visit last week that China's dramatic economic success has come hand in hand with economic freedoms that are creating new opportunities for China's citizens, and we want to see China benefit from more of these freedoms and to continue setting the stage for economic growth, prosperity and success in the years to come.

Now, I've gone on almost as long as it seems. I'd like to conclude with a few final thoughts, if I may.

We have a tremendous opportunity before us and we must seize that opportunity. China and Canada have common interests; we have common goals. We have the ability and the focus, the commitment to achieve those goals.

This begins by recognizing that China is an economic power whose reach and influence continues to expand around the globe. It is an economic force that needs resources, innovative technologies, skilled labour and greater access to global markets.

Canada, on the other hand, is an emerging energy superpower, a centre of excellence in science and technology, a country with a highly educated and skilled workforce, and a natural gateway to the largest market in the world.

The mutual benefits are obvious. Our relationship, historic and powerful, is now maturing and deepening. Canada's New Government is determined to ensure we further our relationship with China. It is good for the families and businesses in both countries.

May I say that I appreciate deeply the hospitality of my Chinese hosts. In a few days, I will leave your country with a greater understanding of China's rich culture, of its bustling cities, its booming economy with its strengths and challenges.

And I'll also leave knowing that the business leaders in this room are working hard, day in, day out, to transform the immense potential of Canada's economic relationship with China into a reality.

And I want to ensure you that in the months and years to come, Canada stands ready and willing to work shoulder to shoulder with you to build stronger, more prosperous economies in both our countries, and a more sustainable and secure global economy.

Thank you for your kind attention.