August 12, 2009, Beijing, China

Speech by the Honourable Jim Flaherty, Minister of Finance, to the Canadian Financial Forum

Thanks for the kind introduction. Good morning. It's a pleasure for me to be here this morning and to speak in China. It's my second visit to China as Canada's Minister of Finance. I visited China once previously as Canada’s Minister of Finance, and also visited as Ontario’s Finance Minister.

I'm really happy to be here with the key people in the regulation of the Canadian economy, the Governor of the Bank of Canada and the Superintendent of Financial Institutions. You're going to hear from both of them.

I am also accompanied by some of the most important leaders of Canada’s financial institutions, including the life insurance and banking sectors. I am very pleased that Tiff Macklem, the Senior Associate Deputy Minister of Finance Canada is here, and that our new ambassador to China, David Mulroney, is also here.

This morning I would like to talk to you about Canada's response to the financial crisis of the past few years. I would also like to speak to you about relations between China and Canada historically, and also about the G20 and the G7 and what we expect to achieve in the coming year.

Our current mission to China is a continuation of the historic engagement between our countries which goes back many years. In fact, I was born in a place in Canada called Lachine, which in French means China. La Salle was the French explorer who thought he had arrived in China when he had only really discovered Montreal at that point, but of course that was the 17th century, so you understand that he could be several thousand miles off!

The engagement that we've had between our countries, as I say, goes back a long time. Today, our purpose is to expand that relationship, our friendship and our economic ties between China and Canada, and particularly their financial sectors.

So let me say a few words about how Canada has weathered the global economic storm in the past few years. I'd like to explain how Canada is taking a leading role for the future as well. Our country is at the forefront of ensuring the global system will come out of the turmoil much stronger than when it came in.

We should recognize the financial ties that have brought our two countries together so far. Although geographically China and Canada are far apart, we have had a profound influence historically on each other. Some one million Chinese have immigrated to Canada over the last century. They have made significant contributions to our country. They are living examples of the proud Canadian values of tolerance and generosity.

Canada has also contributed to the great history of China. Canadian missionaries built hospitals and schools here more than four decades ago, and of course, Canadian Norman Bethune is well-known for his work here in China in 1938-1939.

I'm very proud that, despite strong pressures, it was a Conservative Government of Canada and a member of the Conservative government in Canada that negotiated the first wheat sales to China in the 1950s.

Companies like Sun Life and Manulife pioneered economic networks throughout China over 100 years ago, and Canadian enterprises like Bombardier and SNC-Lavalin have been operating successfully in China for decades.

China is now one of Canada's largest trading partners. We have also become Pacific Rim economic partners through APEC.

Clearly, we share a long and proud history. We are building on that history to the benefit of the people of both of our countries. Even though I've only been here on this visit in China for a few days, I have had a number of very successful meetings with Chinese officials. I was honoured by meeting with Vice Premier Li, which underlines the importance that China attaches to its economic ties with Canada. These ties are important. The world economic crisis tested the financial frameworks of all countries, Canada and China included. I am proud to say that both of our systems have remained resilient.

We started in a good position in Canada when our government first took office in early 2006. We planned ahead for a time of recession. We had been running balanced books for years in Canada. We'd been paying down debt. We paid off about $40 billion Canadian in public debt in the first few years of our government, and this approach allows us to react when we need to in a time of economic challenge.

We are running a deficit now, but in contrast to the longer-term debts that exist elsewhere in other industrialized countries, our deficit will be temporary. We will be able to return to surplus over the course of several years.

As other countries run even larger debts during a time of recession, I'm speaking about western countries now, this has further weakened their financial status and their ability to stimulate their economies.

Canada is in better shape. We have a strong financial sector. This is important. The economic crisis started in August 2007 in the United States, as you know, with subprime mortgages. We did not have that kind of housing bubble in Canada and it's not an accident. Our lenders are more conservative and our subprime sector was small.

When President Obama visited Ottawa on February 19^th, he praised the Canadian financial system as a model to be looked at by the United States. I heard the same thing from congressional leaders when I met with them in Washington recently. International authorities like the World Economic Forum and the IMF have pointed to Canada as a model, as a way forward.

On May 10th, 2009, Asian Banker Magazine named Canada's Office of the Superintendent of Financial Institutions as the most admired bank regulator outside of the Asia Pacific and Gulf Regions. I'm sure that OSFI Superintendent Julie Dickson is justifiably proud of that recognition. I'd like to add my own appreciation of her work.

Now to the fiscal side. Canada has the best situation of any country in the G7. The International Monetary Fund expects Canada to have the smallest economic contraction in the G7 this year and the fastest growing economy next year. Let me be clear, we are talking about restrained growth here, modest growth, but it is a return to growth.

This fiscal strength has served Canada well. It's also enabled us to play an influential role, far greater than the size of our economy, in the collective call to fix the global system.

Canada's success gave us a strong voice at the global table over the past year, and we did not hesitate to use it. Canada has led by example. Canada was instrumental in the original creation of the G20. We believe that it's critical to reach out to emerging market countries such as China. I might add, it has been our long-standing position that countries like China deserve a voice in the IMF commensurate with the size of their economies.

At last November's G20 Summit in Washington, we delivered a straight-forward message, a message that was backed by a system that persevered while others struggled. The message was that sound regulation begins at home. Every country needs to fix its own problems because, in an integrated global financial system, we've all suffered the consequences of one another's mistakes.

Following the Summit in Washington, in November Canada was asked to co-chair the G20 working group on enhancing sound regulation and strengthening transparency, which we did, along with India. And our co-chair representative there was Tiff Macklem who's with me; he's the Senior Associate Deputy Minister of Finance Canada.

Their report went to the leaders of the G20 Finance Ministers at our last meeting in London in April and was endorsed by the G20 leadership.

China made a very positive contribution to that work. Chinese officials were very engaged and quite helpful in many respects.

As an aside, I would also like to say that I welcome China's membership in the newly expanded Financial Stability Board, and I expect that China will continue to make a positive contribution there.

The members of the G20 working group agreed that the only sure foundation for sustainable globalization and rising prosperity for all is one that includes an open world economy based on market principles, effective regulations and strong global institutions. If global stability is your destination, this is the road map. There has been broad international agreement on the fiscal front. We've assumed our responsibilities within an unprecedented, but necessary, national campaign to restore economic growth.

The stimulus contained in our budget this year went beyond the G20 and IMF targets. The total fiscal stimulus introduced in Canada is among the largest in any of the G20 economies.

We have been able to demonstrate international leadership and we look forward to continuing to do so.

Canada will chair the G7 and the G8 next year, and South Korea chairs the G20 next year. It's important that we work together internationally, and we are doing so. Canada and China have common interests such as open trade and global financial stability. We can and should work together to provide global leadership in these areas in forums like the G20.

The G20 will continue to focus on the global efforts to turn the page on the recession. This is somewhat different from the work Canada does with the G7, as I'm sure you know. It is the advanced economies that were at the root of the crisis. Our efforts at the G7 next year will focus on measures that advanced economies, in particular, need to take to ensure such crises are prevented in the future.

Just as 2008 and 2009 have provided lessons on what to avoid, 2010 can serve as a world blueprint for success. Together we are developing the long-term measures that will lead to recovery and help the world to avoid further crises.

So, in good times and bad, I can say this to you with confidence, you can count on Canada, you can count on Canada's stability, you can count on the stability of our financial regulation and the stability of our financial institutions. Even as we face great uncertainty, or should I say, especially when we face great uncertainty, that pledge will never change. I look forward to listening to you this morning. I'm happy to see so many people here to discuss our China-Canada relations.

Thank you.