What if Canada succeeds as a major Renminbi clearing hub?

Photo source: MildChina.com

Photo source: www.MildChina.com

Canadians face choice to welcome or oppose China’s growing influence and investment funds

By NG WENG HOONG

OnePacificNews, June 25, 2015, Thursday

Amid the growing debate over China’s influence in Canada, an estimated 200 delegates attended the June 16 inaugural Pacific Finance & Trade Summit in Vancouver to promote Canada as a trading and clearing hub for the Chinese currency.

News soon began filtering in that one of their own in Ontario in pushing for increased trade ties with China had or has been under surveillance for at least five years for being “too close” to Beijing. “Treason” and “espionage” were mentioned in a sensational Globe and Mail story about Michael Chan, a China-born naturalised citizen who has risen to become a cabinet minister in Ontario’s Liberal Party government. But no charges have been laid, and two days after the June 16 story, the Federal Justice Minister punctured the newspaper’s claim by denying that he had confirmed Mr Chan was under investigation.

Nevertheless, given the prevailing anti-China sentiments in Canada’s newsrooms, the centrist Globe found rare support from its right-wing National Post rival. In her column, Diane Francis, a noted China critic, added to the Globe’s narrative by declaring that Canada could suffer “long-term pain” if its business elite continues to cozy up to Beijing. She also suggested that Chinese migrants since billionaire Li Ka-shing’s entry into Canada in 1983 have little love for their adopted country as they’re really aiding Beijing’s takeover of Canada’s natural resources while they inflate real estate prices to the detriment of less well-off citizens.

Days earlier, in a three-part series on the rapid growth and transformation of Richmond city, the Vancouver Sun’s diversity columnist Douglas Todd reprised some of his criticisms about Chinese migrants: ethnic enclaves, proliferation of Chinese language signs, rising housing unaffordability and weakening community cohesion.

Long suspicious of China, The Tyee, a left-leaning online publication, weighed in with a new critical report on how Prime Minister Stephen Harper sold Canada off to Beijing through the Foreign Investment Promotion and Protection Agreement (FIPA).

Rarely has the entire spectrum of Canada’s ideological divide been so unanimously united in their opposition to one entity. In the Canadian spring, fear of China and things Chinese is in various stages of bloom.

 

The curse of interesting times

These are interesting times for Sino-Canadian relations. While both sides have matching economic imperatives — China needs natural resources and services, Canada needs markets — domestic politics in both countries along with strained interactions between newly arrived Chinese migrants and Canadians are having an unpredictable impact on bilateral and people-to-people relations.

With Canada’s economy sliding towards recession amid the prolonged oil and gas price collapse, its business leaders recognise the urgent need for expanded long-term economic ties with China and Asia to reduce dependence on the US.

Among those at the June 16 event were China’s Vancouver-based Consul General Liu Fei, BC’s trade minister Teresa Wat, finance minister Michael De Jong, two of his predecessors, a former finance ministers each from Alberta and Ontario, as well as representatives from at least five of the world’s largest banks. Four of those banks are from China, led by the Industrial and Commercial Bank of China (ICBC), which has more than US$3 trillion in assets and the role of clearing RMB trades for the Americas.

In over three years as consul general, Madam Liu said she has travelled across BC to meet with the mayors and business people of more than 30 cities and towns who eagerly ask about increasing trade ties with China. She tells them to use the RMB hub to expand their network of suppliers and customers in China while saving on currency transaction costs.

Despite bilateral trade reaching a record (C$77.43 billion) last year, she said both countries are fulfilling a mere fraction of their export potential. Canada has room to substantially increase export of its quality products to China’s 1.4 billion people after selling just C$18.8 billion worth last year. She didn’t say why Canada is underperforming in its China sales.

Colin Hansen, a former BC finance minister who now heads up AdvantageBC, describes the RMB hub as a huge opportunity for Canada to create a new line of business to serve companies throughout the Americas who are planning to or are already doing business with China.

AdvantageBC is a Vancouver-based group representing about 150 financial and business organisations tasked with promoting BC as an international business centre. It is working with the Toronto Financial Services Alliance (TFSA) to jointly promote Canada’s RMB hub business since its official launch on March 23. The Pacific summit was organised by CityAge.

With China rapidly globalising its currency to match its expanding economic reach, Mr Hansen said Canada with its strong physical, banking and legal infrastructure and stable political system is well-positioned to succeed as a RMB hub. Vancouver and Toronto have the added strength of their diverse populations, in particular their ready pool of Canadians who are fluent in English, Mandarin and Cantonese.

 

Politics matter more than ever

But not everyone wants Canada to become China’s currency booster, seek expanded trade and investment ties with the communist regime, and have more Mandarin or Cantonese speakers in the population mix.

Disregarding their country’s gloomy economic outlook, 49% of Canadians recently told the Asia Pacific Foundation of Canada (APFC) they don’t want any investments from China, citing a range of fears from loss of control of strategic assets to environmental, health, safety, security and labour challenges.

Politically, the RMB hub faces a hard sell as Canadians are becoming increasingly negative towards their country’s second largest trade partner.

Canada’s mainstream media have played to the public’s anti-China mood by highlighting Beijing’s territorial bullying of smaller Asian countries, its disastrous environmental record, and human abuses while downplaying Chinese contribution in boosting the economies of many countries around the world. Rarely mentioned is that even Canada has benefitted from its growing China-led Asia trade, with many resource towns of British Columbia and neighbouring provinces lifted by over a decade of strong demand.

Instead, judging from news reports, some Canadians have a long list of complaints against new Chinese migrants who have settled mostly in the main urban centres around Greater Vancouver and Toronto. Many are wealthy and are not integrating well due to their lack of fluency in either the English or French language.

64% of Vancouver residents blame Chinese-led foreign buying for causing the city’s rising real estate cost, according to a recent Angus Reid survey. The media has focused on Chinese buying of expensive high-end homes to reinforce the narrative that unfettered foreign capital flow into Vancouver is hurting the ordinary wage earner. It has reached the point that residents completely dismiss official data that foreigners account for just five percent of the city’s real estate demand. The media has hardly investigated other causes of Vancouver’s rising housing unaffordability nor has it provided a balanced picture of how Chinese investments and demand have helped Canada escape the worst effects of the 2008 global financial crisis.

Indeed, at a roundtable discussion preceding the Pacific Summit, the media‘s focus was on how a successful RMB hub might further increase Vancouver’s housing misery, rather than the employment or business opportunities and gains that it might bring.

Richmond city stands out as the symbol of what not to like when Chinese migrants and money become dominant. The proliferation of Chinese language signs at the expense of English and French in sections of downtown Richmond leads the complaints of many long-time local residents that the new arrivals are insensitive and unwilling to integrate.

“If all they’re bringing in is money, they won’t become a true part of Canada. The new migrants must make an effort to learn English or French and adapt to Canadian values,” said Stewart Beck, the APFC’s president and CEO, in an interview with this writer.

Richmond’s integration challenges could have influenced Ottawa to abruptly shut down a popular immigration programme in February 2014 that according to the South China Morning Post had built up a backlog of applications from 45,000 Chinese millionaires. While many countries would have killed for the injection of so much instant wealth, the Federal government recognised that the influx of so many foreigners in a short time would have created a host of political and social issues for Canadians.

Canadian suspicion has also been aroused by Beijing’s rush to “splash the cash” to tie up trade and investment deals. Throwing caution to the wind in 2012, state-owned China National Oil Corp (CNOOC) paid a very generous 61% premium of more than C$15.1 billion for a medium-sized oil and gas company with little growth prospects.

That record deal for both countries has ended badly for the acquired Nexen Inc leaving behind a trail of job cuts, broken promises and unfulfilled expectations. CNOOC’s reputation has taken a beating, but so has Canada’s image in the eyes of Chinese investors as they were clearly made to feel unwelcome throughout the acquisition process.

With that deal’s failings still fresh in the memory, many wonder if the potential benefits and gains of the RMB hub project could just be as over-stated, and its problems under-rated.

 

Can Canada afford to miss out?

For all its suspicion and complaints about Chinese behaviour at home and abroad, Canada knows it must come to terms with China’s fast-growing presence on the world stage under President Xi Jinping who took office in 2013.

Business and opinion leaders are concerned that the current cooling off in bilateral relations could result in China diverting its resources and attention to other countries to the detriment of Canada’s long-term interest.

“We welcome Chinese investments into this country. If you go to Kamloops, the interior or the north, you’ll find that people want the investments and migrants to boost the local economy,” said Mr Beck.

Despite his political aversion towards China, Prime Minister Harper signed two major agreements with Beijing last year: FIPA and the RMB hub deal. But he immediately compensated for that by rejecting China’s invitation for Canada to join the Asian Infrastructure Investment Bank (AIIB) in March this year.

This could be a costly miss as a total of 57 countries including Germany, the UK, France, Australia and many key players around the world have joined the China-led bank which is emerging as a rival to the US-controlled World Bank, International Monetary Fund and Asian Development Bank (ADB). The US, Japan and Canada were the only major countries to reject a founding role to shape the AIIB’s goal of financing major infrastructure projects across the world, starting with Asia and the Middle East.

While the US and Japan are engaged in big-power rivalry with China, Canada’s decision to stay out is harder to fathom. China has noted the snub, leaving Canada with little to show except proof of its loyalty to the US. The Canadian media has been sparing in their reports about the AIIB’s rise and development.

With no representation in the bank, Canada risks missing out on vital intelligence as well as the right to participate in China’s activities and plans for implementing its ambitious ‘One Belt One Road’ (OBOR) strategy. Devised by President Xi, OBOR calls for the revival and expansion of the old Silk Route to link up Asia and Europe, and the creation of a new maritime trade channel covering the South China Sea, Indian Ocean, the Arabian Gulf and the Mediterranean. The AIIB is expected to play a key role in financing OBOR-linked infrastructure projects that Beijing envisions will affect a total of 4.4 billion people with a collective GDP of US$21 trillion or one-third the world’s wealth.

“The Chinese government has recently committed to devote as much as US$1 trillion to infrastructure investments, including in the central and western provinces, which are bound to become the gateway to the Silk Road,” said Nadège Rolland, a project director at the Seattle-based National Bureau of Asian Research (NBR), in a recent research paper.

Mr Harper’s reluctance to conclude Canada’s protracted talks with China for a free trade agreement (FTA) will also limit the RMB hub’s potential to deliver full benefits.

Grégoire-François Legault, a fellow at the University of British Columbia’s Institute of Asian Research (IAR), wrote in recent memo that “the absence of an FTA reduces the benefits of a currency hub and puts Canadian exporters at a serious disadvantage” against competitors like Australia and New Zealand, which both have concluded such agreements with China. The hub’s touted benefits will only be realised if there is an FTA to enable freer and faster movements of goods between the two countries.

 

The RMB hub as a conduit for Chinese funds and influence

There are concerns the RMB hub could be used as a channel for remitting funds of dubious origins amid reports that Vancouver is a popular destination for criminals and corrupt bureaucrats fleeing China.

The Canadian hub aims to promote, grow and facilitate legal and legitimate trade between China and the Americas, said Jimmy Mitchell, AdvantageBC’s vice president for business development.

“Given that the RMB hub represents a new channel and a new relationship to handle an unprecedented amount of money, we will focus on building the trust and processes to make it work,” he said.

“The good thing is we’re working with governments, large institutions and well-known organisations and responsible companies who want to expand and invest. We’re not talking about fly-by-night unknown entities that are out to launder money.”

To stem abuse, he said stakeholders will have to step up controls and checks to guard against the flow of funny money.

“China will have to do a better job of monitoring the outflow of money and catching those that aren’t legitimate. In Canada, we have FINTRAC and other regulatory bodies to watch over money flows coming into the country,” he said. FINTRAC stands for the Financial Transactions and Reports Analysis Centre of Canada, which is tasked to facilitate the detection, prevention and deterrence of money laundering and the financing of terrorist activities.

Despite the Sinophobia of some of its decision and opinion makers, Canada will be facilitating the expansion of Chinese influence through its role as the Americas’ RMB clearing hub. In targeting Mr Chan for allegedly doing Beijing’s bidding, the Globe and Mail has clearly missed the bigger story while the Justice Ministry might want to find out who facilitated and supported Canada’s FIPA deal with China.

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