Posted in: Speeches and Presentations

March 9th, 2009

“For Canadian companies with little or no knowledge of the Chinese market, one of the best possible entry points into China is via Hong Kong. It offers Canadian companies many advantages including freedom of movement of people, goods, capital and information. Hong Kong understands the East and the West, and many Hong Kong companies have extensive China trade experience and connections to share with potential Canadian partners and associates… “

Distinguished guests, Ladies and Gentlemen,

It is a great pleasure to be back in Toronto and addressing this distinguished group. My sincere thanks go to Mr. Peter Harder and Mme. Siu for your kindness in welcoming me here.

I am delighted to explore with you, strong and respected promoters of Tri-partnership between China, Hong Kong and Canada, what policy options are available to China to weather the ongoing global financial crisis, and more specifically, what China can achieve during these times of uncertainty by working closely with Canada and Hong Kong.

Updates on China’s Economy
We are now facing the worst financial turmoil in over 75 years. It has seriously shaken the confidence in the global financial system and precipitated a sharp slowdown in economic activities, with the prospect of a prolonged recession in industrialized countries. China, like other developing countries, is experiencing the ripple consequences of the crisis. China’s economy cooled to a seven-year low of 9% last year, and broke a five-year streak of double-digit expansion, as the global financial crisis takes its toll on the world’s fastest growing economy.

China’s growth dropped from the impressive 11.9% in 2007 to 9 percent in 2008. Share prices plummeted; year-on-year urban housing prices fell for the first time since 2005, with Shenzhen witnessing a massive 18.1 % drop; producers’ prices continued to grow at an accelerating rate even as consumer prices began to fall; industrial sectors such as electricity production, textiles, non-ferrous materials and information technology suffered heavy losses; FDI inflows waned; The country used to rely heavily on export for growth. Exports contributed to about 40 percent of its GDP. China’s year-on-year export shrank by 2.8% in December, 2008, the biggest monthly drop in a decade. More than 50% of toy exporters in the Pearl River Delta reportedly went bankrupt in the first seven months of 2008 due to rising costs and falling orders, and Guangdong province, the center of the Region’s export boom, estimates zero export growth in 2009.

The global financial crisis continues to spread and get worse, 2009 could be the most difficult year for China’s economic development since the beginning of the 21st century. Demand would continue to shrink on international markets, and Chinese economy is shrouded in increasing uncertainties outside the country.

The impact of the unfolding crisis on China’s economy is real, but it can not be over exaggerated. China’s high export dependency may have rendered it vulnerable to reduced consumption abroad, its financial institutions have, to a large extent, escaped the global credit crunch because of their limited exposure to the sub-prime mortgage assets and high-risk financial derivative products. China’s economic growth is still at its peak compared to other countries, its large foreign reserve and fiscal revenue leave spaces for effective government regulation and control.

The increasing wealth of the Chinese people and structural reform will also stimulate consumption. China has reason to remain cautiously optimistic. The Chinese Government’s strategies and economic policies to cope with the global financial crisis.

Ladies and gentlemen,

What China needs to get through this crisis is first of all, clarity of direction. No country is an island in this global crisis. No country can afford to be. Our top priority is “to work together”with other countries and regions to “tide over difficulties”. Domestically, China has also taken a number of steps to mitigate the economic crisis.

Yesterday, Premier Wen Jiabao delivered the Report on the Work of the Government to the annual conference of NPC, in which he outlined a set of plans and polices of the Chinese Government to cope with the tough economic situation and stimulate the Chinese economy.

MAJOR TARGETS for 2009 are as follows:
- GDP will grow by about 8 percent;
- Economic structure will further improve;
- Urban employment will increase by more than 9 million persons;
- Urban registered unemployment rate will be held under 4.6 percent;
- Urban and rural incomes will grow steadily;
- Rise in the CPI will be around 4 percent;
- Balance of payments will continue to improve.
　　
REAL ESTATE SECTOR
- Even more vigorous and effective policies and measures will be adopted to stabilize market confidence and expectations, keep real estate investment stable, and promote steady and orderly development of the real estate industry.

POST QUAKE RECONSTRUCTION
The central government will allocate 130 billion yuan for recovery and reconstruction in regions affected by the May 12 earthquake last year.

AGRICULTURE, RURAL AREAS & FARMERS
- Central government allocations for agriculture, rural areas and farmers will total 716.1 billion yuan, a year-on-year increase of 120.6 billion yuan. The money would be used for construction of rural public facilities, expanded agricultural subsidies to farmers, subsidies for the purchase of agricultural machinery and tools, and spending on agricultural science and technologies.

INDUSTRIAL RESTRUCTURING
- The government will conscientiously implement plans for adjusting and invigorating key industries such as the automobile, steel, shipbuilding, petrochemical, textile, nonferrous metals,equipment manufacturing, information technology, modern logistics, and light industries. Central government funding for supporting the development of small and medium-sized enterprises will increase from 3.9 billion yuan to 9.6 billion yuan.

SCIENCE & TECHNOLOGICAL INNOVATION
- The central government will allocate 146.1 billion yuan to the science and technology sector, up 25.6 percent from last year.

FOOD SAFETY
- The government will implement strict market access rules and product traceability and recall systems so that the people buy food and drugs with confidence and consume them with satisfaction.

SOCIAL SAFETY NET
- The central government plans to spend 293 billion yuan on the social safety net, up 17.6 percent or 43.9 billion yuan over the estimated figure for last year. Local governments will also increase funding in this area.

EMPLOYMENT
- The government will implement a more proactive employment policy, and the central government will allocate 42 billion yuan for this purpose.

EDUCATION
- The government will formulate the Outline of the National Medium- and Long-Term Program for Education Reform and Development to make comprehensive arrangements for education reform and development in China through 2020. The central government will spend 12 billion yuan and local governments will also increase funding to raise salaries for the 12 million primary and secondary school teachers at the nine-year compulsory education stage.

HEALTH CARE REFORM
- Governments at all levels will allocate an additional 850 billion yuan in the next three years, including 331.8 billion yuan from the central government, to ensure smooth progress in the reform of the medical and health care system.

At the same time, reforms of pricing of resource products, of taxation, of financial system, of state-owned enterprises and non-public sectors, of administration of local governments would continue to be carried out.

DEFICIT
- The central government deficit is set at 750 billion yuan, 570 billion yuan more than last year. The total deficit will become 950 billion yuan as local governments plan to issue 200 billion yuan worth of government bonds, accounting for less than 3percent of the GDP.

China would implement a proactive fiscal policy and a moderately easy monetary policy. The government will increase its spending and expect banks to issue five trillion yuan in new loans.

The government would also actively boost domestic demand, continue to proceed with the economic restructuring and independent innovation, and accelerate the transformation of the development pattern.

We believe that China will be able to achieve the economic growth target of about 8％ in 2009, as long as we adopt the right policies and appropriate measures and implement them as mentioned above effectively. The 8% target proposed is based on China’s need and ability. In China, a developing country with a population of 1.3 billion, maintaining a certain growth rate for the economy is essential for expanding employment for both urban and rural residents, increasing people’s incomes and ensuring social stability. We are fully confident that we will overcome difficulties and challenges, and we have the conditions and ability to do so. We will pay close attention to the concerns that China would repeat the old practice of blind investment and putting growth ahead of environment in its efforts to meet the target growth this year by deepening reforms and opening up to improve the mechanism for a scientific development.

The aforementioned measures have helped us boost domestic demand, readjust and reinvigorate industries, enhance the support of science and technology and strengthen social security all at the same time. The stimulus package has shown some initial effects and produced good result in certain areas and fields in China. For example, the country has seen consecutive growth in credit supply, with new loans standing around 440 billion yuan in November, 770 billion yuan in December, 2008, and 1.63 trillion yuan in January 2009. Consumption rose 18% year on year in January, while power generation in the February 11-20 period increased 15% year on year, or up 13.2% from the first ten days of the same month. Some key indicators showed the economic situation has somewhat turned better.

The stable and rapid economic development will not only benefit China itself, but also bring enormous business opportunities to other countries, Canada included. We must fully realize we are facing a long-term and arduous task. China is ready to take firmer and stronger actions when necessary while strengthening its confidence.

China’s 12 year development plan to transform the Pearl River Delta into a regional center, the continuous role of HK as an international financial center

Ladies and gentlemen,

Hong Kong can never be left out in China’s endeavor to offset the financial turmoil and push for further development. In the past three decades, Hong Kong’s role gradually shifted from a trading intermediary to a window for finance and technology, then to a service center for manufacturers and now a major listing and operating base for Mainland enterprises. In recent years, Hong Kong has consolidated its role as Mainland’s asset management center as it began to develop Renminbi and wealth management business. Hong Kong and the Mainland became more inter-connected with the signing of CEPA(Closer Economic Partnership arrangement) in mid 2003.

Some might argue that as Chinese economy continues to progress, Hong Kong’s traditional role and advantage are beginning to diminish. The statement does not tell the entire truth.

Indeed, Mainland’s trade via Hong Kong and foreign investment made by Hong Kong in the Mainland fell in 2007, but Hong Kong remains the Mainland’s gateway for modern financial and professional services as well as proper regulations and rules necessary for an advanced market economy. It has again taken on a new role.

An international financial and trading hub, a member of the powerful
“Newlonkong”, a city of great business minds, diverse cultures and a frontrunner in banking, securities and insurance, Hong Kong is in a good position to lift China’s profile in the global monetary landscape by monitoring offshore Renminbi circulation and flow and providing supporting services for the Renminbi bond market, thus reducing potential disruptions to China’s financial market. China might raise capital in Hong Kong as a way to engage the southern international financial hub to stimulate the domestic economy. Hong Kong’s practices and experiences in market operations are also worthy of studying by the Mainland. Hong Kong also has a critical role to play in China’s 12-year development plan to transform the Pearl River Delta into “center of advanced manufacturing and modern service industries,” and as a “center for international shipping, logistics, trade, conferences and exhibitions and tourism.”

Goals under the plan include the development of “two to three” of the Delta’s nine major cities into centers of service outsourcing, “with a complete industry chain by 2012″. The region expects to develop 10 multinational firms with annual sales of $20 billion by 2020 and two or three large automakers with output worth more than $14.6 billion each by that year.

Development also features major expansions of road, rail, seaport and airport capacities by 2020. It includes construction of an 18-mile bridge linking Hong Kong, Macao and the Delta, with construction expected to begin this year. The 2008-2020 Plans also calls for 1,864 miles of highways in the region by 2012, and rail expansions of 683 miles by 2012 and 1,367 miles by 2020. Equipment manufacturing in the region will focus on five areas: nuclear power facilities, wind power equipment, power transmission and distribution facilities, machine tools and ocean engineering equipment. Plans for development for the Delta all hinges on Hong Kong’s acknowledged status in international commerce and expertise in transportation, logistics, trade, finance and services. The delta region will expand into a Pan-Pearl-River-Delta area that has greater influence on the development of south China and the national economy.

The Delta region will greatly benefit from its proximity to Hong Kong. Thousands of new jobs will be created, travel between Hong Kong and the delta region will be improved on a massive scale and Hong Kong’s links with other global commercial centers will be crucial for delta-based firms that require up-to-date assessments of market potential and accessibility.

Better integration with firms in the Delta will in turn help to raise Hong Kong’s profile.

Business opportunities for Canadian companies and doing business with China and with China through Hong Kong

Ladies and gentlemen,

With crisis comes opportunity. A stronger tri-partnership between China, Hong Kong and Canada is the call of the times.

Trade between China and Canada, however, has fallen short of vast potential for mutually beneficial trade, investment, and broader bilateral opportunities. The latest Fraser Institute research paper reveals that China’s share of Canadian trade is relatively small and narrowly based though it has tripled in the past decade. Only two percent of Canadian exports were sent to China in 2007 compared to 80% of Canadian goods exported to the United States. Similarly, Canada’s direct foreign investment in China is just 0.3% of the total while China’s direct foreign investment in Canada is a paltry 0.1%. By comparison, almost 44% of Canada’s worldwide investments went to the United States in 2007 with 58% of overall investments in Canada coming from the U.S. At present, Canadian exports to China consist mainly of natural resources such as minerals and forestry products.

Canada is known as an energy superpower, with vast riches in energy resources, and, more importantly, home to many cutting-edge technologies in clean energy and environment protection. It is among world leaders in aerospace, information and communications technologies (ICT), wireless technology, and health sciences—areas like biotech, e-medicine and biomedical equipment. Canadian companies with infrastructure and transportation technologies enjoy a long and solid reputation in China.

Success stories are already happening on the ground. Canada-made high-speed locomotives and buses equipped with Canadian hybrid engines are running on the streets of Beijing. The third-phase nuclear power plant at Qinshan has become a good example of China-Canada cooperation in peaceful use of nuclear energy. Canadian companies are helping to make Beijing cleaner by sharing its technology in waste control and sewage treatment. Insurance companies like Manulife and Sunlife are expanding their businesses in China, and banks like RBC and BMO are among the first to test the Chinese water after China decided to welcome foreign bankers to its market. And of course, Research-in-Motion, one of the most proud brand names of Canada, has already successfully launched its business in China.

With Canada’s superior technology and an energetic business sector and China’s growing middle class and burgeoning cities, the two countries need to expand and focus on, apart from sales of wood, minerals and machine parts, developing markets for retail trade and services sector, including science and technology, hydropower, engineering, IT, human resources, renewable energy, financing and export credit.

For Canadian companies with little or no knowledge of the Chinese market, one of the best possible entry points into China is via Hong Kong. It offers Canadian companies many advantages including freedom of movement of people, goods, capital and information. Hong Kong understands the East and the West, and many Hong Kong companies have extensive China trade experience and connections to share with potential Canadian partners and associates. Canada’s Economic Relations with China are among the many fine examples of Hong Kong’s unique position and competence in driving trade among China, Hong Kong and Canada, and brilliant and outstanding experts like you can help to seek better prospects for the Tri-partnership through dialogue and exchange.

Strengthening China-Canada relations

Ladies and gentlemen,

Although trade lies at the heart of nearly every inter-state partnership, China-Canada relationship is so much more than mere sales and buys. It goes far beyond to lively exchanges in sustainable development, law enforcement, education, culture and academics and so on so forth. I had the privilege of studying in McGill and Queen’s Universities back in the 1970s and therefore am proud enough to call myself a lucky witness of the fruits and growth of China-Canada relations.

Next year marks the 40th anniversary of diplomatic relations between China and Canada and there are a lot to be celebrated. China and Canada have established over 20 bilateral dialogue and consultation mechanism for cooperation in politics, agriculture, energy, health, arms control and climate change. China and Canada have worked closely on international and regional issues of common interests as well as at the United Nations.

Better China-Canada relations require more engagement and dialogue and perhaps more importantly- vision, vision that will help us jump out of the bottlenecks, so that ten or twenty years from now, we will be able to look back on those efforts and rest assured that we have done the right thing for the Chinese and Canadian people.

Finally, I wish to thank you again for inviting me to this occasion. Your support is critical in moving ahead our bilateral relationship, economic and trade cooperation and beyond. I believe that with perseverance and careful planning we shall prevail the financial turmoil and bring the Tri-partnership between China, Hong Kong and Canada to a new start.

Thank you very much for your attention.