June, 2003 Conference speech

June 23, 2003

Post SARS China

MY PRESENTATION TODAY WILL MAKE FOUR ASSERTIONS.
THE SARS EPIDEMIC WILL NOT HAVE AN IMPORTANT IMPACT
ON CHINA’S ECONOMIC GROWTH OR NATIONAL GOVERNANCE;
THE ELEMENTS THAT FAVOUR CONTINUING CHINESE
ECONOMIC EXPANSION REMAIN FIRMLY IN PLACE.
CHINA IS IN TRANSITION FROM MERE SIZE TO GREAT POWER,
BUT THIS TRANSFORMATION WILL TAKE TIME.
CANADA AND CANADIANS MUST BE ALERT TO THE
CHALLENGES OF CHINESE EXPANSION, AND TO THE
OPPORTUNITIES THAT THIS GROWTH PROVIDES TO ACHIEVING
OUR OWN NATIONAL, CORPORATE AND INDIVIDUAL
OBJECTIVES.
LET ME START WITH THE IMPACT OF SARS ON CHINA
IMPACT OF SARS
AS OF JUNE 20, THERE HAVE BEEN 347 DEATHS FROM SARS.
FAIRLY HORRENDOUS, BUT IN FACT THE MOST DEADLY
INFECTIOUS DISEASE IN CHINA IS TUBERCULOSIS. DURING A
PERIOD COMPARABLE TO THE EMERGENCE AND SPREAD OF
SARS, IN OTHER WORDS, IN A 6 MONTH PERIOD, 75,000 PEOPLE
WILL HAVE DIED OF TUBERCULOSIS IN CHINA.
APPROXIMATELY 2500 PEOPLE WILL HAVE DIED FROM MINING
ACCIDENTS. ROUGHLY 50,000 PEOPLE WILL HAVE DIED IN
TRAFFIC ACCIDENTS. AND FOR WE SMOKERS, 14,000 PEOPLE
WILL HAVE DIED OF LUNG CANCER.
COMPARATIVELY SPEAKING, THE MACRO ECONOMIC IMPACT
OF SARS HAS NOT BEEN AND IS NOT EXPECTED TO BE
SIGNIFICANT.
IN MACRO-ECONOMIC TERMS, INDEPENDENT ECONOMISTS
WERE PROJECTING A GROWTH RATE OF AROUND 8% THIS
CALENDAR YEAR. THIS WOULD INCREASE THE GROSS
DOMESTIC PRODUCT FROM US$1.24 TRILLION IN 2002, TO US$1.34
TRILLION IN 2003. OFFICIAL PROJECTIONS FROM CHINA WERE
VERY CONSERVATIVE — 7% PRIOR TO SARS ACCORDING TO ZHU
RONGJI, BUT Q1 WAS 9.9%.
IF, AS MANY PROJECT, ACTUAL GROWTH IS CLOSER TO 7%,
TOTAL GDP BY THE END OF THE YEAR WILL BE US$1.33
TRILLION , FOR A THEORETICAL LOSS OF US$12 BILLION. THIS IS
A LOT OF LOST PRODUCTION, BUT IT IS ONLY ONE PERCENT OF
THE ECONOMY AS A WHOLE, AND EQUIVALENT IN VALUE TO A
QUARTER OF TOTAL FOREIGN DIRECT INVESTMENT LAST
YEAR.
INDUSTRIAL PRODUCTION IS 45% OF GDP, EXPECTED TO REACH
US$600 BILLION THIS YEAR – ALMOST THREE TIMES CANADA’S
INDUSTRIAL PRODUCTION; THERE HAVE BEEN MINOR
DISRUPTIONS TO SUPPLY CHAINS AS A RESULT OF QUARANTINE
MEASURES AND REPETITIVE ROADSIDE TEMPERATURE
CHECKS; SOME DECISIONS MAY BE DELAYED, ESPECIALLY
WHERE PERSON-TO-PERSON BUSINESS DEALS HAVE TO BE
CONDUCTED, IN PARTICULAR FOR EXPORTS FROM CHINA; BUT
THE FACTORIES KEEP ON WORKING
WITHIN THE SERVICES SECTOR, (34% OF GDP), TOURISM AND
TRAVEL 5.6% OF GDP MOST HEAVILY HIT; RETAIL SALES IN
MAJOR CITIES HAVE ALSO AFFECTED;
AGRICULTURE AND RESOURCE-BASED SECTORS CONTRIBUTE
14% OF GDP; LARGELY INSULATED.
CONSTRUCTION 7% OF GDP; SOME DELAYS, NO INDICATION OF
MAJOR EFFECTS.
FOR CANADA, THE LARGEST NEGATIVE IMPACT HAS BEEN IN
TRAVEL – AIR CDA BEIJING TO VANCOUVER FLIGHTS WERE
CANCELLED IN JUNE AND JULY, WITH ATTENDANT IMPACTS
ON THE HOTEL TRADE.
VISITORS TO CANADA ARE DOWN DRAMATICALLY DURING THE
SPRING – WITH VISAS BEING ISSUED AT 20% OF NORMAL
LEVELS DURING SOME WEEKS – AND OF COURSE BUSINESS
VISITS TO CHINA HAVE ALMOST STOPPED.
ON THE OTHER HAND, OUR LIFE INSURANCE COMPANIES ARE
APPARENTLY DOING BOOMING BUSINESS SELLING THEIR
POLICIES.
WHILE SOME FAMILIES LEFT CHINA, AND TEACHERS FROM
RURAL AREAS HAVE SOUGHT TO LEAVE, MOST CANADIANS IN
CHINA CONTINUED TO LIVE THEIR LIVES WITHOUT FEELING
THAT THEY WERE AT GREAT RISK.
BY PUTTING THE SARS ISSUE INTO PERSPECTIVE, I AM NOT
SUGGESTING THAT IT IS INSIGNIFICANT. IN SOME RESPECTS,
SARS IS A METAPHOR, REVEALING – IN SOME CASES IN DEADLY
FASHION – ASPECTS OF CHINA’S GOVERNANCE THAT ARE
RELEVANT TO TODAY’S DISCUSSIONS. I WILL RETURN TO
THESE IN A MINUTE.
BUT THE IMPACT OF SARS SO FAR IS SMALL, AND IT IS NOT
LIKELY TO BE SUSTAINED.
SO, WE MUST KEEP OUR ATTENTION FOCUSSED ON THE
FACTORS THAT WILL DETERMINE WHETHER CHINA IS INDEED
THE ECONOMY TO WATCH, AND WHETHER AND HOW IT WILL
IMPACT ON CANADA.
THE IMPACT SHOULD BE MINIMAL, AND…
…CHINA’S ECONOMY WILL CONTINUE TO EXPAND
IT IS ALREADY THE 6TH LARGEST ECONOMY IN THE WORLD;
THE 2ND ON PPP BASIS; IT IS THE 6TH INTERNATIONAL TRADER;
IF CHINA MAINTAINS.
BETWEEN 1978 AND 2000, CHINA SUSTAINED AN AVERAGE
GROWTH RATE OF 9.4% , 3 TIMES THE WORLD AVERAGE OF
3.3%; LAST YEAR, IT GREW BY 8%, TO REACH, AS I’VE SAID, US$
1.24 TRILLION. IT ATTRACTED US$53B IN FDI.
CHINA IS NOW LARGEST PRODUCER IN THE WORLD OF TVS, AIR
CONDITIONERS, CAMERAS, TELEPHONES; IT HAS THE 2ND IN
TOTAL FX HOLDINGS, AT $316B; IT HAS THE 6TH GDP IN THE
WORLD; THE 2ND ON PPP BASIS; IT IS THE 6TH INTERNATIONAL
TRADER; IF CHINA MAINTAINS GROWTH RATE OF 6% OVER THE
NEXT 7 YEARS, ITS GDP WILL SURPASS BRITAIN, FRANCE AND
GERMANY.
EXPANSION WILL CONTINUE TO BE BASED ON FOUR
FUNDAMENTAL PILLARS: NATIONAL POLICY DIRECTION AND
INNOVATION; MIDDLE CLASS CONSUMPTION, FOREIGN DIRECT
INVESTMENT AND EXPANDING INTERNATIONAL TRADE.
IN POLICY TERMS, AND SIMPLY PUT, CHINA IS DETERMINED TO
ASSUME A POSITION IN THE WORLD COMMENSURATE WITH ITS
SIZE, ITS POPULATION, ITS CULTURE AND ITS HISTORY.
THERE ARE MORE THAN A FEW TINGES OF INJURED
NATIONALISM IN THIS STANCE. AS STATED BY HU GANG, A
WELL-KNOWN BUSINESSMAN, IF YOUR COUNTRY IS STRONG,
NO ONE CAN BULLY YOU.
NUMBER ONE
FOR THE LAST 25 YEARS, CHINA’S LEADERS HAVE SHARED A
SINGLE MINDED FOCUS ON ECONOMIC DEVELOPMENT AS THE
NATIONAL OBJECTIVE: YI JINGJI JIENSHE WEI ZHONGXIN.
THEY HAVE MOVED THE COUNTRY FROM THE EXTREMES OF
MAOIST COLLECTIVISM TO MIXED ECONOMY BECAUSE THEY
ACCEPTED THE NEED TO EXPERIMENT WITH EVERY POLICY
TOOL THAT WOULD PRODUCE RESULTS. IDEOLOGY HAS LITTLE
TO DO WITH IT.
EVERY STATEMENT AT THE 16TH PARTY CONGRESS LAST
NOVEMBER, AND THE 10TH NATIONAL PEOPLE’S CONGRESS IN
MARCH REITERATED THIS OBJECTIVE.
EVERY ACTION OF THE GOVERNMENT INDICATES THAT THEY
WILL CONTINUE TO IMPLEMENT STRATEGIES ON THE BASIS OF
WHAT WORKS AND WHAT DOESN’T. THAT INCLUDES MORE
DECENTRALIZATION, MORE DEPENDENCE ON OPEN MARKETS
FOR GOODS AND SERVICES, MORE DIVERSIFICATION OF
OWNERSHIP, MORE INTERNATIONALIZATION, MORE
INVESTMENT IN INFRASTRUCTURE. THERE MAY STILL BE AN
OCCASIONAL OBEISANCE TO MARX AND LENIN, BUT AS FAR AS
THE ECONOMY IS CONCERNED, THE ONLY THING THAT
MATTERS IS WHAT WORKS.
NUMBER TWO
AT THE MICRO ECONOMIC LEVEL, WELL OVER 100 MILLION
CHINESE NOW LIVE MIDDLE CLASS LIVES VERY COMPARABLE
TO OUR OWN. 200 MILLION IS THE PROJECTION FOR 2006. 92%
OF CHINESE HAVE ACCESS TO TELEVISION; 90 MILLION
HOUSEHOLDS HAVE CABLE, AND ILLEGAL SATELLITE
TELEVISION PROBABLY ADDS ANOTHER 15 MILLION; MANY OF
THESE HAVE UNSANCTIONED ACCESS TO THE 22 FOREIGN
CHANNELS NOW OPERATING IN CHINA;
THERE ARE 222 MILLION CELLPHONE SUBSCRIBERS IN CHINA;
59 MILLION INTERNET USERS ACCESS 371,000 CHINESE WEB
SITES;
THE WORLD TOURISM ORGANIZATION SAYS THAT 10 MILLION
CHINESE TRAVELLED BEYOND CHINA’S BORDERS LAST YEAR.
THEIR CONSUMER HABITS ARE DRIVING DEVELOPMENT.
NUMBER THREE
THIS MIDDLE CLASS IS THE ONLY VALID PROOF THAT THE CCP
CAN DELIVER. IT PROVIDES A MODEL FOR CHINA’S HAVE-NOTS.
AVERAGE DISPOSABLE INCOME IN URBAN AREAS GREW 13.4%
IN 2002 (VS 4.8% IN THE RURAL AREAS WHERE THE BULK OF
THE HAVE-NOTS LIVE, BUT WOULD RATHER LEAVE).
POLICY INNOVATION, INTERNATIONALIZATION AND A
GROWING CONSUMER MARKET EXPLAIN WHY THE FLOWS OF
FOREIGN DIRECT INVESTMENT HAVE BEEN AND CONTINUE TO
BE SO LARGE.
AS OF 2001, AMERICANS HAD INVESTED US$34B IN CHINA,
JAPANESE US$32B, THE KOREANS US$12B, THE EUROPEANS
US$27B, THE TAIWANESE US$29B, AND CANADIANS US$3.4B. IN
2002, FDI APPROACHED US$55B, FOR A OR US$395 B OVER THE
LAST 20 YEARS. THIS YEAR, FDI IS AGAIN EXPECTED TO
SURPASS US$50B. THERE ARE NO SIGNS THAT THESE FLOWS
ARE ABOUT TO ABATE. CHINA IS THE NUMBER ONE RECIPIENT
OF FDI IN THE DEVELOPING WORLD. IT IS IMPORTANT TO NOTE
THAT THESE ARE CUMULATIVE FLOWS FROM CHINA’S
NUMBERS — NOT STOCK, ABOUT WHICH CHINA DOESN’T
PUBLISH, AND WOULD LIKELY BE SOMEWHAT LOWER.
(STATCAN NUMBER FOR CANADA’S INVESTMENT STOCK IS
CAD$ 667 MILLION IN 2002, UP FROM $587 MILLION IN 2001.)
NUMBER FOUR
CHINESE EXPORTS INCREASED BY 28% IN 2000, 7% IN 2001, 22%
LAST YEAR. GROWTH IS PROJECTED AT 10% FOR THIS YEAR,
AND 12% NEXT YEAR. IMPORTS ENJOY SIMILAR GROWTH
RATES. OVER 50% OF THIS TRADE IS GENERATED BY THE
FOREIGN INVESTED ENTERPRISES THAT HAVE FLOODED INTO
CHINA OVER THE LAST TWO DECADES, A FLOW AS WE HAVE
NOTED ABOVE, THAT IS CONTINUING. AND WHILE WE ARE ON
THE SUBJECT, CHINA’S IMPORTS AND EXPORTS ARE BROADLY
IN BALANCE.
THE DEBATE IN CHINA IS NOT ABOUT CONTINUING GROWTH. IT
IS ABOUT WHAT KIND OF GROWTH CAN DELIVER JOBS AND
STABILITY. THESE ARE THE ACHILLES HEELS OF THE SYSTEM,
AND GUARD US FROM MAKING EVER MORE OPTIMISTIC
PROJECTIONS ABOUT THE FUTURE.
UNEMPLOYMENT AND UNDEREMPLOYMENT: URBAN
UNEMPLOYMENT IS OFFICIALLY STATED TO BE 5.6%; SOME
INDEPENDENT ECONOMISTS ESTIMATE IT TO BE CLOSER TO 7%.
THAT CONVERTS TO 18 MM PEOPLE WHO SHOULD BE EARNING
AN INCOME BUT AREN’T. MORE SERIOUSLY, A 1998 NATIONAL
REPORT ON EMPLOYMENT STATED AT THAT TIME THAT A
FURTHER 17% OF URBAN LABOUR FORCE UNDER-EMPLOYED,
MEANING SOMETHING LIKE 43 MM LABOURERS. THAT’S THE
CURRENT SITUATION. THIS IS WHAT IS COMING.
INCOMPLETE REFORM: SOEs EMPLOY OVER 35% OF THE URBAN
INDUSTRIAL WORKFORCE, BUT PRODUCE ONLY 27% OF THE
MANUFACTURING GDP. IF PRIVATIZATION PROCEEDS AS THE
GOVERNMENT INTENDS, 12MM WILL LOOSE THEIR JOBS.
ALREADY, 100MM PEOPLE INTO THE URBAN LABOUR POOL.
RURAL CHINA: 330 MM HOUSEHOLDS WORK THE FARMS OF
CHINA. 150 to 200 MM ARE SUPERFLUOUS, AS AGRICULTURE
CONTINUES TO MODERNIZE, LAND IS CONSOLIDATED,
AGRICULTURE IS INTEGRATED IN THE GLOBAL MARKET
SYSTEM NOW THAT CHINA IS IN THE WTO.
POVERTY. ACCORDING TO THE WORLD BANK, 200 MILLION
CHINESE LIVE ON LESS THAN ONE US DALL PER DAY. 28 MM
CHINESE LIVE ON LESS THAN A PURCHASING POWER ADJUSTED
USD 0.78 PER DAY, WHICH IS CHINA’S NATIONAL POVERTY
STANDARD. 2% OF VILLAGES (30 MILLION POPULATION)
REMAIN UNELECTRIFIED. THE PER CAPITA GDP IN CHINA’S
FOUR POOREST PROVINCES IS CDN$ 670 PER YEAR. THE
UNEMPLOYMENT BENEFIT GIVEN TO FORMER SOE EMPLOYEES
IN HEILONGJIANG IS Y870 PER YEAR.
THEREFORE AT THE END OF THE DAY, THE DEBATE IN CHINA IS
NOT ABOUT CONTINUING GROWTH. IT IS ABOUT WHAT KIND OF
GROWTH CAN DELIVER PROSPERITY. ONE DOES NOT
NECESSARILY LEAD TO THE OTHER. AND PROSPERITY ALONE
DOES NOT LEAD TO POWER. THAT IS THE QUESTION TODAY:
WHAT WILL IT TAKE TO MAKE CHINA POWERFUL.
TO BE RICH
CHINA’S ECONOMY IS LARGE AND GETTING LARGER, BUT
CHINA’S GOAL IS TO BE RICH, RESPECTED AND POWERFUL.
SIZE MATTERS. CHINA’S $1.3B ECONOMY DRAWS ATTENTION IN
ANY FORUM.
BUT RAW NUMBERS ARE NOT ENOUGH. TO BE RICH, CHINA
MUST DEVELOP AN ECONOMIC GROWTH MODEL THAT SHARES
THE WEALTH. AT PRESENT, PER CAPITA GDP IN BEIJING AND
SHANGHAI IS RMB 26000, OR $4400 IN CDN DOLLARS. THIS IS
NINE TIMES THE RATE IN THE WESTERN PROVINCE OF
GUIZHOU.
IN ORDER FOR ALL CHINESE TO HAVE A PER CAPITA INCOME OF
USD 3600, WHICH IS THAT OF MALAYSIA, CHINA HAS TO
SUSTAIN A GROWTH RATE OF 7%, FOR 23 YEARS.
EVEN IF WE ASSUME THAT ONLY 50% OF CHINA’S POPULATION
WERE TO ACHIEVE MALAYSIA’S RATES, THAT TOO WOULD
TAKE 15 YEARS.
TO BE RESPECTED
TO BE RESPECTED, CHINA GROWTH MUST BE EQUITABLE.
INCOME INEQUALITY IN CHINA IS GROWING. THE GINI
COEFFICIENT IN 1980 WAS 32. TODAY, IT IS 44. THIS PLACES
CHINA WORSE THAN INDIA. THERE OCCURRED, IN EACH OF
CHINA’S 31 PROVINCES LAST YEAR, INCIDENTS,
DEMONSTRATIONS AND OCCASIONALLY RIOTS. SOMETIMES
TENS OF THOUSANDS OF PEOPLE ARE INVOLVED. VIRTUALLY
ALL OF THESE DISTURBANCES ARE PROMPTED BY THE
REFUSAL OR INCAPACITY OF PUBLIC OFFICIALS TO SATISFY
THE BASIC HUMAN NEEDS OF THEIR COMMUNITIES. EQUITY
BRING STABILITY WHICH BRINGS RESPECT.
TO BE RESPECTED, CHINA WILL ALSO NEED, IN TIME THE
LEGITIMACY CONFERRED THROUGH DEMOCRACY AND HUMAN
RIGHTS. CHINA DOES NOT HAVE REPRESENTATIVE
INSTITUTIONS. PARTY OFFICIALS CANNOT BE REMOVED BY
THE PEOPLE. THERE ARE NO DIRECT ELECTIONS ABOVE THE
VILLAGE LEVEL. THERE ARE NO LIMITS PLACED ON THE POWER
OF THE COMMUNIST PARTY. CITIZENS’ RIGHTS ARE NOT
PROTECTED. RULE BY LAW, AS OPPOSED TO RULE OF LAW, IS
THE PARADIGM.
CHINA ACCEPTED 20 YEARS AGO THE NOTION THAT MARKET
SIGNALS, THE CHOICES THAT CONSUMERS MAKE IN THEIR
PURCHASING DECISION, AS OPPOSED TO CENTRALIZED
PRODUCTION QUOTAS, WOULD BRING PROSPERITY AND
STRENGTH. IT HAS NOT YET ACCEPTED THE NOTION THAT
MARKET SIGNALS THROUGH SUCH THINGS AS ELECTIONS AND
REPRESENTATIVE ASSEMBLIES ARE ESSENTIAL TO GOOD
PUBLIC POLICY.
BUT MODERN SOCIETIES NEED THESE SIGNALS. THEY NEED TO
KNOW WHAT ARE THE PEOPLE’S PRIORITIES, NOT ONLY THOSE
OF BUREAUCRATIC POLITICIANS AND CIVIL SERVANTS. THEY
NEED INDEPENDENT JUDICIARIES, AND THE PROTECTION OF
RIGHTS AND CONTRACTS. THEY NEED INDEPENDENT
INSTITUTIONS SUCH AS A HEALTH CANADA OR CENTERS FOR
DISEASE CONTROL CAN PROVIDE STRAIGHTFORWARD HEALTH
ADVICE, NOT SOMETHING FILTERED THROUGH THE PARTY
SECRETARY.
TO BE RESPECTED, CHINA MUST ALSO BOAST INTELLECTUAL,
CULTURAL AND EVEN MORAL IMPACT. WHAT INFLUENCE
CANADA WIELDS IS DUE IN PART TO THE SIZE OF OUR
ECONOMY AND WHAT WE BRING TO THE INTERNATIONAL
TABLE, BUT IT IS ALSO BECAUSE WE HAVE A SUCCESSFUL
SOCIETY THAT INTEGRATES ALL OF THE NATIONALITIES AND
ETHNIC GROUPS OF THE WORLD, WE HAVE RULE OF LAW AND
WE CAN SUSTAIN AN ENVIABLE STANDARD OF LIVING.
FRANCE AND BRITAIN REMAIN POWERFUL BECAUSE OF THE
COMBINATION OF FACTORS, INCLUDING THE ABILITY TO
PROJECT MILITARY FORCE, THE SIZE OF THEIR ECONOMIES –
THE UK IS USD 1.6 TRILLION, FRANCE IS USD 1.4 TRILLION –
THEIR HISTORICAL LEGACIES, AND THE CONTINUING
FASCINATION THAT THE WORLD HAS REGARDING ASPECTS OF
THEIR CULTURES. IN THE 1980s, THOUSANDS OF SUSHI
RESTAURANTS APPEARED THROUGHOUT CANADA, THE US AND
EUROPE, NOT BECAUSE WE ALL SUDDENLY DEVELOPED A
CRAVING FOR RAW FISH, BUT BECAUSE WE WERE CURIOUS
ABOUT THE CULTURAL DIMENSIONS OF AN ECONOMY THAT
WAS NOT ONLY BIG IN ABSOLUTE TERMS, BUT BECAUSE IT WAS
FILLING OUR HOUSES AND GARAGES WITH SUDDENLY
INDISPENSABLE PRODUCTS. AND SO FORTH.
I DON’T KNOW IN WHAT WAY CHINA’S CULTURAL IMPACT WILL
PLAY OUT – IT’S NOT LIKELY TO BE BEIJING OPERA – BUT WE
WILL NOT CONSIDER CHINA TO HAVE ARRIVED UNTIL
ELEMENTS OF ITS CULTURE AND EVEN SOME OF ITS IDEAS AND
IDEALS BEGIN TO IMPACT ON US, IN OUR EVERY DAY LIVES.
PERHAPS CULTURALLY, IT WILL BE FASHION, MAYBE MOVIES
IN AN ERA WHERE THE BEST ARE NOT CENSURED. CULTURE
WILL BE A GREAT ENGINE FOR PROJECTING CHINA. BUT IT’S
NOT THERE YET. IT WILL ALSO HAVE A GREAT MULTIPLIER
EFFECT, ONE THAT MAKES US DESIRE CHINESE GOODS, TRAVEL
TO CHINA, LEARN CHINESE, AND ACCEPT CHINA AS DESERVING
AN IMPORTANT PLACE IN THE WORLD.
TO BE POWERFUL
CHINA NEEDS GREATER MILITARY CAPACITY. ITS GROUND
FORCES ARE SEEMINGLY LARGE BUT THEIR TASKS INCLUDE
DOMESTIC SECURITY AND PUBLIC WORKS. ITS MILITARY
ASSETS ARE NOT SIGNIFICANTLY LARGER THAN THOSE OF
JAPAN, FOR EXAMPLE, AND JAPAN’S SHIPS AND AIRCRAFT AND
ARTILLERY ARE MUCH MORE MODERN AND IT HAS ITS
ALLIANCE WITH THE USA, WITH ALL THAT THAT BRINGS. WITH
FEW EXCEPTIONS, CHINA’S EQUIPMENT IS ARCHAIC. ITS MOST
MODERN SHIPS AND AIRCRAFT COME FROM RUSSIA, AND ITS
DOMESTIC PRODUCTION CAPACITY IS OUTMODED.
THIS RELATIVE WEAKNESS WON’T LAST FOREVER – CHINA IS
MODERNIZING – BUT IT IS THE CURRENT SITUATION.
IF YOU ADD TO THESE FACTORS DIPLOMATIC HEFT, CHINA
TODAY HAS CONSIDERABLE STRENGTHS, AND IT IS ON ITS
WAY, ALTHOUGH IT HAS NOT YET ACHIEVED, GREAT POWER.
WHAT DOES THIS MEAN FOR CANADA, AND FOR THIS AUDIENCE?
FROM MID-19TH CENTURY IMMIGRATION TO THIS YEAR’S
STRUGGLE WITH SARS, WE HAVE BEEN DEALING WITH CHINA
FOR 150 YEARS. TODAY’S CHALLENGE IS THIS: HOW DO WE USE
CHINA’S RAPID GROWTH AND DEVELOPMENT TO OUR
ADVANTAGE? HOW DO WE PROTECT OUR INTERESTS WHEN
THEY ARE CHALLENGED?
PUT ANOTHER WAY, ALL INSTITUTIONS AND COMPANIES AND
GOVERNMENT DEPARTMENTS AND CULTURAL GROUPS THAT
HAVE AN INTERNATIONAL VOCATION MUST HAVE, TO
GREATER OR LESSER EXTENTS, A CHINA STRATEGY.
FOR EXAMPLE, LAST YEAR, CANADA EXPORTED CDN$349
BILLION IN GOODS TO THE ENTIRE WORLD. $4.1 BILLION OF
THAT WENT TO CHINA, 1% OF OUR TOTAL EXPORTS, AND 12%
OF OUR EXPORTS TO THE NON-USA WORLD. LAST YEAR AS
WELL, CHINA EXPORTED CDN$16 BILLION OF GOODS TO
CANADA, 4.6% OF OUR TOTAL IMPORTS, AND 1.3% OF CHINA’S
TOTAL EXPORTS. THESE NUMBERS MAY NOT SOUND LARGE,
BUT THEY STILL MAKE CHINA OUR 4TH LARGEST TRADING
PARTNER, 3RD IF WE INCLUDE HONG KONG.
SO IN RELATIVE TERMS, OUR ECONOMIC RELATIONSHIP WITH
CHINA IS NOT THAT SIGNIFICANT.
IN ABSOLUTE TERMS HOWEVER IT IS VERY SIGNIFICANT.
LAST YEAR, OVER ONE THOUSAND CANADIAN COMPANIES
WERE INVOLVED IN EXPORTS TO CHINA AND IMPORTS FROM
CHINA. OVER 500 CANADIAN FIRMS HAVE REGISTERED
OPERATIONS IN CHINA, DOUBLE THE NUMBER ONLY SIX YEARS
AGO. LARGE COMPANIES SUCH AS BOMBARDIER, NORTEL,
MANULIFE, SUNLIFE, THE CANADIAN WHEAT BOARD, AS WELL
AS HUNDREDS OF SMALL AND MEDIUM ENTERPRISES HAVE
DEVELOPED THEIR NICHES IN CHINA AND ARE GROWING WITH
IT.
MY BASIC MESSAGE TO THE BUSINESS COMMUNITY HAS BEEN
THAT THEY OWE IT TO THEIR MANAGEMENT AND THEIR BOARD
OF DIRECTORS AND THEIR SHARE HOLDERS AND THEIR
CLIENTS TO ASSESS WHAT CHINA’S GROWTH MEANS FOR
THEM.
THIS MAY MEAN ENDEAVORING TO PENETRATE THE CHINESE
MARKET WITH THEIR GOODS AND SERVICES.
IT MAY MEAN DECIDING NOT TO MARKET IN CHINA, BUT TO BE
AWARE THAT THEIR COMPETITORS ARE DOING SO, EXPANDING
THEIR GLOBAL MARKET SHARE OR ACCESSING LOWER LABOUR
COSTS OR DIFFERENT TECHNOLOGIES.
IT MAY MEAN SEEING YOUR COMPETITORS MANUFACTURING
IN CHINA AND SUDDENLY APPEARING IN CANADA OR OTHER
MARKETS WITH HIGHLY COMPETITIVE GOODS THAT DISPLACE
THEIR OWN. IN THE EVENT, THEY HAD BETTER HAVE A
STRATEGIC RESPONSE TO THIS CHALLENGE OR FACE
UNPLEASANT CONSEQUENCES.
FOR WE IN GOVERNMENT, THE SIGNIFICANCE IS GREATER OR
LESSER, DEPENDING ON OUR DEPARTMENTAL
RESPONSIBILITIES. HEALTH CANADA MAY NOT HAVE GIVEN A
GREAT DEAL OF THOUGHT TO CHINA IN THE PAST, BUT THEY
SURE DO SO TODAY.
DFAIT, FINANCE AND INDUSTRY CANADA HAVE HAD TO
ADJUST TO AN ACTIVIST CHINA IN THE WTO. WE MAY STILL
NEED TO FIND WAYS OF PROMOTING OUR INDUSTRIES WHERE
CHINA HAS BECOME HIGHLY COMPETITIVE. CHINESE
COMPANIES ARE BEGINNING TO PUT PRESSURE ON CANADIAN
BUSINESS, IN TRADITIONAL SECTORS SUCH AS TEXTILES AND
APPAREL, AGRICULTURE, METALS AND MACHINE TOOLS.
IRONICALLY, AND TURNING THIS AROUND, SOME CANADIAN-
INVESTED CHINESE ENTERPRISES, FOR EXAMPLE IN TEXTILES
AND CLOTHING, ARE NOW FINDING THEIR ACCESS TO THE
CANADIAN MARKET BARRED BY QUOTA RESTRICTIONS,
CHALLENGING TRADITIONAL TRADE POLICY ASSUMPTIONS.
CHINA’S GOVERNANCE POSES SERIOUS CHALLENGES TO OUR
VALUES DIPLOMACY. THE PUBLIC PROFILE OF CHINA CAN
OFTEN BE NEGATIVE, GIVEN HUMAN RIGHTS ISSUES SUCH AS
FALUN GONG, TIBET, XINZHANG MUSLIMS. CANADIANS
EXPECT THAT OUR MAJOR INTERNATIONAL PARTNERS SHARE
OUR BASIC VIEW OF DEMOCRACY AND HUMAN RIGHTS. WE
HAVE TO ENSURE THAT OUR VALUES DIPLOMACY IS EFFECTIVE
IN CHINA, IS UNDERSTOOD IN CANADA AND SERVES OUR
OVERALL NATIONAL OBJECTIVES.
CHINA IS STILL CANADA’S LARGEST SOURCE OF IMMIGRANTS.
THE HIGHEST NUMBER OF SKILLED MIGRANTS IS ALSO FROM
CHINA. OVER 10,000 STUDENT VISAS ARE ISSUED PER YEAR,
THE LARGEST SOURCE OF FOREIGN STUDENTS FOR OUR
EDUCATIONAL INSTITUTIONS WHO DEPEND ON THEM. OUR
IMMIGRATION AND VISA PROGRAM IS THE LIFE BLOOD OF THE
BILATERAL RELATIONSHIP. WE MUST ENSURE THAT IT
CONTINUES TO SERVE CANADA’S BROAD INTERESTS.
THERE ARE ISSUES OF THE GLOBAL COMMONS THAT WE CAN
ONLY ADDRESS IF WE INVOLVE THE CHINESE. FOR EXAMPLE,
CANADIANS BELIEVE THAT ENSURING A CLEAN GLOBAL
ENVIRONMENT IS ONE OF THE 21ST CENTURY’S MOST
IMPORTANT TASKS. CHINESE ECONOMIC DEVELOPMENT WILL
BRING A TERRIBLE PRICE IN TERMS OF ATMOSPHERIC
POLLUTION. WE HAVE TO SUSTAIN ENGAGEMENT WITH CHINA,
EVEN WITH OUR LIMITED RESOURCES, TO PROMOTE IN CHINA A
COMMITMENT TO SUSTAINABLE DEVELOPMENT.
THERE ARE FEW DEPARTMENTS IN OTTAWA THAT, IN THE
PURSUIT OF THEIR RESPECTIVE MANDATES, DON’T HAVE SOME
CHINA INTERESTS.
MY ADVICE TO MY COLLEAGUES IN GOVERNMENT TODAY IS THAT
WE BE AWARE THAT CHINA WILL ONLY GET BIGGER AND, IN TIME,
MORE IMPORTANT; THAT WE ENSURE THAT SOMEONE IN OUR
DEPARTMENTS HAS A GOOD GRASP OF DEVELOPMENTS IN CHINA
THAT COULD IMPACT ON YOUR PRIORITIES AND YOUR PROGRAMS;
THAT WE DEVELOP OUR STRATEGIES – WHETHER MODEST OR
COMPLEX – BASED FIRMLY ON YOUR CORPORATE OR CLIENT’S
LONG-TERM OBJECTIVES; THAT WE INVOLVE OUR MINISTERS AND
SENIOR OFFICIALS DIRECTLY IN OUR STRATEGIES, BECAUSE IN
CHINA RANK MATTERS AND ACCESS IS ESSENTIAL; AND THAT YOU
GET AT LEAST AS MUCH OUT OF YOUR RELATIONS WITH CHINA AS
YOU HAVE TO GIVE.
THANK YOU.