Restricting flow not the right way to deal with Chinese capital
HSBC Canada’s chief economist says Ottawa and B.C. need to be clear in their dealings with investments from China, citing the province’s recent tax on foreign homebuyers as evidence of a mentality that could hurt the Canadian economy.
David Watt, speaking at HSBC’s China Forum in downtown Vancouver on Wednesday, told attending business and trade officials that the new tax — similar to Ottawa’s ruling that restricted Chinese state-owned enterprises from entering Alberta’s oil patch in 2012 — could be sending the wrong message for a slow-growing economy whose best chance at growth falls on trade links to markets like China.
“Cutting off investment from Chinese state-owned enterprises, or other Chinese enterprises in the future, is not an appropriate way to respond to the foreign direct investment outflow that we’re going to see from China in the coming years,” he said. “We’ve now seen taxes on foreign investment into Vancouver’s real estate. Well, trying to restrict all that flow is not necessarily the appropriate response.”
Watt’s view was echoed by several HSBC officials, including president and CEO Sandra Stuart. While Stuart did not touch on the real estate tax, she said the Canadian economy, currently projected to grow 1.2 per cent this year and 1.7 in 2017, cannot afford to turn away from the Chinese market, even amidst its current slowdown.
“While the Canadian economy is not in recession, I don’t have to tell you it remains on a slow-growth trajectory,” Stuart said. “Despite this backdrop, there are opportunities for Canadian companies to grow, such as increased trade to faster-growing global markets like China, which would be one very effective avenue to secure Canada’s long-term economic well-being.”
Statistics show that, despite Canada’s multitude of free-trade agreements, only 10 per cent of Canadian companies generate sales in foreign markets, Stuart noted, adding that just 550 firms account for 70 per cent of Canada’s total exports.
“We know through our research that companies that do business internationally grow faster than those with strictly domestic businesses,” she said. “Even you, as a local business, know that you can face competition from abroad, and you should be alive to the opportunities presented through international trade.”
The forum was organized to give Vancouver investors and businesses an “on-the-ground” sense of the Chinese market. China has seen a rash of volatility in its stock markets, currency valuation and investor confidence in the last year, and its annual GDP growth rate fell to a 25-year low in 2015 of 6.9 per cent.
Helen Wong, CEO for HSBC’s Greater China region, said that while short-term volatility in the stock market and currency will likely persist, it is a natural part of China’s transition from an export economy to a consumption-based model.
She also noted that China is now increasingly looking to expand in three areas where Canadian businesses can benefit: consumer service, sustainable technology through urbanization, and high-tech/high-value manufacturing.
“The past few years have tested people’s confidence in China’s economy, but … we believe the Chinese economy is in a better state than what many people believe,” Wong said. “Companies no longer simply assemble goods designed by others. They create and develop products for markets around the world … and there are plenty of opportunities for those who can cater to this powerful trend.”