Working Group on International Financial Services for BC
Establishing an RMB Trade
and Investment Hub in Canada
Benson Kua
Establishing an RMB Trade and
Investment HUB in Canada
Preface
In September 2014, the Honourable Michael de Jong, British Columbia Minister of Finance convened
the Working Group on International Financial Services for BC, chaired by Colin Hansen, President and
CEO of AdvantageBC. One of the first tasks of the Working Group was to investigate the opportunity for
Canada to become the next global RMB Hub for banking, investment and trade settlement. Specifically,
the Working Group looked at the potential for a “Pan-Canadian” RMB Trade and Investment Hub leveraging the
relative strengths of both Toronto and Vancouver. Given the globally recognized strength of the Canadian
banking system, Canada could serve as an ideal RMB trade and investment Hub to serve the Americas.
The Working Group also explored what was needed from the private sector to ensure firms were ready
to handle business, banking and investing in a world which recognizes the growing significance of the
RMB in global commerce. Private sector leadership and engagement is a prequisite for Canada to be a
successful and sustaining RMB Hub.
NOTE TO READER:
This report was finalized and circulated to key federal officials in October, 2014. Shortly after, the
Governments of Canada and China announced that Canada would be designated as the first RMB
Settlement Hub in the Americas.
The November 8, 2014 announcement included the following:
• Canada would be designated as a RMB Settlement Hub
• Bilateral Swap Line (RMB 200 billion)
• Renminbi Qualified Foreign Institutional Investor (RQFII) quota (RMB 30 billion)
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
Summary
Establishing a pan-Canadian RMB Trade and Investment Hub that involves both Vancouver and Toronto has garnered
strong support from the Canadian business community. The Hub is broadly viewed as a foundational element in
growing Canada-China commercial relations and expanding both bilateral and multilateral trade and investment.
Through this Pan-Canadian approach, Canada can establish itself as North and South America’s financial facilitator and
the primary conduit to Asian financial centres, which is expected to create significant economic spinoffs. Realizing
these benefits, however, will be greatly assisted if we can capitalize on the differing strengths that both Toronto and
Vancouver can offer as global financial centres.
While Toronto is Canada’s primary financial centre, a pan-Canadian RMB Trade and Investment Hub involving Vancouver
(and potentially Montreal and Calgary) affords a number of additional advantages:
• BC has a special economic relationship with Asia, building on its already strong trade (largest volume of trade
of any Canadian province with China), investment, and demographic/cultural ties that extend to tourism and
education. It is estimated that 70 per cent of China-Canada commodity trades and letters of credit transactions
are being handled in Vancouver;
•
As Canada’s second largest financial centre1, Vancouver’s financial strengths have grown significantly in
recent years in both volume and diversity of services, driven by the expansion of Asian financial institutions
in the province, including three of the largest banks in the world – Industrial and Commercial Bank of China,
Agricultural Bank of China, and the Bank of China, as well as HSBC, an international Asian financial leader;
•
BC has significant strengths in human capital, with a skilled, multi-lingual workforce, and world-class
post-secondary institutions with significant research capacity;
•
As a globally recognized, competitive business location, BC offers low taxes, a tax incentive program targeted to
international financial services institutions, and a stable political and regulatory regime; and
•
Vancouver’s Gateway location in the Pacific time zone ensures that a pan-Canadian Hub can help provide
24-hour coverage for global RMB transactions and timely and accessible transit for people and goods and
services both into Asia and into the Americas region.
•
By combining the strengths of both Toronto and Vancouver to create a pan-Canadian RMB Hub,
Canada can provide a critical link currently lacking for Renminbi transactions in the Americas.
1.
Global Financial Centre Index - ranks the financial centres of global importance with: Toronto at #11, Vancouver at #14 and Montreal at #18 and the Conference Board of Canada’s
“A Head for Finance: Growing Financial Services in Toronto” lists Vancouver as second to Toronto in terms of numbers of financial services headquarters.
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
Overview
Canada is seeking to become an RMB Trade
and Investment Hub that could provide RMBdenominated financial services to both Canadian
and Chinese corporations, as well as to the rest
of the Americas, including the United States,
Mexico, Central and South America. In support
of this goal, the Toronto Financial Services
Alliance (TFSA) and AdvantageBC (representing
BC’s international financial services industry)
announced a new cooperative effort in August
2014 that will feature closer collaboration
between federal and provincial authorities,
and the private sector, to promote a Canadian
Hub for RMB. In October 2014, the Ministers
of Finance in British Columbia and Ontario
announced their partnership to encourage
establishment of a RMB Hub in Canada. This
pan-Canadian model would be anchored by the
complementary strengths of both Toronto and Vancouver — Toronto as Canada’s pre-eminent financial capital, and
Vancouver as the primary location for negotiation of China-Canada trade accounts. The Hub would be inclusive and
encourage other Canadian and North American cities to leverage their economic relationship with China and promote
use of RMB-denominated business. Services provided through this approach would enable further growth in trade
between China and Canada, which was worth $73 billion in 2013, as well as expand China-related trade throughout
the Americas.
British Columbia is well-positioned to help Canada realize its potential benefits as a RMB Hub and this paper explains
why and provides strong supporting evidence.
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
BC’s Economic Relationship with Asia
Growing Trade and Investment with China
British Columbia has a long history with China, both in terms of commercial relations as well as socially with a large
population of Chinese immigrants, students and visitors. BC has grown its exports to China by 4.5 times in the last
decade ($1.2 billion in 2004 to $6.6 billion in 2013). Proportionally, China is BC’s second-largest export market, and
has increased its market share from 4% of goods exported a decade ago, to 19.8% in 2013. The province is working to
further grow this percentage over the next five years.
Of all Canadian provinces, BC has the greatest economic linkage with the Asia Pacific, with over 40% of its trade destined
for the area in 2013, up from 24 per cent in 2004. In 2013, BC exports to China totalled $6.6 billion, approximately onethird of total Canadian exports to the region, and $10.2 billion worth of Chinese imports were handled through BC,
representing just under one-fifth of total Chinese imports into Canada.
Over the past six years, BC has attracted significant amounts of Chinese foreign direct investment, primarily spurred by the
global competition to secure energy supply. Chinese firms have made substantial investments into BC’s shale gas industry
and liquefied natural gas (LNG) terminal projects including: China National Petroleum Company (CNPC – parent company
of PetroChina); China National Offshore Oil Corporation (CNOOC); and China Petroleum & Chemical Corporation (also
known as Sinopec). Previously, the China Investment Corporation (CIC) also provided a private placement of $1.74 billion
in Teck Resources Limited in July 2009. The significant and growing investment from China and other Asian economies
into BC’s resource sector generates opportunities for Canadian and international financial institutions to become more
closely involved in the financing of major projects. A potential Canadian RMB Trade and Investment Hub may also drive
further Chinese RMB-based trade transactions and investments into these industry sectors.
Trade Facilitation
One of BC`s principal strengths as a financial centre in Canada is
its role in negotiating trade accounts vis a vis Canada’s trade with
Asia. Trade transactions benefit from proximity to BC’s ports in
order to move trade documentation to financial institutions for
completion. Vancouver is well-established as a North American
international financial services centre, with an estimated
70 per cent of China-Canada commodity trades and letters of
credit transactions being handled in Vancouver. Evidence of the
strength of Vancouver as a trade finance centre can also be found
in the Bank of China’s decision last fall to consolidate its North
American trade finance operations in Vancouver. Trade finance
is a critical component of international trade and it is estimated that 80-90 per cent of all global trade transactions
involve some form of trade finance (i.e. credit, insurance or guarantee)2. Canada currently benefits from over $20 billion
in exports to China, and an inflow of over $52 billion in imports3. Furthermore, an increasing number of non-Canadian
origin transactions, such as those for the United States, Central and South America are also handled through BC.
2.
Auboin, Marc (2009). Restoring Trade Finance during a Period of Financial Crisis: Stock-Taking of Recent Initiatives. WTO Staff Working Paper 2009-16.
(http://www.wto.org/english/res_e/reser_e/ersd200916_e.pdf )
3.
Trade Data Online, Industry Canada database.
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
In a recent Canadian Chamber of Commerce report, it is indicated that Canada could benefit from $32 billion additional
exports over the next decade with a RMB settlement designation. BC’s export advantage is estimated at an incremental
$9.37 billion during the same time frame. The report also referenced a HSBC survey that indicated fifty-five percent
of Chinese businesses could provide a price benefit of up to five percent for RMB-denominated transactions. This,
supported by new potential RMB-denominated financial products and services (including avoidance of currency
conversion charges and costs associated with cross-currency hedging strategies), could yield $6.2 billion in cost savings
for Canadian corporations over the next ten years.
With the growth of international trade in BC, and as more companies enter the market to and from Asia, this will
undoubtedly impact the overall use of RMB in related transactions. Aside from bilateral agreements between Canada
and China alone, there is also a potential opportunity to leverage the RMB Trade and Investment Hub to fortify trade
relations with third party countries in the Americas, enhancing multilateral relationships throughout Asia.
Bond issuance
In 2013, BC became the first foreign government to issue bonds denominated in RMB, marking an important and solid
step in the development of the RMB business in Canada. HSBC acted as lead manager, and the Bank of China, and ICBC
acted as co-managers of a one-year-term bond that raised RMB 2.5 billion (CAD $428 million equivalent), which was
at the time the largest offshore RMB bond by a foreign issuer. This “first mover” strategy is one that is embedded in the
long economic relationship British Columbia has had with China.
BC`s RMB issue received a positive response from investors around the globe who showed a strong appetite for the
bond, which was quickly over-subscribed. The Province issued the bond in part to diversify the government’s investor
base, access new sources of global liquidity and increase financial and economic ties with China and the Asia Pacific.
Subsequently, the Province of BC has now issued a RMB 3 billion, two-year bond (November 13, 2014 to 2016) which
was also quickly oversubscribed. Continued support by Government of RMB-denominated bonds may also entice
other private sector firms operating in BC to issue its own RMB-denominated bonds. BC’s issuances of RMB bonds also
reinforce the importance placed on China, and the global emergence of the Renminbi.
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
British Columbia’s Financial Strengths
Financial Community and Infrastructure
BC has in recent years been improving its position and reputation as an international financial centre. In the September
2014 rankings issued by the Global Financial Centres Index (GFCI), Vancouver was listed as the 14th most important
financial centre in the world – a significant jump from its 33rd place ranking in 2008. The Economist Intelligence Unit4
(EIU), which reports on global city competitiveness, ranks Vancouver high on physical capital (availability and access to
infrastructure), institutional effectiveness (stability of regulations, predictability and fairness of political processes and
effectiveness of the system) and financial maturity (breadth and depth of the financial cluster). The Province has also
maintained its triple A-credit rating with S&P and Moody’s and Fitch.
Vancouver currently has over 3,300 companies in the finance and insurance sector. Of this group, over 30 companies
have more than $50M in annual sales and 383 companies have their corporate headquarters located in Vancouver5.
All five of Canada’s largest banks have significant operations in Vancouver. Several international financial institutions
also have Canadian head offices in BC, including HSBC, Agriculture Bank of China, United Overseas Bank and First
Commercial Bank. Other financial institutions with a BC presence include Bank of China, ICBC, CTC Bank of Canada,
Korean Exchange Bank, Lloyds Bank, State Bank of India (Canada), ICICI (Canada), Bank of Tokyo - Mitsubishi UFJ
Financial Group, Mizuho Financial Group, and UBS Canada. Many of these institutions have been expanding their
BC-based operations in recent years. For example, in November 2013 the Bank of China announced the consolidation of
its trade finance services at its International Business Centre in Vancouver. Their Vancouver Vice-President, Jacqueline
Yam noted that “British Columbia has always been the prime choice when Asian enterprises establish their Canadian
subsidiaries”6. The presence of these global financial institutions, as well as the strength of the Canadian banking
industry in Vancouver, contribute to a solid and fortified
financial infrastructure that is capable of handling the
trades and volumes necessary for a substantial and
reliable RMB Trade and Investment Hub.
Wealth Management
One of the fastest-growing areas of financial services
in Vancouver is in the area of wealth management.
One recent survey ranked Vancouver among the
top-10 wealth management centres in the world. In one
example, the Industrial and Commercial Bank of China
(Canada) opened its Wealth Management headquarters
for Canada in Vancouver this past summer.
4.
EIU Benchmarking Global City Competitiveness (2012)
5.
Hoover’s Inc., a subsidiary of The Dun and Bradstreet Corporation, October 23, 2014
6.http://www2.news.gov.bc.ca/news_releases_2013-2017/2013PREM0126-001789.htm
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
Royal Bank of Canada has international private banking divisions globally, and also has one in Vancouver dedicated to
China. HSBC and Bank of Montreal similarly have large wealth management divisions based in Vancouver, servicing
a big portion of the demand in Canada. Operations such as these are able to capitalize on the close proximity to a
large population of wealthy Chinese immigrants residing on the west coast, as well as investors from China seeking
new opportunities.
Should Canada be selected as a RMB Trade and Investment Hub, it is likely that the Chinese government would assign
Canada a quota for its RMB-Qualified Foreign Institutional Investors (RQFII) program. This designation would create
considerable opportunities for institutional investors and wealth management firms in BC to actively invest in Chinese
capital markets using RMB. In fact, the British Columbia Investment Management Corporation (bcIMC), as a Qualified
Foreign Institutional Investor (QFII), has already received an initial $100 million quota from the Chinese Securities and
Regulatory Commission to invest in the mainland China A-share market, with companies based in Shanghai and
Shenzhen. The bcIMC’s involvement in the QFII program was expanded by $200 million in 2013-14 and is evidence
of the growing link between BC capital and China, and sets the stage positively for expanding the form of investment
quota into RQFII.
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
Human Capital
Financial Services Workforce
Employment in the finance and insurance industry in BC has been growing steadily in the last five years, with
96,200 workers employed in the sector in 2013, an increase of 11.3 per cent since 20097. In general, BC’s workforce is
highly-educated, and according to feedback from investors in BC, demonstrates loyalty, with a relatively low turnover.
In addition to the local labour pool, specific immigration programs developed by the Federal Government also allow
access to eligible, skilled individuals through the Temporary Foreign Worker program (work visa) as well as the BC
Provincial Nominee Program (intended for longer-term positions and skilled professionals seeking to establish as
permanent residents in Canada).
Multi-lingual and multi-cultural workforce
BC boasts a large multicultural and diverse workforce, with
a significant population having a working knowledge
of Mandarin and Cantonese, including professional
service providers such as legal experts, accountants and
consultants. In the last census (2011), 438,140 British
Columbians self-identified themselves as of Chinese
descent. In Vancouver alone, over 800,000 people, or
39 per cent of the population, have knowledge of a
language other than English or French, including Chinese,
Punjabi, Hindi, Korean, Tagalog, German, Spanish, and
Italian. A total of 78 per cent of British Columbians, more
than any other province, believe we should facilitate
trade and investment for Asian companies in Canada,
with a further 63 per cent believing that Canada would
benefit from more Asian investment in the country, again
more than any other province8.
Quality of Life
The quality of life in BC is an advantage in attracting skilled workers, and this contributes to long-term job satisfaction
and helps companies retain key personnel. The desirability of BC as a place to live is evidenced by Vancouver’s annual
placing at or near the top of the Economist Intelligence Unit’s “most liveable city” rankings. Vancouver enjoys the
highest quality of living in North America and the fifth-highest in the world, according to the 2014 Mercer Quality of
Living survey.
7.
Statistics Canada, Labour Force Survey.
8.
Asia Pacific Foundation National Opinion Poll, 2013.
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
Education
BC offers over 1,900 programs at 11 universities, 11 colleges and three institutes. BC universities consistently receive
high marks in the World University rankings, with the University of BC placing 22nd in 2012. Seven new BC public
university campuses have been established since 2001. In addition, several BC institutions have a strong focus on
Asia, this includes the establishment of Asian institutes on campus and degree programs connected to the region.
For example, UBC offers a two-year Masters in Public Policy focussing on Asia that can be combined with an MBA,
and the University of Victoria has a degree in Pacific and Asian studies. There are also Asian institutes at Simon Fraser
University and UBC. There is significant world-class economic and financial research being conducted, particularly
in the two research-focused universities: UBC and Simon Fraser. In fact, there are already major existing linkages
between these two Universities and their faculties, and China’s major universities, particularly in issues related to
finance and economics. Both have aided in the further development of China’s analytical and educational capacities
in these areas. BC’s education sector overall also has strong ties to Asia.
For example, a recent study of students at UBC revealed that 33 per cent self-identified as Chinese while roughly
25 per cent of foreign students at UBC are from China. Last year alone, 23 deals were concluded between China
and BC educational institutions that were tied to an estimated $42 million in economic activity. Furthermore, the
numerous partnerships that BC institutions have (particularly UBC) with Chinese institutions have had a huge impact
on the movement of students, curriculum, and exchanges. This also highlights the significant relationship-building
that has been occurring for over four decades.
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
BC’s Business Environment
Corporate Tax Advantages
Canada and BC have lowered overall corporate taxes to 15 per cent and 11 per cent respectively. BC is acknowledged
to have a competitive tax regime with among the lowest corporate taxes in the G8. Individuals in BC who earn up to
$121,000 pay the lowest provincial income tax in Canada.
A recent study by KPMG, Competitive Alternatives 2014: Focus on Tax, revealed that Canada remains the most taxcompetitive country for business globally. Among the countries studied, Canada has the lowest total tax index (TTI) at
53.6. In other words, total tax costs in Canada are 46.4 per cent lower than in the United States.9 The top three spots on
the ranking were all Canadian cities: Toronto has a score of 51.6, Vancouver is 54.5 and Montreal comes in at 55.6. The
relative strengths of Toronto and Vancouver as number one and two demonstrate the advantages of having these two
cities as pillars of the pan-Canadian model.
One of BC’s main incentive tools, the International Business Activity (IBA) program, provides companies doing business
in the province up to a full refund of BC corporate taxes paid on eligible international business activities and transactions.
Many of the prescribed activities are related to financial services, and more than half of the companies using the
program are banks and credit unions, wealth and asset management firms, and other types of financial institutions.
Two Chinese Banks — Bank of China and the Industrial and Commercial Bank of China — currently make use of the IBA
program in respect of income earned in BC.
BC also offers tax-related incentives in a number of other areas, including venture capital programs providing tax
credits to encourage early-stage investment in small businesses, training tax credits for employers that hire apprentices,
and industry-specific incentives offered in the creative industries, mining, natural gas, LNG, life sciences, and clean
technology.
Regulatory Regime and Cost of Doing Business
Over the past 10 years, BC has taken great strides in overall deregulation to improve its business-friendly environment.
More than 40 per cent of regulations and red tape have been removed since 2001, which has reduced delays and
created greater certainty. In a comparison with five leading business centres10, also ranked Vancouver first for Operating
Risk, Taxation and Incentives, and Regulatory environment. A recent study by MMK Consulting also validated that
Vancouver ranked first among 10 cities examined for a model currency exchange operation11.
9.
The study allocates a benchmark TTI score of 100 to US major cities and measures other major cities around the world against that score. See: competitivealternatives.com.
“A Highly Competitive Tax Landscape” by Howard Silverman, Location Canada, 2014.
10.
FDI Benchmark from the Financial Times Ltd., comparison of Vancouver, Toronto, Chicago, New York, San Francisco, and Sao Paolo, October 7, 2014.
11. “Potential Benefits of a Canadian-Based RMB Settlement Centre”, MMK Consulting (Sept 2014)
http://www.advantagebc.ca/pdf’s/09-26-2014%20AdvantageBC%20Research%20-%20Benefits%20of%20Canadian%20RMB%20Settlement%20Centre.pdf
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
Asia Pacific Gateway
Strategic Location
Currently, there are no RMB Trade and Investment Hubs in the Americas. A pan-Canadian RMB Hub would allow for
direct settlement of related trade accounts not only for companies in Canada and China, but also those in the United
States, Mexico, and Central and South America. Given the time zone differences between Toronto and Vancouver, this
pan-Canadian approach would be ideal for businesses in the Americas during the hours which overlap with Europe
(to be served by operations in the Eastern Time Zone), as well as business hours in Asia (which would overlap with the
Pacific Time Zone). A pan-Canadian Hub to serve the Americas would allow for seamless coverage from the end of the
business day in Europe, through to the start of the working day in China. This connectivity would allow commercial
transactions to maximize certainty, to make timely payments, and to manage transactional investigations.
Accessibility
To date, approximately $19 billion (of $22 billion committed) has been invested in the Asia-Pacific Gateway and Corridor
Initiative by the Government of Canada, the four Western Provinces, municipalities and the private sector. With respect
to actual physical travel times, BC`s two major ports and major airport are closer to China than any others in North
America. Shipping times from Vancouver to Shanghai are just over 10 days, and 12 days to the port of Hong Kong. For
example, given the proximity to Asia, goods leaving from Shanghai will arrive 48 hours earlier in Chicago going through
the Port of Prince Rupert as opposed to Long Beach, California. Furthermore, rail yards are less congested in Canada,
than in the US.
Major Chinese airlines have daily service to Vancouver including Air China, Cathay Pacific, China Airlines, China Eastern,
China Southern, and Sichuan Airlines. Service from Vancouver to Beijing includes 18 flights a week, as well as some
21 flights each to Shanghai and Hong Kong. The Vancouver International Airport (YVR) won the Skytrax Best North
American Airport award in 2010 through 2014 and has also been ranked in the top 10 airports in the world since 2012.
YVR is one of eight Canadian airports that have US Border Pre-clearance facilities.
Summary
Canada stands ready to promote the role that the RMB will play as a global currency by establishing a pan-Canadian RMB
Trade and Investment Hub to serve the Americas. Our global reputation of political stability and regulatory certainty,
along with our future looking economic development strategies, existing momentum and high levels of engagement
with Asia have ideally positioned Canada to fill a global gap in the use of the RMB for international financial services.
By filling this niche, we have the ability to expand exports while creating additional millions in other economic spinoffs
that will distributed across Canada from coast to coast. Realizing this opportunity however, requires a pan-Canadian
approach that fully leverages our strengths in both Vancouver and Toronto as well as the supporting centres like Calgary
and Montreal. By working collaboratively across the country, we can leverage our full suite of strengths and advantages,
which will be critical to realizing Canada’s fullest potential.
Working Group on International Financial Services for BC
Establishing an RMB Trade and
Investment HUB in Canada
APPENDIX
Working Group Members
Colin Hansen, President & CEO (Chair), AdvantageBC
Stewart Beck, President & CEO, Asia Pacific Foundation of Canada
Peter Brown, Peter Brown Capital
Kathy Butler, Managing Director and Co-Head of CIBC World Markets’ Vancouver Investment Banking Group, CIBC
Greg D’Avignon, President & CEO, Business Council of British Columbia
Robb Gass, Managing Director and Industry Head, Scotiabank
Jill Leversage, Managing Director, Highland West Capital
Graham MacLachlan, Regional President, British Columbia, Royal Bank of Canada
Paulo Maia, President & CEO, HSBC Canada
Ian McKay, President & CEO, Vancouver Economic Commission
Derral Moriyama, Senior Vice President of Business Development for Western Canada, Bank of Montreal
Dan Muzyka, President & CEO, Conference Board of Canada
Tracey Orr, Vice President, Global Trade Finance, TD Securities-TD Bank Group
Hao Shi, Chief Representative, Agricultural Bank of China
Albert Shum, Executive Vice President, Bank of China (Canada)
William Zhu, President & CEO, Industrial and Commercial Bank of China (Canada)
Working Group on International Financial Services for BC
Benson Kua