China has new hands on the governing helm, and Canadian companies operating in the country hope to see some changes as a result.
With a new President, Xi Jinping, new Premier, Li Keqiang, and a new cabinet guiding China’s economic engine for the next decade, there is a greater pool of international experience and education, and some early signs of reform.
The new Finance Minister is Lou Jiwei, well known to Canada’s resource sector as the former influential chairman and chief executive officer of the China Investment Corp. sovereign wealth fund. New Commerce Minister Gao Hucheng is calling for China’s trade growth to exceed its GDP growth – music to the ears of the country’s trade partners. And the reformist head of the People’s Bank of China, Zhou Xiaochuan, is to stay on despite having reached retirement age.
Howard Balloch, a former Canadian ambassador to China who is now chairman of investment firm Canaccord Genuity Asia, predicts “re-energizing” reforms of state-owned enterprises and the financial sector.
“Structural reform has … been largely frozen for a number of years,” he noted. “I don’t think we’re going to see anything radical in the short term. I think we’ll see less dawdling on some issues they should have dealt with,” he added. “I hope, but don’t know, this will be good for Canadian companies waiting for approvals.”
There are some lofty promises out of the starting gate: China’s Railways Ministry is to be broken up and its regulatory and operational arms separated. The National Development and Reform Commission is to get out of the business of authorizing major investment proposals and business registration, which will be streamlined and passed to local governments. Liberalization of the yuan is expected to continue under Mr. Zhou, who has already widened its trading band and created special trade zones and offshore trading centres.
New rail spending – potentially good news for Canada’s Bombardier Inc. – has been promised, part of government infrastructure programs to drive economic growth while improving connections between regional centres and relieving heavy traffic congestion in major cities.
There are also promises of a strengthened focus on food safety and health care reform, both identified as opportunities for Canadian businesses by the Canada-China Business Council.
“It will take time before China and Canada figure out how we can continue to collaborate under the new dynamic, but I think we have a good foundation,” said Daniel Cheng, the Beijing-based China managing director of the CCBC. “Canada has been instrumental in China’s reform and opening up, and we have made a lot of investments in the past. … It would be great if we can take full advantage of that,” he said.
Indications of a relaxing of limits on foreign investment would be good news for Canada’s financial sector, which has been making slow inroads into China. Last summer Bank of Montreal, the only Canadian bank locally incorporated in China, acquired a 19.99-per-cent interest in state-owned investment firm Cofco Trust, the maximum foreign investment allowed in Chinese banks.
“The new government has a very good balance of experienced officials and emerging leaders. We believe China will … continue down the path of financial reform,” Albert Yu, BMO’s China head, said in e-mailed comments.
However, it is unclear whether the changeover will speed approval for Bank of Nova Scotia’s bid to purchase a 19.99-per-cent stake in Bank of Guangzhou, first announced in September, 2011.
Scotiabank declined to comment on whether the changeover might help its case, but in January, CEO Rick Waugh told a Toronto conference that the bank might have to abandon the deal and invest elsewhere if delays continued.
Experts say it will take a year or two to see how serious the new government is about economic reforms.