Having just returned to Canada from a posting in Beijing serving as Canada’s ambassador to China, David Mulroney is better qualified than most to interpret the membership of the Communist Party’s new Standing Committee. While those hoping for an overt economic reform agenda may be disappointed, the former diplomat says Canada’s opportunities to increase trade and business with the world’s second-largest economy are unlikely to change with the new regime.
Q. What is your initial reaction to the membership choices for the new Standing Committee in China?
I think you do have to be a bit cautious.
There are some indications that we can at least reflect on. The fact that the standing committee is a little bit smaller [shrinking to seven members from nine] probably bodes well for decision making. That might make [new party leader] Xi Jinping’s life a little easier.
The fact that he is already the head of the Central Military Commission is probably a good thing. Although to be fair, it may have more to do with what Hu Jintao didn’t get than what Xi Jinping did get. [Former Party leader Hu didn’t get that post for two years even when he became head of the standing committee.] He’s starting off in a strengthened position.
Although I am cautious about reading too much into the past histories of who is on the standing committee, I do think the absence of someone like a Wang Yang [Guangdong Party boss, economic reformer and standing committee candidate] is significant.
Of the team, the most formidable economic mind would be Wang Qishan [former Beijing mayor who most recently handled difficult economic negotiations with the U.S] who it would appear doesn’t have an economic portfolio. But, [as head of the anti-corruption Central Commission for Discipline Inspection] he does have an economic element. You can fight corruption and things like that. Not having someone on the front lines who is the most Zhu Rongji-like [former Chinese premier who was a reformer compared to president Jiang Zemin] of anybody on the standing committee is a bit of a disappointment.
So, on the surface it doesn’t look like they are building a reform team. I think a lot of that has to do with factional politics and a lot of it has to do with the fact that Jiang Zemin has had a pretty good set of innings. [Three protégés of the former president made the cut.]
Q. What does it mean for Canada?
The prime minister recently had a good meeting with [premier to be] Li Keqiang and he went out of his way to talk about economic prospects with Canada. The door is open to us and as open as it is to any. It will be up to us to determine how we go through it.
It is not just a matter of waiting. We can take the initiative. I think the Chinese have indicated, and I don’t see any change in this new administration, they will be as open and ready to do business with us. But we have to decide on what basis we do business. Are there red lines? Are there risks? And how do we enunciate those? And what do we want? How much Chinese investment do we want? Where do we want it? And can we bring to the technology sector and the financial services sector, the same kind of disciplined market opening techniques that we have brought to the agricultural sectors. We pound away at forest products and canola and beef and then we open the market. And we wonder why we are not doing as well on technology and environmental services.
Q. What potential reforms would be most important in terms of business and trade and the relationship with Canada?
Continued movement on intellectual property protections and, on a much higher level, continuing to make progress on the rule of law. The equitable implementation of the rule of law and equitable respect for the rule of law wherever you are in China. So the home court advantage, which is considerably strong, is diminished.
That’s where things like the [Canada-China] Foreign Investment Promotion and Protection Agreement come in. It is our standard tool in terms of levelling the playing field. Where Canadian business is often having problems now is outside of Beijing. When you introduce arbitration [from the FIPPA] Beijing begins to feel our pain. It’s a modest but important step in the right direction.
Q. What signals does Canada have to send China in terms of our attitude towards foreign investment, especially considering the government’s pending decision regarding the $15-billion takeover offer for Canada’s Nexen by Chinese state-controlled CNOOC?
In any general area, sometimes it is more damaging to confuse the Chinese than to say no to them. If you say no to them and they understand why and they were taking a gamble but they know what the playing field is like, it’s a bumpy ride but you get beyond it. When they start to get confused then they start to lose interest. One of the things that makes Canada attractive, as it makes Australia attractive, is because it is a predictable business environment. They factor that into their own cost equations. So it becomes much more competitive compared to all the unpredictable places around the world. We have to work hard to make sure that Canada remains predictable. That doesn’t mean we don’t impose restrictions or think hard about certain sectors, but we communicate those openly and reassure the Chinese we are going to be clear about them.
Q. When the Canadian government talks about reciprocity regarding foreign investment, what might it hope to expect from China?
The challenges of reciprocity are that the Chinese system is unitary and connected and is able to ignore the arbitrariness and the imbalances that arise and effect reciprocity.
You have to start with a concerted message that says the Canadian market is open and believes in free trade and we welcome Chinese investment but we also expect that Canadians can compete in China. If they stop believing that then you won’t have the conditions for the kind of openness we’ve seen. You have to be really frank about that. You also have to be sure you’ve done everything you can in terms of market opening.
You don’t want to have to go to reciprocity, and perhaps it’s been invoked as the ultimate regrettable necessity, but you want to have worked hard enough that you’ve opened the door yourself.
Q. Are there any specific concerns or advantages for Canada in the new leadership?
One of the things we want to do is invite the new leadership to Canada to make sure we’ve met with them. It’s a little too early to see whether there are advantages or disadvantages with the new group. It’s up to us to build the relationship.