Transcript Presenters - Canada China Chamber of Commerce

ICBC’s Experience in Canada:
Banking on Canada-China Economic Relations
International Consulting Project
• Rotman School of Management
• Munk School of Global Affairs
• School of Continuing Studies
Presenters:
• Scott Cherry
• Alan Xiang
• Jeff Nagashima
April 4, 2013
Agenda
1.
Evolution of Canada-China Economic Relations
2.
China’s Maturing Economy and Investment Pattern
3.
Opportunities and Challenges in Canada’s Foreign
Investment Climate
4.
Lessons Learned
5.
ICBC’s Experience in Canada
2
Political Relations Critical to a Growing Relationship
Foreign Investment Promotion and Protection
Agreement (FIPA)
Increased bilateral cooperation
‘Panda Diplomacy’
The Harper government’s handling of the China-file has markedly improved and
relations have warmed considerably, but challenges remain
3
China-Canada Bilateral Economic Ties Deepening
Trade Overview
Canada China Bi-lateral Trade
$80
•
•
China is Canada’s 2nd largest trade
partner. Canada is China’s 13th largest.
$70
12%
CAGR
$60
200% increase in bilateral trade in the
last decade, but only 7.6% of overall
Canadian trade in 2012.
Complementary trade pattern driven by:
 Primary resource and energy
exports to China.
 Electronics and manufacturing
imports from China.
CAD$, Billions
•
$50
$40
$30
$20
$10
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: StatsCan
Year
China is one of Canada’s most important markets with trade growing considerably,
but represents a low proportion overall
4
Chinese Foreign Direct Investment in Canada
$30
CAD$, Billions
$25
34.5%
CAGR
$20
$15
$10
$5
$0
2007
2008
Source: StatsCan; * 2012 figure BMO estimate
2009
2010
2011
2012*
Year
Positive trend of increased FDI from Chinese investors, dominated by energy and
mining. Canada was China’s top outward FDI destination in 2012
5
Internal Changes in the Chinese Economy
• One child
policy
• Aging
population
• Shrinking
labour pool
Factor markets
• Urbanization
• Rural incomes
• Focus on
services
• Safety net
Demographics
Policy
Shift to domestic private consumption
•
•
•
•
Labour
Land
Capital
Currency
Policy reforms, demographic shifts and factor market liberalization will drive China’s
shift toward domestic consumption, but risks of a “middle income trap” exist
6
Canada Stands to Benefit from Trends in China
Sustained resource demand
More outward FDI
Growth of private enterprise
Moving up the value chain
Rising incomes, higher costs
Canada is likely to be a net beneficiary of Chinese economic trends, attracting FDI in
key sectors, while exporting resources and higher value intermediate goods
7
Evolution of Chinese Foreign Direct Investment
Outward FDI Stock (2000-2011)
Inward & Outward FDI Flows (1990-2011)
$140
$400
$100
"Inward FDI"
$350
"Outward FDI"
$300
Current USD$, Billions
Current USD$, Billions
$120
$80
$60
$40
23.9%
CAGR
$250
$200
$150
$100
$20
$50
$0
$0
1990
Source: UNCTAD
1995
2000
Year
2005
2010
2000
2002
Source: UNCTAD
2004
2006
2008
2010
Year
Outward FDI increased dramatically following the “Go Global” strategy, strengthened
by 2005 currency reforms that increased overseas purchasing power.
8
• Job creation
• Capital to develop
resource base
• Integration into global
value chains (GVCs)
• Stronger relationship
with emerging markets
CHINA
CANADA
Investment Serves Critical Needs of Both Countries
• Securing resources
• Access to markets
• Acquisition of
technology & IP
• Knowledge transfer of
management practices
• Profit seeking
China requires critical inputs to sustain growth, while Canada requires capital to
develop resource base and integrate into East Asian value chains
9
Complementary Sectors can Produce Mutual Gains
Resources, technology
and expertise
Energy & Natural
Resources
Capital and sustained
resource demand
•
Canada can export resources, technologies, equipment and expertise
•
China can provide investment capital and the necessary market for the Canadian resources
Strong financial
system, expertise
Financial Services
Slow opening of
capital account and
RMB
•
Canadian firms can export knowledge and training services while expanding footprints in China
•
Chinese banks can gain access to markets through strategic partnerships and new business lines
SME’s with leading
technological advances
Environment
•
Canada can export clean technologies, services, and knowledge.
•
China’s investment in Canada can help to acquire this IP and expertise.
Focus on improving
environment
10
Complementary Sectors can Produce Mutual Gains
Quality products,
technology, techniques
Agriculture
Investment in pork
processing, grains and
oilseeds
•
Canada can export products, technologies and production techniques with increased market access.
•
Technical and scientific programs will improve and deepen relations
Deep talent pool and
legacy of innovation
Information &
Communications Technology
Access to IP,
technology and talent
•
Canada has developed leading expertise in ICT with a deep talent pool and legacy of innovation.
•
Chinese investment can provide access to new technologies while anchoring advanced capabilities in Canada.
Leading firms in
engineering services,
tansportation
Infrastructure
Large-scale
infrastructure spend
•
Canadian firms globally recognized for: project management; specialized technical skills, and familiarity with,
and access to, proprietary technologies.
•
Large-scale Chinese investments in infrastructure to keep up with robust economic growth, rapid urbanization.
11
Challenges Exist but Unlikely to Derail Stronger Ties
Slowing growth, “middle income trap”
Public perception in Canada and China
Policy uncertainty and political risk
Slowing growth, lower commodities prices and public perception of the desirability
of Chinese investment present risks, but broader trends are likely to counteract
12
Foreign Direct Investment:
Challenges and Lessons Learned
FDI: Trends in SOE vs. Private Sector Investment
Implementation of free market
practice
SOEs have historically led
investment in Canada
Increasing privatization
Maturation of the
Chinese economy will
lead to increasing
investment by non-SOEs
Increasing public concern in
target countries
Stricter regulation of SOE
investment at home and abroad
Although SOE-led transactions are likely to continue, a steady incremental increase
in FDI is expected from Chinese private sector investors
14
Why should Chinese investors focus on Canada?
Corporate Management
International Project Management
Access to Technology
North American Market Access
While wage rate and market size are traditional determinants of FDI, as a developed
nation, Canada offers other benefits to Chinese investors
15
Investor Challenges and Concerns
All Chinese investors
face challenges
entering the
Canadian market
Non-SOEs also face
unique challenges
• Perception of strict entry requirements
• Lack of familiarity and comfort with the Canadian
regulatory regime
• More limited in their access to financing and human
resources
• More conservative risk calculations
• More limited experience with regulatory
environments
Learning to navigate Canada’s regulatory regime remains a major challenge for SOE
and non-SOE investors
16
Key Legislation and Agreements: ICA & FIPA
Investment Canada Act
• ‘Net benefit’ test used to
review acquisitions of
Canadian firms
• Lower threshold for SOEs:
$330M vs. $1B
• Six factors considered, yet
weighting unclear
• High level of discretion for
the Minister of Industry
The Foreign Investor Promotion
and Protection Agreement
• Signed, but not formally
ratified
• 15-year effective period
• Provides protection to
Chinese investors in Canada:
• Same rights as domestic
investors
• Access to a dispute
resolution mechanism
17
Canada vs. Australia: An Appropriate Comparison
Similar
Culture
Strong
Economy
Similar
Levels of
FDI?
High Level of
Demand for
FDI
Comparable
Business
Environment
Similar
Economic
Drivers
Given similar economic attributes, Canada and Australia should attract similar
amounts of FDI from China
18
Canada vs. Australia: Canada lags behind
North America
$
$$
$$
$$$ USD $34.0 billion*
$$$$
Asia Pacific Region
USD $10.2 billion*
1.37 1.74
GDP - USD$ (trillions)
* 2011 number
Regulatory environment is a key factor in determining attractive FDI destinations
19
Regulatory Framework Comparison
Investment Canada Act:
‘Net Benefit Test’
‘National Security Review’
Foreign
Acquisitions and
Takeovers Act:
‘National Interest
Test’
FIPA
End to ‘InvestorState Dispute
Resolution Clauses’
Canada
Australia
Entry into Market
Entry into Market
Canada’s ‘net benefit test’ may prove to be a greater hurdle to entry, but Canadian
system is set to provide better investor protections and dispute settlement
20
Continued Regulatory Unfamiliarity
Application of the ICA continues to cast some uncertainty
over the Canadian investment climate
Regulatory discomfort particularly acute for Chinese
investors from private sectors
However, pioneering deals provide a pool of knowledge
and experience from which to draw
21
An FDI Case Study: CNOOC
2005
US$18.5 bn
2012
US$15.1 bn + US$4.3 bn debt
USA focus on energy security
Canadian focus on
diversifying trade with Asia
Booming economy,
high oil price
Slow recovery,
lower oil price
Consumer + Consumer
Consumer + Supplier
Current bilateral relationships favour Chinese investment into Canada
Current bilateral relationship favors foreign investments from China to Canada
22
An FDI Case Study: CNOOC
Straight cash bid to shareholders
Engagement with federal, provincial
and municipal governments
No established relationship
between bidder & target
Subsidiary relationship and existing
joint venture projects
Least social involvement
Greater community commitment
Pure asset purchase
Long-term investment horizon
National resource demand
Company transparency, decision-making
process, post-acquisition strategy
Sophisticated, nuanced strategy is critical to navigating host-economy politics
23
ICBC in Focus:
Outlook and Opportunity
Key Insights
Positive bilateral trade and investment trends will deepen
economic ties and lead to more deals
Regulatory environment in Canada becoming more clear,
but challenges remain
Centrality of local knowledge, local partnerships, and
sophisticated business strategies
25
Seizing the Opportunity
Growing Chinese demand for FDI facilitation, and for
sophisticated intermediaries
Growing international linkages between students,
businesspeople and local diaspora driving closer ties
The ICBC is well placed to seize the moment and serve as a
primary conduit in the Canada-China economic relationship
26
ICBC Overview
USD $2.81 trillion in assets
393 million retail clients
World’s Largest Bank
Global Reach and Global
Ambitions
27
ICBC Short-term Outlook
Growing bridge between citizens,
firms and investors
Increasing brand recognition and gaining
new retail and commercial clients
ICBC’s short term focus is to establish a stronger foothold in the Canadian market
as a test ground for its broader global expansion
28
ICBC Long-term Trajectory
Toronto as gateway to North American financial services market
ICBC Canada as regional administrative and operational ‘hub’
Renminbi (RMB) internationalization could give rise to Toronto as
an offshore RMB centre
ICBC’s longer term trajectory could see it become a gateway to the North American
financial services market as a major hub and offshore RMB centre
29
Trends Applied: RMB Internationalization
• As China gradually opens its capital account and eases financial
restrictions, RMB will be increasingly central to global economy
• For Chinese firms and global partners, RMB internationalization
creates predictability and stability in cross-border transactions.
• Internationalization is a long term policy objective, with a goal of
full convertibility by 2020. ICBC Canada can be an early leader.
ICBC Canada is poised to be an early leader in developing Canadian RMB business
30
The Opportunity for Toronto
Hong Kong
Singapore
London
Toronto?
Toronto is well-placed to be the future RMB centre for all of North
America, and ICBC’s next major expansion in its RMB business
Key drivers:
 Increasing Chinese investment in Canada will drive demand for
RMB-denominated transactions
 Large Chinese diaspora community
 Cluster of financial expertise and activity
 Close proximity to the United States
 Relatively receptive policy and regulatory environment
31
Challenges and Opportunities
Regulatory
& Policy
Environment
Local
Knowledge
and Local
Partners
• Unique challenges for foreign banks
• Recent federal budget signals potential policy
shift toward greater competition
• The ICBC is strategically placed to be at the centre
of increasing Canada-China economic ties
• However, further success requires strong local
knowledge, and thus strong local partnerships
32
The ICBC and Corporate Canada
• Can draw on
Bay Street’s
expertise in
Canadian
politics, policy
and markets
Bay Street
ICBC Canada
This presents a win-win opportunity:
• Can partner
with a vital
conduit in the
growing
Canada-China
relationship
33
Corporate Canada - Legal
Chinese investors lack experience with the many
different regulatory regimes in Canada
Mistakes in the regulatory process are very costly
and these costs are compounded for Chinese
investors
34
Corporate Canada - Financial
ICBC has already started forming partnerships with
Canadian financial institutions
• RBC for cash management services
Other financial institutions are forming
strategic partnerships
• BMO and Agricultural Bank of China entered
into a strategic collaboration agreement to
mutually cross-refer clients
35
Corporate Canada - Financial
Ideas for potential partnerships with ICBC
• Joint Lending Agreement
• Confidence Arrangement
• Trade Finance Arrangement
36
Conclusion
4.38 Million
37