Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 8 - Evidence - Meeting of April 29, 2008
OTTAWA, Tuesday, April 29, 2008
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 5:33 p.m. to study on the rise of China, India and Russia in the global economy and the implications for Canadian policy.
Senator Consiglio Di Nino (Chair) in the chair.
[English]
The Chair: Good day to you all and welcome to the meeting of the Standing Senate Committee on Foreign Affairs and International Trade. The committee is currently examining the emerging economic influence of China, India and Russia, and Canada's policy response.
Appearing before the committee today on behalf of the Canada Eurasia Russia Business Association is Piotr Dutkiewicz; from the Canada China Business Council is Peter Harder; and from the Canada-India Business Council is Peter Sutherland. On behalf of all colleagues, I extend a warm welcome to you all.
Piotr Dutkiewicz, Member of the National Board, Canada Eurasia Russia Business Association: Thank you. It is a pleasure and an honour to be with you ladies and gentlemen this evening. I was asked to comment on Russia, and I will do it with pleasure. I devoted about 25 years of my life in Russia to study and work with Russians.
Russia is rising. Since 2001, the GDP is growing. The average growth is about 7 to 8 per cent according to World Bank. According to the Russian data, it is a bit higher — around 10 per cent yearly. This year, Russia achieved a level of savings of about $500 billion. This is the foreign reserve at this level, which puts Russia second after China at this level of foreign reserves.
Russia, as you well know, is sitting on the last largest deposit of gas and extracts the largest amount of oil in the world. Russia is the second largest exporter of oil after Saudi Arabia. The standard of living has been growing constantly during the regime of President Vladimir Putin. Last year, the growth of salaries was about 10 or 12 per cent. Construction is happening and is visible not only in Moscow but also outside of Moscow, even in many depressed regions. In other words, Russia is booming.
Sceptics will say, ``Hold on. The picture is not as rosy as you are saying because Russia has not yet achieved the level of GDP of 1989.'' The projection is that this level of GDP will be achieved in 2008. Also, Russia still has large pockets of poverty. About 12 to 13 per cent of people are living below the poverty standards of income of about 2,400 roubles a month — currently, $1 is 27 roubles.
In addition, the infrastructure is crumbling. Russia is not able to increase the production of oil and gas because of the lack of infrastructure. There are many social problems, as well. Economically speaking, I would say that Russia is on the right path. If you balance the views of the optimists and views of the sceptics, I would side with the optimists. I would side with the better assessment or picture that you see in Russia right now.
Obviously, the new group that is coming to the Kremlin on May 7, which will be led by Dmitry Medvedev, the new Russian president, will obviously depart to some extent from the previous policies of President Putin. Putin's trademark was stability. After the crisis of the 1990s, which was one of the biggest manmade crises in the economic history of the world, the Russian GDP was down 45 per cent and the level of poverty reached about 35 per cent. After Putin came to power, he was trying to centralize politics and stabilize the economy. He achieved this, so his trademark was stability.
Now the new group is talking about modernization. The problem is how to achieve modernization and by whom, and based on what type of resources and strategies. Those are the questions that almost all analysts are now scratching their heads over, trying to find sources for answers. Definitely, it will be a different type of country under soon-to-be President Medvedev than it has been under President Putin.
Before I talk about what it means for Canada, I would say that Russia is more assertive than it was. The reason is definitely the economic achievements but also, as Russians perceive it, unilateral actions by other big powers. Russia does not like to be behind this process and would like to speak with a stronger voice in international arenas.
As for Canada, Canada has traditionally had good relations with Russia. Politically, we have had very good relations. Culturally, they are almost non-existent, and economically, they are pretty weak despite visible improvements.
I have recent statistics from 2007. Our trade volume, was $2.4 billion, which is a huge improvement by comparison to 2005; it is about 25 per cent more. Also, exports from Russia to the Canadian market are growing quite nicely. They are about $1.3 billion, which is a growth of about 10 per cent by comparison to the previous year.
There are some big acquisitions on the Russian side. The biggest one is the $6.3 billion for the iron ore mining. On the Canadian side, probably the gold mining sector will be the biggest one. The biggest investor in Russia is Kinross Gold Corporation, which already invested more than $600 million. That is by far the biggest Canadian investment in Russia at the moment.
However, there are many more opportunities and possibilities. To my mind, Canada is, to a certain extent, missing the point by not being as assertive as it should be. I think there is room for improvement in Canadian-Russian economic relations. Currently, CERBA is the only organization that tries to actively and effectively develop this relationship.
I believe that the government still has some room for more action and coordination in this area — both vertical and horizontal. There is no coordination of the economic policy and no strategy toward Russia. I will end my remarks on this sober note, and I will be very glad to receive your questions.
Peter Harder, Member of the Board of Directors, Canada China Business Council: I congratulate you and your committee on undertaking this enormous challenge of discerning Canada's role in what is probably the largest shift in global economic and political power since the beginning of the 20th century.
I am speaking on behalf of the Canada China Business Council, CCBC, a membership-based, not-for-profit organization founded in 1978 to facilitate trade and investment between Canada and China. In its 30 years of activity, Canada-China trade and investment has seen unparalleled growth and CCBC has benefited from unparalleled insight into Sino-Canadian business challenges and opportunities. At the same time, the organization has forged deep connections at all levels of both the private and public sectors in China.
The council brings to its members and, through the members, to the public discourse an exceptionally informed view of Chinese perspectives on Canadian-China trade issues. No other organization in Canada provides the depth of insight and direct experience that CCBC does in this area, nor does any other organization have the accumulated wisdom and experience of Canada-China business links that the board of directors and members enjoy.
We are a membership organization comprised of companies and, at the chapter levels, individuals active in Canada- China trade and investment. We number about 450. Our membership includes many of Canada's signatory corporations and many of its small, innovative corporations and enterprises.
Our chapters in China include many young entrepreneurs, Canadians and Chinese-born, who represent the future of Canada-China relationships. While I was in China recently, I was struck by meeting young Canadian entrepreneurs who decided to practice their entrepreneurship on the China side of Canada-China relations because they said that it was a more dynamic environment.
The council has offices in Toronto, Vancouver, Beijing and Shanghai. It has local chapters in Beijing and Shanghai that focus on localized business issues and the social interest of the chapter members.
Today, CCBC members are active in financial services, manufacturing, environmental management, agri-food, legal services, information and communications technologies, energy and more. Council members do business in every part of Canada and widely in China.
On a day-to-day basis, CCBC facilitates Canada-China trade and investment by providing direct business support services in China and in Canada. It is a trade and investment catalyst, providing connections for its members to the highest levels of private and public sector leaders in China and Canada. The council is a trade and investment advocate, helping to better inform the public discourse on Canada-China trade and investment issues.
We work with Canadian and Chinese trade and investment associations, organizations and companies to organize and manage business missions to China. For example, in 2008, we conducted an April mission to Western China; and in November, a large event will take place in China, which will be the culmination of our 30th anniversary celebrations.
With respect to the Canada-China trade relationship, trade and investment between Canada and China is growing. Our exports to China in 2007 were worth $9.2 billion and our imports were worth $38.2 billion. However, the amount of bilateral trade and investment between Canada and China is not as large as it should be. It represents barely more than 6 per cent of the total global merchandise trade for Canada.
Canada-China trade is modest compared to our business relationship with the United States, for example. Canada- U.S. trade represents almost 80 per cent of Canada's total merchandise trade. While higher commodity prices and inflationary creep have increased the total value of Canadian-U.S. trade, the percentage of our trade going to the U.S. is declining. In 2002, Canada-U.S. trade represented more than 87 per cent of Canada's total global trade; in 2007, it was just below 80 per cent. That is almost a 10 per cent shift, which was balanced by increased trade with other regions, notably Asia and the European Union.
Canadians are aware of the changing trade dynamic. According to a national opinion poll recently released by the Asia Pacific Foundation of Canada, 36 per cent of Canadians believe China holds the most potential for expanded trade and investment, against 26 per cent for the United States.
The nature of Canada's trade relationship with China has also evolved. Initially, bilateral trade was principally agricultural products. Today, CCBC members are doing business in China in energy, education and the environment, information and communication technologies and, in a substantial way, financial services. Canadian trade with China is a microcosm of the evolution of global trading patterns everywhere.
In fact, from Canada's perspective, 2007 was a signature year in China's evolution as a global trader. Last year, China replaced Canada as the world's leading exporter to the United States. China remains Canada's number two export market, second to the United States, and is the third importer from Canada after the United States and the United Kingdom.
Our members' activity in China is evolving as it becomes the largest market for technology, business services and ``quality of life'' consumerism of China's exploding middle class.
To offer one example, a CCBC member company that initially entered China via a joint venture to publish educational books has launched a new venture in cooperation with China's education ministry to offer online, interactive English-language lessons to millions of Chinese university students at no cost to the student.
CCBC's successes in China are daily proof that when their efforts are unencumbered, Canadian companies, regardless of size, can compete with the best in the world and win in the Chinese marketplace.
The committee has heard from other witnesses about the shift in global markets and the central role China will play in the world economy. As Paul Evans of the Asia Pacific Foundation told you, and I want to underscore this, the economies of China and India are not just entering the world economy; they are changing the world economy.
The International Monetary Fund reported recently that China alone contributed nearly 27 per cent to global growth in 2007. Economists tell us that China will contribute 25 per cent of the global GDP by the end of the next decade — that is tomorrow in economic time — and it will have reached parity by then with the United States. By the middle of the subsequent decade, China will surpass the United States as the largest contributor to global GDP.
It is essential to Canada's prosperity that this country participates in this shift of global economic power. Of course, the United States should and will continue to dominate Canadian merchandise trade for many years to come. However, as the council noted in its recent submission to the Canadian government's Competition Policy Review Panel, history teaches us that as trade winds blow, they sometimes alter course. Canada cannot rest in the comfort of today's safe harbours. Canadian companies must constantly navigate more challenging seas if we are to hand the prosperity to succeeding generations.
In that Competition Policy Review Panel submission, we lay out in some detail our views on the regulatory changes required to strengthen the Canadian investment relationship between Canada and China. I will not expand on our point there except reference our website and, of course, the panel's own website. The detail and hard copy are available for the committee should you wish.
I would like to briefly address today the need for our most senior political leaders to work with China to ensure the future of Canada-China relationships.
The rest of the world is beating a path to China's door. At any given moment, dozens of trade missions from Canada's global competitor nations criss-cross China working at every level to cement their own places on China's trade horizon. For Canada to ensure prosperity for future generations, we must be there too. We must be better than they are at deepening and strengthening trade and investment relationships with China. To that end, on a nation-to- nation basis, Canada must do what our competitors are doing. Canada must work with China.
Fortunately, this is not a new concept to Canadians. In its 30 years, CCBC has been deeply involved in assisting Canadians' work in China. From its participation in the many successful Team Canada missions — and, Senator Mahovlich, I recall being with you on one such visit — to premiers' trade missions to its ongoing business and sectoral missions to China, the council has helped Canada and Canadians engage China at the most senior levels. On many occasions, Chinese presidents and premiers have joined Canadian prime ministers as honoured guests of the CCBC and, of equal significance, for more personal discussions both before and after formal events.
The importance of these public expressions of support and confidence cannot be overstated. The participation of China's presidents and premiers and of Canada's prime ministers demonstrate to Chinese businesses the importance their political leaders place in the Canada-China relationship and the degree to which there will be political support for trade and investments. The message is clear and unequivocal.
The opposite, unfortunately, can be just as convincing.
We strongly support the efforts of Canada's International Trade Minister David Emerson, who has made several visits to China, including his participation in a very successful CCBC policy conference in January of this year.
We also believe, based on many years of experience, that participation by Canadian prime ministers in working with China would be most beneficial. CCBC is regularly asked whether the current cooler political relationships between Ottawa and Beijing are costing Canadian businesses. Until very recently, the answer has been, ``Not yet.'' However, that is no longer true. We have had reports from our members that contracts are being lost as a direct result of cooler relationships between our most senior political leaders. This is not maybe; it is definitely.
At the same time, our members tell us of a ``lost opportunity'' cost. World leaders from across the G8, including the United States, Germany, France and other European nations, are meeting face-to-face with China's president and premier; so too are the most senior political leaders from South America, Australia and Africa. The world's presidents and prime ministers are leading the charge in our competitors' efforts to solidify their place in the China market. The participation by these top political leaders in their country's effort is very important. The significance of their commitment is not lost on China's leaders, its business community or its people. It leads directly, as our members can attest from past Canadian successes, to agreements signed and business deals done.
We may not be able to put a dollar value yet on the lost business and lost opportunity, but we can certainly say that there is a real cost. The bill will eventually arrive.
It is important also to say that CCBC members and all Canadian businesses require a clear and confident view of the Government of Canada's policies and approaches to China. We cannot create a strategic approach to doing business in China without that contextual understanding.
As I noted earlier, Canada has had a privileged position with China. Every Chinese student learns about Dr. Norman Bethune. China's leaders have not forgotten that, when the rest of the world refused to do so, Canada sold wheat to China during the famine in 1959 and 1960. In 1970, Canada was the first Western nation to recognize the new People's Republic of China. That sense of mystery and sentiment is a precious heritage, but the future of our relationship requires a clear sense of realism and self-interest.
Canada's footprint in China belies the real size of the shoe, so Canada has a modest advantage in world efforts to engage China. It should not be in doubt that engaging China is in everyone's best interest.
Regardless of how some may view the prospect, China will be the next global economic superpower. It will surpass the United States as the prime driver of the global economy sometime in the next two decades. China's power and influence are not in dispute. Helping to encourage China to exercise that power and influence in beneficial ways is historically important.
It has been lost in the current controversy surrounding China that China's government has a commendable record of responsible behaviour in the international arena. China's participation in the World Trade Organization, WTO, ensures that it adheres to international commercial values, rule of law and standards. China made many sacrifices and has worked hard to achieve its membership in the WTO, and those efforts have paid benefits to its trading partners, including Canada.
China's participation in the G8 outreach and at the United Nations Security Council are important commitments to abiding by the rule of international law and to participating in the global community. Its role in the Six-Party Talks with respect to North Korea has been an example of China's efforts to play a responsible role in world affairs.
China understands and is committed to global stability. China understands the importance of openness to the world. By volunteering to play host to the 2008 Summer Olympics, China made a big commitment to openness. Despite the difficulties over the Olympic torch relay and China's unfortunate public response, we should remember that opening its doors to the world for the Olympics is a courageous act for a nation that is taking a crash course on capitalism with all the attendant growing pains and difficulties. Many of China's critics forget that the Western nations had hundreds of years to learn how to be a capitalist democracy. China has had but one generation, and they have accomplished a great deal with much to be accomplished yet.
That being said, Canada and the rest of the world should insist that China honour its international commitments including those made in its Olympic bid process; for example, unrestricted media access to all Olympic-related events in China leading to the opening ceremonies and during the games themselves. Hiding behind rhetoric and restricting media during the Olympic torch relay demonstrations in Tibet have not served China well.
It would be prudent for Canada to look beyond the Olympics and beyond the current difficulties with China. Canada would be wise to take a longer-term view of China and a patient, nuanced, multi-textured approach to work with China.
We must be careful that we do not allow one issue or one event to define the relationship. CCBC has made that point in its appearance last year before the Subcommittee on International Human Rights of the Standing Committee on Foreign Affairs and International Development in the other place. The CCBC president, Sergio Marchi, told the subcommittee:
Canada's foreign policy is made up of essentially two ingredients: values and interests. There is a close connection between the two. And it is important to understand how the two are inextricably linked. Over the years, Canadian prime ministers, ministers and their officials have not shied away from discussing with Chinese leaders the importance Canadians place on the respect for human rights in China and around the world. In face- to-face meetings with China's most senior leaders, Canada has helped influence Chinese thinking on human rights and a host of other issues, aside from trade, that are important to Canadians.
Interests and values cannot be pursued in isolation from the other or with one as a precondition to the other. It is not a question of either/or. Negative public statements and preconditions will simply be turned aside. It is our experience that only when they are pursued in tandem, that you can make progress on both fronts.
A successful, peaceful evolution will not mean turning being China into another Western-style democratic system. That will not happen in the foreseeable future.
Instead, China will find its own path, a way that works with its mammoth population and diverse history and geography. In CCBC's three decades in China, the United Nations Development Programme tells us that 200 million people in China have been lifted above the UN poverty line. That number represents two thirds of the number of people in the entire world that have crossed over the poverty line since 1978. If we have any hope of meeting the millennium goals, it is because of India and China and the progress they have made, not the progress made outside of those countries.
We must understand China's stated priority of stability, economic growth and the distribution of its benefits. This is front and centre in China's current economic and political plan.
The West should be encouraged, as well, by the success of the internationalists in China. China is not a monolith. There are many competing factions within its political structures, and they have different views on China's place in the world. The promotions in March of Xi Jinping and Li Keqiang, in particular, to the most senior ranks of China's economic management team show that the internationalists in China are prevailing.
Both men are committed to increasing China's participation in the global economy and political system, and they are in the fast track to seek China's most senior political positions.
Work with China is not without risks. However, risk is the flipside of reward. We cannot avoid risk in business, but we can manage it. The same is true for Canada's international relations.
For China, managing risk means working with China and for that to succeed, we must be pragmatic, realistic and clear-headed about advancing Canada's interests.
In closing, I would remind you of testimony given before this committee by one of our members, George Haynal, from Bombardier Inc., when he noted, ``Engagement does not mean acceptance but it allows one to shape agendas and behaviour constructively.''
If we do not engage China, we will be disengaging Canada from any role in the integration of China into the global economic and geopolitical institutions. That will be at a high cost to Canadian interests and a rejection of our historic values.
At the same time, we need to be realistic not nostalgic in our engagement with China. Sentiment can be a powerful element of our relationship. However, I would urge greater self-interest and realism.
The Chair: I thank you for your presentation. It went longer than anticipated. Mr. Sutherland, I am not sure I will give you equal time, but I will be a little more understanding if you go over.
Peter Sutherland, Vice-Chairman, Canada-India Business Council: Thank you for the opportunity to speak to you today. I am here to speak on behalf of the Canada-India Business Council of which I am the vice-chairman. However, I will start by talking about the comparison of the days when I was the Canadian High Commissioner of Canada to India and the situation today. I was the High Commissioner between 2000 and 2003. I had the good fortune to go back four years later for the first time last November. I went back in February, and I will be going back more regularly. There are some things that struck me in terms the bilateral relationship that might be interesting to show how the relationship has evolved over the last five or six years.
First, India's level of interest in Canada has grown enormously. I remember when I came here as the High Commissioner once or twice a year to talk to various groups in Canada about India. It was similar to a missionary preaching in the wilderness: People were interested but not very excited. They were sceptical about India being a promising place to do business or with which to engage. That is no longer the case. Every day that you pick up a newspaper, there are at least one or two articles on India. The level of interest across Canada in India is huge — and not just in the business community, but in all sectors of society. This is a big change from when I was in India.
Second, trade has grown significantly. When I was there, we set a target of trying to double our exports to India over three years. It took longer; but five years later we did double our exports. As impressive as that statistic may be, however, exports are still very small. Our bilateral trade with India, that is imports and exports, is 0.5 per cent of Canada's total trade. Mr. Harder just spoke about China being 6 per cent, so in comparison, India is 0.5 per cent. That is virtually negligible. Therefore, while it is growing, it is still very small.
Investment from Canada into India is starting to pick up. More impressive, especially in the last 18 months, is Indian investment in Canada. There are some very big investments. In aggregate, it was close to $4 billion or $5 billion. Hindalco Industries Limited purchased Novelis, Essar purchased Algoma Steel Inc., Tata Group purchased Teleglobe Inc. and the Birla Group set up a second pulp and paper mill in New Brunswick, as well as purchased a large business process outsourcing, BPO, call centre operation in Canada.
There has been a lot of high-profile investment from India into Canada. I will add, because this is a sensitive issue, that these are all privately-owned Indian companies not state-owned. They are private companies investing in Canada, creating jobs for Canadians.
Another big change is the movement of people back and forth. It continues to grow. It was big in terms of immigration when I was in Delhi in 2000 to 2003. Immigration has picked up; in addition, however, more business visitors and even tourists — which did not happen often in my days — are going back and forth. Many more official visitors are also going back and forth at the federal level, provincial and even at the municipal level. This is all very good.
The momentum is certainly building. However, in absolute terms, Canada's presence in India and our relationship with India is still relatively small compared to what our partner countries are doing. Therefore, a large scope remains for improvement.
Why should we look at India as a place to concentrate resources and try to build a relationship? There are all kinds of reasons. I will mention a few.
First, India's population is approximately 1.1 billion. It is the second largest country in the world. It is projected to overtake China by 2050 to become the largest country in the world in terms of population. It is also the world's largest democracy. India has a very fractious but vibrant democracy. It also is a country of huge diversity. It has the third largest Muslim population of any country in the world after Indonesia and Pakistan. That is contained, and the relationships between the various communities are relatively smooth because of the vibrancy of the democracy. Therefore, it is an important model for Canada and other countries to observe and encourage. It also happens to be the largest functioning federation in the world where the states have strong jurisdiction over important constitutional issues.
Economically, the country is growing quickly, as you read in the paper for yourselves. Over the last three years, the average growth rate for the Indian economy has been about 9 per cent. This year, it is projected to drop to between 8 and 8.5 per cent, which is still significant. It is sufficiently significant for Goldman Sachs to project that by 2050, if not earlier, it will be one the top three economies in the world — the other two being the United States and China.
With respect to the Indian middle class, some people today say that it is already 200 million people. However, I think the McKinsey Global Institute is more correct; they define middle class as being a family with disposable income, in current or nominal terms, of about $5,000 to $30,000. If you translate that into what economists call purchasing power parity, it is roughly between $30,000 and $125,000.
If you define the middle class in those terms, today it is about 50 million people. That does not sound big in terms of 1.1 billion, but compared to Canada's population of 33 million, it is already significant. More importantly, the McKinsey Global Institute says that at current growth rates, by 2025 that will grow from 50 million middle class people to 558 million middle class people — the fifth largest consumer market in the world. That is a huge potential developing over the next 20 years.
Consider, as a result of that, the investment that will flow into and out of India. What is happening now in India is not just with the big family names, such as Tata Group, which we all read about in the paper, or the Birla Group or the Ambanis. The mid-size and smaller Indian companies are starting to look outside for business partners.
They are not looking at business partners solely to access the U.S. market. They are looking outside primarily because they are missing something, a technology, a product to expand their product range, or they are looking at some kind of resource input. There is a whole host of reasons. Canada should be on their radar screen but in many cases we are not, simply because we do not have the profile in India that we should have — and, in fact, deserve.
If you look at the influence of India in its region, in South Asia, there is no doubt that it is already a regional power, and probably the pre-eminent one in that part of the world, which is a volatile part of the world, as we know. Its neighbours are Afghanistan, Pakistan, the ``stans'' to the north, Bangladesh and Sri Lanka — it is a volatile area. India has an important role to play in that neighbourhood.
More importantly, it is very quickly becoming a global power. It will not be long before it becomes a member of the UN Security Council. It is already a member of the G20 and it is a very influential player in the Doha Round of negotiations. Therefore, it is a political and economic partner of great importance to Canada. Why? Because it is preoccupied by issues that are extremely important to Canada and Canadians. One of those issues is the environment. If we are worried about global warming, we have to be concerned about India's position on that issue.
Terrorism is a fact of life in India. There are issues not just in Kashmir, for example, but also in the northeast and along the eastern border with Maoists who are constantly causing grief to states in the eastern part of India. Terrorism is something that they have learned to come to grips with and will continue to face. They must deal daily with transborder or international terrorism, which is a concern that we, in Canada, and the rest of the world share.
On nuclear proliferation, there is no denying that India is a nuclear power, whether we like it or not, so we must work with India on that issue to prevent the proliferation of nuclear technology and weaponry into other less stable parts of the world.
On pandemics, think of the SARS epidemic and avian influenza. With India's population and its location geographically, these are critical issues that are also important to Canada. Consequently, it behooves us to build and strengthen our relationship with India, not just because it is an important country, but because it is a key player on issues that are important to us — not just economically, but in some of the other areas that I mentioned to you.
In conclusion, I have some suggestions that we can talk about later in the discussion about the role of government in helping to build this relationship. Generally speaking, the role government, in my view, is to create the type of environment within which civil society — whether it is the business community, non-governmental organizations or institutions — can establish and develop networks in India. It is important, therefore, for the Canadian government to establish positive relationships from the top down.
I believe it has been over two years since we have had a Canadian head of government in India. Given the importance of the relationship, that is something we have to address and remedy very quickly. It should not be just ad hoc visits between heads of government or ministers; these types of things should be institutionalized so that there are regular opportunities to focus at the senior levels of government on those areas that are particularly important to both countries — such as the environment, terrorism, pandemics and the movement of people. It is important for us to engage with India on these issues at all levels.
Government can, especially for the economic side of things, create tools that will help business people in both communities work together and build the relationship; the Canada-India Science and Technology Agreement that was signed a few years ago comes to mind. The Foreign Investment Protection and Promotion Agreement, FIPA, which has been signed but not yet ratified — it will be ratified, we hope, in the next little while — will go a great distance to making business people on both sides feel more comfortable about investing in both directions.
Another important agreement to revisit — it needs a little refreshing — is the double taxation agreement. It is very important for business people who are looking at doing business in both countries. It is no longer just a trading relationship; you have to invest in the country to establish a relationship that will allow you to do business not only there, but in third countries as well.
I think it is time to investigate the possibilities and the prospects for a free trade agreement of some sort with India. Given the importance of their economy globally — and consequently in terms of opportunities for Canada — this is something we should be looking at very seriously.
Government can play a role in what I call outsourcing to the private sector: using the private sector to do some of the promotional work, organizing missions, maybe even setting up trade offices in India, instead of using government resources to do that. By using government resources as a catalyst, the private sector can amplify them and, at the time, strengthen their own private sector links in both countries.
I hope I have given you some reasons to pay attention to India, and perhaps some ideas we can discuss.
Senator Smith: With regard to Russia, I have asked a similar question to other representatives that we have had from East Bloc countries. It is fascinating to look at is how long it takes for the mentality to change. When East Germany and West Germany merged and many people left, there was the whole concept of adapting to a free enterprise system and a strong work ethic, rather than a social mentality with monthly cheques and so on. How are the Russians doing on that front? Does it take a generation or two?
There are all these millionaires over there that are very glitzy in the nightclubs, with the limos and the jewellery. You read all these stories. How long does it take to adapt — not to a Western culture, but to a global community? That is sort of the Russia question.
For China, I certainly agree with Mr. Harder's comments about engaging China more. They will not wind up being another Western democratic nation; I understand that. I have been there quite a few times. I was with Mr. Chrétien on his first visit in 1994, but I first went there back in the days of Chairman Mao literally.
The Olympics may be a catalytic event in a way, or a catalyst in how they cope in the global community. They have this taboo list that other countries do not. You can talk about anything in India — I travel there frequently. In China, you just cannot talk about some of these subjects, such as Tibet and Taiwan and Darfur; it is very difficult. I think there has actually been progress in that the boat headed for South Africa is heading back.
The meeting with the Dalai Lama's representative is great. When you think about China, you always think about the long view and patience. We are not talking about another Western democratic society, but the situation with the Olympics may have jumps that otherwise may not have happened, and I am interested in your reaction.
On the question of India, there are none of these taboo subjects. That is quite a contrast. I am interested in the immigration issue that is current now. India is one country that it affects as much as any. People have to wait five and six years to get an interview. They want to come here.
I was at the Canada India Foundation Gala 10 days ago where the Prime Minister spoke — Michael Ignatieff and Bob Rae were there as well. There were heavy-duty business players from the Indian community, who were born and raised in India. You would not get a crowd such as that at a Canada-China event even though its numbers are 10 times greater.
India has now passed China as number one. We need more interchange between these incredible business people over here.
Mr. Dutkiewicz: Senator Smith, I have three short points. First, there are three or four ``Russias,'' and they are all very different. There is the younger Russia and the older Russia. There is well-educated Russia and less-educated Russia. There is the Russia of the rich regions and the Russia of the rather depressed regions, and so on. We can divide this cake into many slices, and you will have a different picture. It depends on which slice you are looking at and which slice you are actually researching. That is why Russia is not one entity. It is also very much nationally divided and religiously divided.
Second, the learning process is amazingly fast in Russia, social learning of market relations.
Third, Russian business is one of the most dynamic, most aggressive and most risk-taking, and it is very well- informed. Russian businessmen, or businesswomen to a lesser extent because there are far less of them, are now thinking globally. You will see Russian business in Asia, Africa and Latin America. Where the Russian politicians during the Soviet Union were going with arms, now Russian businessmen are going with packs of money because they have the money to invest. Russia is not only a recipient of foreign direct investment but also it actually invests abroad because it has the reserves and capacities now to invest outside of Russia. Russian businessmen going abroad are the most risk-taking businessmen, probably, in the world. They are not afraid of doing this.
As far as a business type of education is concerned, they are not only part of the global community but, in many ways, they are ahead of the global community.
Mr. Harder: The comment you are making, Senator Smith, is one to which we will all be paying attention. If there can be a silver lining in the events of the torch relay, et cetera, it is the greater attention China had over the period of that to global public relations, and even some adjustments made last week that would not have come naturally without some catalyst.
I was trying to convey in my comments that we should at least hold China to the commitments made at the time that the Olympics were awarded with respect to openness. I think that we will look back on the Olympics and hopefully be able to say that it was a coming out of China's not only sport but cultural and global presence.
Mr. Sutherland: There are many ways to address the issue of the Indian business diaspora in Canada and why it has not, up until now, been more active in helping to build this business relationship. Historically, you can compare it to the United States. The first Indian settlers and immigrants to Canada were primarily from the Punjab and were farmers, so they settled generally in British Columbia and did very well in opening up farmland and developing lumber mills. They were very successful but more focused on developing business in Canada.
It is only relatively recently that some of these people, who have now achieved success, and people from other parts of India, who have immigrated to Canada more recently as professionals or as business people, are starting to look at building these types of opportunities.
Contrast that with the United States, where the early inflows of investment to India from the U.S. came in many cases from Silicon Valley. Many Indians who moved to the U.S. and were educated there have done very well. They made a lot of money and decided that they should do something now to build India. They were also attracted by the large number of IT graduates from Indian institutions of high calibre. They started investing money in India. Some of them moved back to build their businesses. That was followed by other sectors of the Indo-American business communities.
You are starting to see the same situation in Canada. This event two weeks ago involved the Canada Indian Foundation, which is a new organization founded a little less than a year ago. It represents Indo-Canadians who have been successful in building their own businesses.
You will see people who have done extremely well, who run their own businesses and who still have connections in India, will start taking advantage of their experience to build the relationship. It will happen. It has just been slower to happen in Canada for historical reasons than it was in the U.S.
Senator Oliver: Mr. Harder, you did not really use the word ``human rights'' but human rights and trade, and I would like your view on whether or not a sovereign state should stick to its values of the rule of law and human rights, and effect that should have on a trading relationship with a country such as China.
In the world food crisis, China is a major rice producer. What should Canadians be doing now to take advantage, and at the same time assist in mitigating this crisis?
In relation to the training of our trade commissioners to the countries referred to, do they have the proper training for a more complicated global business world, and what other things should Canada be thinking of doing to make them more adept?
Do our white trade commissioners understand the business case for diversity?
Mr. Harder: Those are terrific questions. With respect to human rights, I first went to China in 1980 and have been back probably a dozen times with different responsibilities. Over those visits, I have had numerous conversations with Chinese senior officials and ministers on transparency, good governance, rule of law, human rights, all of the issues that are that Velcro of attitudes and values that we hold dear. If you look at the evolution of China's practices in all of these areas, they have evolved considerably.
When I paid my last visit to China as the Deputy Minister of Foreign Affairs, I was co-chair of the Canada-China working group. I got a message that the executive vice-minister of the foreign ministry wanted to meet me at the bar of my hotel, one-on-one. I thought that was interesting because the executive vice-minister is the political guy. I thought I would have an interesting conversation with this guy, but I would not use the word ``democracy.'' I sat down and he said, ``I want to talk about Chinese democracy.'' We had a conversation about Alexis de Tocqueville and what the parliamentary system meant in Canada. We spoke about the challenges of managing the diversity of China and the evolution of China, and the dynamic changes taking place and the need for stability. We talked about accountability and how to make public sector officials accountable. We talked about institutional reform.
It was a terrific conversation on rule of law and human rights. I dare say that many of the things that Canada has done historically has been to nurture that conversation within Chinese elites and people with whom we have interacted. I would only reference the program the Department of Justice Canada has run to create the equivalent of legal aid in China so that Chinese citizens can access the enhanced transparency of legal instruments and rule of law.
I am not saying that there is not progress to be made; I am simply saying that if you judge it over time, as I have had the privilege of doing, there has been enormous progress made. I invite people to have a bit of strategic patience because it is in all of our interests that China integrates into the global institutions of the economy and geopolitics successfully and with a sense of stability and integrity.
I will address your question on rice production. I make the point that this is the first year that Canada has not signed a wheat agreement with China. We can comment as to what the causes of that are, but China on the food production side has become a major powerhouse on global agriculture. It has done so with the type of investment in technology and partnerships with the agriculture sector that Canada has played a role in providing. However, a China that is able to be a contributor to global food needs is a much different player than 30 years ago. That is to be encouraged, and participation in the global programs of food assistance is important.
I want to reference a point here on Africa because Africa and China's role in Africa are really quite fascinating. There were more African leaders — presidents and prime ministers — in Beijing for the annual Africa-China summit than there were in Addis Ababa for the African Union conference with heads of government. I will not speculate on the reasons, but you can imagine.
I was in Africa just before I left the department and had a very interesting conversation with the head of state about China's role in Africa. The person with whom I spoke said that it is a very interesting dynamic taking place. I worry, and I have told the Chinese that they better be careful how they act in Africa that they not be the new colonizers. However, China is a global player and the types of developments of which you are speaking are ones that we should nurture positively, as best we can.
With respect to the Trade Commissioner Service, the major change that has taken place conceptually — and Mr. Sutherland comes out of that stream — encompasses a couple of realities: One is that economic space is greater than political space. Therefore, we better think of our economic space much more comprehensively. It is not about bilateral trade but about global chains of supply and how our corporations are positioned in the global marketplace. Too often, there is this rather silly discussion about it really being all about Canada and North America and that we should strengthen and build our relationship with the United States. Actually, it is about North America's capacity to participate in the global supply chains of industry. What is Canada's place in that? How are we leveraging that relationship globally?
I would note that the United States and Mexico have many more free trade agreements with the very partners we are speaking about than we have had. That has been a great disappointment for those of us who thought NAFTA would be a platform for North American trade regimes. We would rather have a spaghetti bowl.
With respect to diversity, you will find diversity within the Trade Commissioner Service itself. I was in China recently, and the trade commissioners reflect a diversity of the talent, including Chinese-Canadians along with others. I am sure Marie-Lucie Morin the very able Deputy Minister of International Trade would be happy to follow up with very specific numbers and ways in which training is an important part of that, as is recruitment.
Mr. Sutherland: I was a trade commissioner earlier in my career and a very proud member of the Trade Commissioner Service. It has quite a tradition and is respected by similar organizations around the world and, most importantly, by the Canadian business community.
The nature of the job has changed. When I started, you were not a brush salesman but close to it: You had a bag of tricks and you used them to sell Canadian products. Now you need a better understanding of what global economics and trade is about. It has many more dimensions to it than when I was a simple trade commissioner starting out.
It is important that the people entering the service get this training — and I believe this is happening — so that they understand the global environment within which trade is conducted. It is not just trade; it is ``trade'' as a generic term meaning investment, partnerships, joint-venture agreements, et cetera, and how they fit together to build a relationship rather than specific sectoral expertise. The nature of the job for a Canadian trade commissioner is that you move from location to location and, in doing so, you may have a different sectoral responsibility. In any case, you are not expected to be the expert; business people are the experts. Your job is to identify opportunities and bring experts together to do business. To be able to do that, you have to have a global perspective and must also know the opportunities well and the way things work in the country you are working in at the time. Then you use those skills to put business partners together.
I would echo what Mr. Harder says about the diversity of the trade commissioners themselves. They are all hues, backgrounds, language capabilities, et cetera, which is a good thing. When they do business, they are colour-blind. They do business with whomever is qualified to do business in the country in which they are serving. In addition, we have locally engaged trade commissioners. They provide the ongoing expertise and local knowledge that Canadian- based trade commissioners rely on when they come for two or three years. They are people from the market itself.
Mr. Dutkiewicz: For quite a long time, I was advocating for the trade commissioners to be trained in Russia, not only Russians in Canada but trained in Russia. In that way, they will have a better understanding of the specificity of the Russian market.
I am sure they are doing a great job now. However, I think, for instance, the Canadian International Development Agency, CIDA, funds brings many people to Canada from Russia to train them in trade, regulations and so on. However, we are not doing the reverse; using the same money, we are not sending our officials to be trained in Russia for the better understanding of the local market.
For instance, one of the specificities of the Russian market is that business is highly politicized. They have some limitations. They would like to do business as usual in other countries, sometimes without direct help from Ottawa and the Canadian government they will look helpless vis-à-vis the Russian highly politicized state-run businesses.
Senator Dawson: Some points of my points were brought up by other senators. However, I have a general comment. First, I am encouraging you to follow us as we go forward in our report because we will have a big challenge in prioritizing. I think one of the issues with the situations as we are facing them is that they are all great opportunities, but we have to prioritize the political resources we put in and how we plan where we are going and who we are going with; we have to prioritize the staffing of trade offices.
We do not always follow the market. The growth of our trade with China is such that we are not following as quickly in supporting our operations there as the phenomenal growth we see in imports from China.
Senator Johnson and I are dealing with the container issue in the Transport Committee. We are sending back thousands of empty containers to China every month, and we have grain that we could put in these containers because we are now exporting grain, but we are not fast enough. The growth of container trade is growing faster than Transport Canada wants to recognize. Even though Foreign Affairs and International Trade Canada recognizes the fact that there is an issue, they are not quick enough to seize the opportunity to fill the empty containers while they are going through grain territory in Canada.
We will have to prioritize with all three countries, with the three markets, so why should we prioritize one over the others? I am not asking you to tell me now. That is something we will have to look at as we go forward as a committee in prioritizing.
We have been in a minority government situation for practically four years, and if you look at the numbers, we will probably be in a minority situation for a few years yet. We are perpetually campaigning, so we are not in a position for ministers, prime ministers and politicians to have the opportunity to do what you are asking them to do. We would like to encourage more exchanges with our highest level politicians in China, India and Russia and try to deal government to government. The bad news is I do not think it will happen tomorrow, that it will be a priority, because you do not get elected in Saint-Agapit because you went to China, Russia or India.
We need your help in prioritizing our report. You will have to tell us why one of the three of you is the one we should choose, not that we will choose, but we will still prioritize. I would like you to comment on how fast the government is helping you adapt to this phenomenal growth of containers.
Mr. Harder: Let me have a go because I may be a bit passionate on this.
I do not think it is unreasonable to ask what the priority is among these three, or you could add Brazil. There is a prioritization, and that is in a federation, and if you look at the constitutional responsibilities, what priority will you give to international relations and international trade? I am here to tell you that we have less foreign services abroad relative to the size of the country than any comparables in the Organisation for Economic Co-operation and Development, OECD. We spend less on third-language training than New Zealand. We have a smaller budget for the foreign ministry than the Netherlands, a country about 60 per cent of our size, which has the advantage of the European Union.
I am making a case for the real priority that the Senate needs to address: Canada needs to get its act together in the world. Of course, there is a legitimate question of how to prioritize the activities within that responsibility, and I would argue that we have too many individual institutions, organizational structures, for a country of our size and architecture. We have to be leaner and more integrated in our instruments of international assertion of our role than pretend that we are a large country with many instruments.
You cannot do this without political will and political engagement. Public policy matters in the international landscape, perhaps more than we are giving realistic treatment to.
We are not in the European Union, and the European Union has the ability, both geographically and through experience, of leveraging off each other. There are EU visits and missions. The United States, by virtue of its size, has a presence internationally. However, we do not attach ourselves to any organizational structure within which we exert influence; and the gulag, the organizational structure within the UN in which Canada is placed, is not really adequate for us either. We are doubly disadvantaged in how to project our presence.
I want to make the plea that you are right in asking the questions about priorities, but ask it at a higher level because I would argue that the role of the federal Government of Canada ought to be to advance Canada's interests in the world. We are not doing that adequately and seizing the opportunities and the risks to our global presence.
Mr. Dutkiewicz: After Mr. Harder, it will be harder to respond.
The Chair: We value your wisdom as well, sir.
Mr. Dutkiewicz: Senator Dawson, I believe that we have everything that we need. We have resources, both human and financial. We do not need more resources. It is a problem of rationalization of the resources, making them more effective and integrated and having the institutions in this area work more closely, linked horizontally and vertically to the policy chain. This rationalization and simply making the system work more effectively is what is needed.
For example, we now have five memoranda of understandings signed in the last two years with Russia. We are barely moving on any of them. It is not a problem of resources. It is a problem of political will and moving the file ahead. Therefore, no priorities are needed in that case; something else is needed, which Mr. Harder already mentioned.
The Chair: Mr. Sutherland, any additional guidance?
Mr. Sutherland: I agree with Mr. Harder's comments that we have to get leaner and meaner but also recognize the importance of international relations, not just commercial relations. Canada is at best a medium-sized country, and if we are to have a significant position, or even maintain our present position in the world, we need develop alliances and partner with other countries such as India, Russia and China.
It is about acknowledging that international relations is an important priority for the government that requires resources to achieve political and economic objectives.
The soapbox that I have been standing on for quite a while now is the importance of Asia in our international relations. We are not devoting enough attention to Asia.
It is easy to see why Asia should be a priority in our foreign relations: India and China alone account for 37 per cent of the world's population; the largest, fastest growing economies in the world are in Asia; the flashpoints of the world — Taiwan Strait, Korea, Kashmir — are in Asia; and terrorism, pandemics and global warming are important issues to Canadians that cannot be addressed successfully without engaging India.
Once we have done that, then we can sort out how to allocate resources between specific countries. We have to take that first step and recognize that, in the scheme of things, the future for Canada, as well as for a large part of the world, is Asia.
Canada has certain advantages. Geographically, in terms of North America, we are the closest to Asia and our large Asian community — 10 per cent of our population now and growing — gives us a huge opportunity to build the relationship. It seems that we have not been doing as well at it as we should. We have been squandering some of those natural assets, and it is time to take advantage of them.
Senator Mahovlich: Democracies have been around for 2,000 years; many have failed. When China looks at a democracy, it looks at the United States and reflects on the fact that it is only 400 years old; give it time. Trying to get a democracy going in China will take centuries.
Do you think that maybe we should give up on trying to change China and just live with it?
How many state-owned companies are there in Canada? Does India have a state-owned company that controls a company here?
I was over in Africa, and I know that China is represented there; they were building roads. I have been around the world, and it puzzled me because the best road builders are right here. We build good roads and so do the Americans. However, when I was in Africa, there was a compound full of Chinese people who were there to help fix the roads, which were badly damaged.
The greatest road builders were the Romans. We are still using their roads. Why are the Italians not building roads for Africa? The women there have to walk perhaps 20 miles to get a bucket of water. That is how critical the situation is.
Mr. Harder: I am reminded of Chairman Mao when he was asked what he thought of the French Revolution, and he said that it was too soon to tell.
With regard to your question about democracy in China, I think we are parsing it wrongly. In my mind, it is all about rule of law, transparency, accountability of public officials and public institutions and meeting the needs of your citizens. It is not about the size of the parliament and the voting structure. The whole evolution of China has been in creating greater transparency of its institutions and predictability of its rule of law.
That is the point I was trying to make, that there is sophistication, an acute understanding in China about democracy that you can engage them on. They are simply saying that they want to construct what they call Chinese democracy. That is the conversation, and there are many ways in which we can help them form that evolution.
With regard to state-owned enterprises, I do not have the specific number. However, I would encourage the committee to spend some time on sovereign funds because I do believe we are missing a new development in global economics, and that is the role that sovereign funds will play in the future. I would not suggest for a moment that we should say that we do not want any sovereign funds, because we do not want to deny ourselves that opportunity of foreign investment.
One of the rules of the game that should be in play for state-owned enterprises or sovereign funds — and I think we have policy work to do there — is that we need to cool the rhetoric and actually do the thinking around it. By the way, we had state-owned enterprises that worked internationally, as well. We called them Crown corporations, and we said that they were doing good work internationally. Petro-Canada International is an example. It is not that there is virtue or malevolence in the institution; it is what the rules of the game are and how you will benefit from it.
Mr. Sutherland: The only state-owned enterprise from India that I am aware of is the State Bank of India, which has opened a subsidiary in Canada. Other state-owned banks may be looking at doing the same. The objective in the first instance is to service the large Indo-Canadian community here.
With respect to Indian road builders abroad, if you look at countries in the Gulf Cooperation Council in the Middle East, Abu Dhabi, the United Arab Emirates and Saudi Arabia have huge numbers of Indian labourers. They are there on strictly commercial terms.
Mr. Harder can correct me if I am wrong, but in the case of China, some of the large construction companies are funded, at least partially, by concessional lending on the part of the Chinese government. This is not the case with India. They do not have that type of aid plan in place at the moment.
In regard to sovereign wealth funds, India recently announced that they are planning to start one as well. I would echo Mr. Harder's comments: This not a phenomenon that will go away. There will be more of these funds; consequently we need a policy to deal with them. If we have a knee-jerk reaction and reject or make it difficult for these funds, they will go somewhere else, and we will lose a lot of opportunity.
Mr. Dutkiewicz: In Russia, more than 75 per cent of the businesses are in private hands and about 30 per cent are state-run, but the state-run businesses are in the strategic sector of mining and oil and gas.
The Chair: In Canada, do we have both types of organizations operating or only the private-enterprise organizations?
Mr. Dutkiewicz: I believe the Crown corporations would be an example of state-run organizations.
Senator Stollery: The Canadian Wheat Board started as a Crown corporation. I remember the deal we made with China in 1959, or was it 1960?
When I went to China, many years ago, I did not know anything about it, so I read a 2,000-page book on Chinese history, politics and the Chinese ethos. It was very interesting. The authors, of which there were many, said that the Chinese political ethos, since time began, has been the search for order and that that is the primary force that has moved Chinese history.
Mr. Dutkiewicz, I am interested in the relationship between Russia, China and India. Russia, as we know, is an important Asian country. It has 11 time zones. I would assume it will be a crucial supplier of gas and oil to both of these countries. They have already industrialized, of course, but in the massive changes that are taking place, Russia, I would have thought, would be crucial to this development.
The committee has been told that China has bought the Kazakhstan oil company, and there is the pipeline issue. If you could describe some of this to us, it would be very useful.
My other question is to Mr. Harder and Mr. Sutherland. The testimony has been fascinating and very important for the country.
I was the member of Parliament for Chinatown in Toronto for some years during the immigration boom in the 1970s and 1980s. Now, I believe we have about 1 million Canadians of Chinese background, and, of course, we have a lot of Indians in Canada.
When I go to that part of the world, I see former constituents of mine who are very successful. Many have moved back because they like the action in Hong Kong, China and Taiwan. The overseas Chinese community, although it is based in Singapore and Hong Kong, has a huge impact. The development of trade and interchange with China has been tremendously dynamic. I recall the dynamism because I was the MP for Spadina, where we had a large Chinese population.
That was not the case, it seems to me — and I could be wrong — with India. The overseas Chinese dynamism with trade, investment and business has been greater than the overseas Indian trade, in the same sense. I would like your comments on that.
Mr. Dutkiewicz: It is a rather complicated question. I will try to simplify my answer.
If you look at the map of both gas and oil pipelines, you will probably be very surprised by not seeing any Russian pipeline going toward China. No gas or oil pipeline goes to China. In this sense, Russia is very much Europe-oriented and Europe-dependent. Obviously, that does not make Russian politicians very happy, and that is why they are looking forward to closer cooperation with China on the energy file. They would simply like to diversify the supply of, particularly, oil to not only Europe but China as well.
Russian-Chinese relations are very complicated. In the 1960s, there were border skirmishes, and many thousands of people, according to some eye witnesses, died during that time. The longest border that Russia has is with China. For President Putin, stabilizing border relations and signing all the border treaties was very important so that at least the border would be clean of any potential conflict zones. That was done within the framework of the Shanghai Cooperation Organization, which was designed for this type of negotiation with China about borders.
Since the Russians completed this task, this organization has evolved into a security organization and also into a political and economic cooperation organization, which includes not only China and Russia but also Kazakhstan, Kyrgyzstan and Tajikistan. Therefore, Russia is looking at China in the larger aspect of central Asia. It is looking at China from the perspective of Russian relations to Central Asia as well as, in particular, oil-rich and gas-rich countries such as Kazakhstan.
There is also ambivalence in those relations in the sense that, for many Russians, China became an attractive reference point only very recently. Many Russians treated China, during the socialist time and the communist time, as a sort of poorer neighbour that required constant attention and a sort of tutelage. Now the Russians are realizing that that is no longer the case. China is booming faster in many areas than Russia is, so the cooperation is growing. Two years ago, Russia held a China year, and the main leitmotif of this was recognizing China's strengths and the necessity to reorient Russian minds from being European-oriented to more Asian-oriented.
Still, despite this type of forced reorientation, there is much suspicion in Russia about China. It is about migration. Officially, there are 500,000 Chinese on Russian soil. Unofficially, it is a couple of million. The Russians are afraid that this type of creeping migration process will overrun parts of Russian Far East, which for many reasons is not very well- developed. The Chinese investment is there, and the Chinese dynamism is there. That is sort of the root of the concerns.
Relations are growing and getting stronger, and they are quite positive, but resentment still exists because many Russians are questioning the Chinese motives in the Russia-China relations. I would say that the crucial years will come with the new president, which possibly will tip the point, and more trade and investment will go both ways with China. There is a growing recognition of such a necessity.
Mr. Harder: We will see more of the phenomenon that you describe as we have a more integrated global economy, where those with skills for the international, integrated economy and the capacity to be mobile will be traveling to various countries of opportunity for the skill sets and the entrepreneurship they bring. It is a different concept of citizenship. If I am right that economic power or economic space is greater than political space, people who are more devoted to economic interests will move around much more, particularly at the elite level, and that human capital will be an essential ingredient of a successful state.
Mr. Sutherland: I will confine myself to the specific question on the Indian diaspora. I dealt with it with respect to Canada earlier. However, more generally, India has noticed with great interest the success of China in attracting investment from its diaspora, especially around the Pacific Rim. Huge amounts of money have come into China from Taiwan, Singapore and elsewhere, large parts of it from the Chinese diaspora. The Indians, in last few years, calculate the Indian diaspora as anywhere from 20 million to 24 million people around the world, which is more dispersed than the Chinese diaspora in the sense that it is not concentrated around the Pacific area. India now has various official events to encourage and recognize offshore Indians, non-resident Indians, Indo-Canadians or Indo-Americans, as the case may be, for their contributions not only in their new home but in building links with their former home, India. We are seeing more focus on creating an environment whereby it is attractive for non-resident Indians to invest in India, which in the past was problematic because people were not sure where the money would go. It is now easier, and people are being actively courted. You will find that a bigger contribution from non-resident Indians around the globe is going back into India, if only because of the success of the Indian economy. It is a good place to invest.
Senator Corbin: We have talked about money, sovereign funds and some banking operations moving into Canada. What is the relationship between banks, financial institutions and the Canadians who want to do business in these three countries? Are there strengths or weaknesses? Is there room for improvement? Give me a brief picture of how one goes about financing risks in countries where the environment is so vastly different from North America.
Mr. Harder: Very briefly, in respect to China, banks are making determinations constantly of the political or economic risk of an investment versus the risk of not participating in this huge growth market. I alluded to the growth of the financial sector, financial services and financial institutions in China, which are basically making a long-term investment in the future growth and stability of China. Ironically, the capital of servicing American debt is coming principally from the emerging economies that we are talking about, the Chinese and to some extent the Indian investments, and Russia's, both at the official level and at the unofficial business level, and that is based on thousands of separate risk assessments.
Mr. Sutherland: For Canadian companies that want to do business in India, financing is not a problem. All manner of Indian banks are willing to lend for a good business proposition, and increasingly Canadian banks as well. The Bank of Nova Scotia has five branches in India and is looking to expand. The Royal Bank of Canada has opened an office there, and other Canadian banks are looking at entering the Indian market. Some might say that they are a little late coming, but the point is that they are going now.
Financing is not an issue for Canadian companies that want do business there. I should put in a plug for Export Development Canada, EDC. They do an excellent job of providing political and commercial risk insurance, as well as financing. This is a tremendous advantage for small- and medium-sized companies in particular.
Mr. Dutkiewicz: Canada opened a branch of Scotiabank last month, which is a breakthrough. Many Canadian businesses will probably use this bank for their own operations in Russia.
Otherwise, the EDC is doing a very good job. I believe that Canada should also look at Germany's experience. To a certain extent, German investments in Russia are state-insured.
Senator Corbin: Are you saying that capital is not a problem?
Mr. Dutkiewicz: There is too much money.
Senator Johnson: I want to ask you something no one else has talked about, and that is the environment in terms of these three countries.
Obviously, we have heard all about their economies growing and the 25 per cent of the global GDP. I am curious to know about balancing their growth and development now in terms of the environment, such as their air and water. Their water will be the huge resource issue of this century. With respect to their foodstuffs, starvation is rampant. What do you have to say for each of these countries?
I also want to talk about Canadian universities and research, but only if we have time after the environment question.
In addition, is this not an area that Canadian business could be involved in a major way?
Mr. Harder: The National People's Congress for China's five-year plan going forward was this whole notion of sustainable growth and environmental stewardship. Understandably, the Chinese people were reacting to the environmental degradation in which they are living as a result of some of the economic development that has taken place. The theme of the environment is now being inserted into all the activities of state-owned enterprises and government itself.
I also point out that the area of fastest growth is alternate energy and renewable energy in China. For the solar business, there are two jurisdictions that stand out, Germany and China. Public policy makes a difference. I could give you a chart that shows that the number of major solar players are now Chinese, after 10 years.
The innovation may not be taking place in China with respect to the solar industry, but the commercialization and the output of — perhaps not as efficient — solar panels are taking place there. Canadian enterprise has a huge opportunity, I would argue, in renewable energy and renewable technology, such as information and communication technologies, et cetera, in response to this policy shift of paying more attention to sustainable economic growth.
Senator Johnson: That is great.
Mr. Sutherland: The environment is a huge issue in India. It starts at the grassroots level. One of the priorities of the government is to address issues such as sanitation and health, as well as pollution. They have included large increases in their recent budget to address these issues so that the 67 per cent of the population that lives in rural India will be better off. Clean drinking water is a primary concern.
At the international level, India expresses concern as well. As you probably know, in the negotiations for the second phase of Kyoto, India has been one of the most resistant countries, arguing that the developing world should not be obliged at this stage to make commitments when the problem was created by the developed world. Therefore, it is an issue that, at the international level, will require some negotiation. Certainly within the country, it is a huge issue. It is being addressed now by more resources being devoted to rectifying the problems.
In terms of opportunities for Canadian companies, there is no doubt that people with good technologies will have many opportunities.
Senator Johnson: Are any people from Canada availing of this to any extent in these countries?
Mr. Harder: Absolutely.
Senator Johnson: We can maybe make a note for our report about who these people are.
Mr. Dutkiewicz: You have touched a nerve in this because we do not have a central federal ministry of education or science. Therefore, it is very hard for Canada to sign any coherent agreement with Russia, for instance, on education or research.
We do not have a similar agreement such as we have with Europe and with NAFTA on student and research mobility. It would probably be a wonderful thing to have this type of agreement with Russia, China or India.
As far as your first question is concerned, the economic collapse of the 1990s and the virtual collapse of the Russia's main dirty industries made Russia more green than we could have expected. Russia has become green by default, if you wish.
Also, they invest a lot in nuclear energy. The biggest hit on the Russian market is the so-called portable nuclear energy station. The line-up to buy them from China is such that they cannot produce enough.
Senator Downe: I will change my question to a comment to the committee, given the short time I have.
I would like the committee to consider following up on some of the comments that we heard today. I am particularly interested in the comment about the lack of investment of the Canadian government in foreign embassies, trade officials and so on. I have raised this issue previously at this committee. Today, we have heard that 80 per cent of our trade is currently with the United States; in the past, we heard that Mexico has more officials in the United States than we do. We are hearing that in these developing countries, we do not have enough officials and that some may be transferred from mature economies in Europe to India and China.
I think this is an area the committee must explore in more detail, what other countries are doing, why we are not doing more and how much it will cost to do more.
The Chair: Thank you for that. It is noted.
Unfortunately, Mr. Harder has a meeting, and we promised we would let him go for it.
I want to take this opportunity to thank you. Obviously, we could have gone for another hour. Maybe the next time we will make our time longer, although it is difficult to schedule meetings for more than two hours. Thank you for appearing.
The committee adjourned.