Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 8 - Evidence, April 29, 2009
OTTAWA, Wednesday, April 29, 2009
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:12 p.m. to study 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.
[Translation]
The Chair: Honourable senators, welcome to this meeting of the Standing Senate Committee of Foreign Affairs and International Trade.
[English]
The committee continues its special study on the rise of China, India and Russia in the global economy and the implications for Canadian policy.
We are happy to have appearing before the committee today Lan Lijun, Ambassador of the People's Republic of China to Canada. He is accompanied by Shan Jiang, Minister-Counsellor (Commerce) and Wenze You, Counsellor.
His Excellency was the Chinese Ambassador to Indonesia from 2005 to 2008, Minister of the Chinese Embassy in Washington, D.C. from 2002 to 2005, and Consul General, ambassadorial rank, at the Consulate General of China in Los Angeles.
His other assignments abroad include Vancouver and Trinidad and Tobago. He previously served from 1996 to 2000 as director and deputy director-general of the Department of North American and Oceanic Affairs.
His Excellency is not a stranger to Canada. A native of Jiangsu province, he graduated from Beijing Foreign Languages Institute in 1974 with a B.A. in English literature and continued his post-graduate study at Queen's University and McGill University from 1974 to 1976; then at the Kennedy School of Government, Harvard University, where he received a master's degree in public administration.
Welcome to the Senate. We will commence with a presentation by His Excellency. He is happy if we can take an hour of his time. We appreciate that. He will speak for 10 minutes, giving us lots of time for questions and answers from all our members.
Your Excellency, please proceed.
His Excellence Lan Lijun, Ambassador, Embassy of the People's Republic of China to Canada: Thank you, chair, for your kind introduction.
Honourable senators, it is indeed a great pleasure to speak to the Standing Senate Committee on Foreign Affairs and International Trade on China's economic development and China-Canada relations.
First, I will give you an update on China's economy.
As we know, the past several months have been truly eventful for the world economy. The sudden collapse of the U.S. sub-prime mortgage market and the reversal of the housing boom have transformed themselves into a full-blown economic crisis worldwide. China, like other developing countries, is experiencing the ripple consequences of the crisis. China's growth dropped from the impressive 11.9 per cent in 2007 to 9 per cent in 2008 and to 6.1 per in the first quarter of this year. Share prices also plummeted; unemployment was exacerbated; year-on-year urban housing prices fell for the first time since 2005; producers' prices continued to grow at an accelerating rate even as consumer prices began to fall; industrial sectors such as electricity production, textiles, non-ferrous materials and information technology suffered heavy losses; foreign direct investment inflows into China waned; and year-on-year exports shrank by 2.8 per cent in December 2008, the biggest monthly drop in a decade.
The total trade value of imports and exports in the first quarter of this year was down by 24.9 per cent year-on-year, with exports down by 19.7 per cent and imports down by 30.9 per cent.
The impact of the unfolding crisis on China's economy is real, but it cannot be over-exaggerated. Though China's high export dependency may have rendered it vulnerable to reduced consumption abroad, its financial institutions, to a large extent, are still sound and solid because of its limited exposure to the sub-prime mortgage assets and high-risk financial derivative products. China's economic growth is still at its peak compared to other countries. Its large foreign reserve and fiscal revenue leave spaces for effective government regulation and control. The increasing wealth of the Chinese people and structural reform will also stimulate consumption. China has reason to remain cautiously optimistic.
What has China done to weather the global crisis? To address the international financial crisis, the Chinese government has taken the expansion of domestic demand, especially the consumption demand, as the basis of promoting economic growth and has resolutely implemented a proactive fiscal policy and moderately loose monetary policy. The Chinese government has developed a stimulus package plan to promote stable and relatively fast economic growth by increasing government investment, implementing a two-year investment plan worth 4 trillion yuan, including 1.18 trillion yuan of new investment from the central government — honourable senators, converting 4 trillion yuan into U.S. currency is $578 billion — making structural tax reduction and expanding domestic demand; readjusting the industrial rejuvenation plans extensively to increase the competitiveness of the national economy; encouraging scientific and technological innovation to consolidate the basis for further development; improving social security comprehensively; increasing urban and rural employment; and stimulating the progress of social undertakings. Recently, we issued a nation-wide medical health plan that is part of this stimulus package.
The proactive fiscal policy has five focuses. The first focus is to expand government-public investment and stimulate consumption demand. The second is to move forward the fee-to-tax reform and implement the structural tax reduction. The third is to readjust the distribution pattern of national income to increase the income of poor populations. The fourth is to optimize further the fiscal expenditure structure to guarantee and improve people's livelihoods. The fifth and final focus is to extend full support for scientific and technological innovation, energy saving and emission reduction and accelerate the economic restructuring and change of the economic development pattern.
The economic stimulus plan has shown some initial results, and parts of the economic indicators have experienced positive changes. This year, China's gross domestic product is estimated to grow by about 8 per cent. China will continue to take forceful measures to maintain steady and fast economic growth and contribute its share to an early recovery of the world economy. We are fully confident of realizing the major goals of economic and social development this year. The aforementioned measures and their success will not only benefit China but they will also bring great business opportunities to other countries, Canada included.
Next, I want to deal with China-Canada trade relations. Trade and investment has always been, and will continue to be, an important driver behind the growth of bilateral relations. Our two-way trade started small, decades ago, from simple commodity trade, and has evolved into an all-dimensional relationship covering trade in commodity and services, capital flows and personnel exchanges.
Last year, China recorded $34 billion U.S. in trade and investment, topping the target of $30 billion U.S. set by our state leaders for the year 2010. At the same time, Canadian investment in China has grown to nearly $6.2 billion U.S., and China's investment in Canada is also steadily increasing. That trade seems good enough, but if we put the figures in the context of each of our economic and trade performances, we see a large gap between what it should be and what it is now.
Despite the leapfrog increase, our two-way trade makes up far less than 5 per cent of each other's total foreign trade mix. Canadian investment in China, though we witnessed a 14 per cent growth in 2007, accounted only for 0.3 per cent in its overall investment abroad in 2008, while China's foreign direct investment in Canada is a paltry 0.1 per cent. Those figures obviously do not reflect the nature of the strong complementarities of our two economies and investment is far from what it should look like.
Our two economies are highly complementary, with Canada being the largest developed country in terms of its land mass and a major natural resources power in the world, and China being the largest developing country and the fastest developing economy in the world. China is now Canada's fourth largest export market and second largest trading partner, behind only the U.S. Canada is China's eleventh largest trading partner. Canada is an energy and resource superpower and, with China's continuing development momentum and construction boom, we can create another record in two-way trade and investment.
Canada also boasts full-fledged banking and insurance services, and Canada's knowledge and expertise in keeping the financial sector on a sound footing in this turbulent time is surely a source of emulation for the rest of the world. Canada is also home to a number of cutting-edge technologies, in clean energy and environmental protection, and so on. Canada is among world leaders in aerospace, information and communication technologies, wireless technology and the health and science areas such as biotech, e-medicine and biomedical equipment.
Canadian companies with infrastructure and transportation technologies enjoy a long and solid reputation in China. Besides, with the surge of Chinese investment abroad, more and more Chinese firms are looking to Canada for the potential of win-win cooperation. The Gateway Strategy, both on the West Coast and the East Coast, can provide good opportunities for more joint ventures and partnerships. History has proven that China and Canada can engage in mutually beneficial cooperation. In today's world, such bilateral cooperation has become even more important for both sides.
In light of the current situation, it is only natural that our two countries work even closer together to cope with the difficult times. Some of you may have heard that the Chinese word for crisis, ``Wei Ji,'' is made of two Chinese characters; one for danger and the other for opportunity. While these are days of crisis for all of us, there is also an opportunity for us to join hands to meet the challenges and correct some of the underlying instabilities. To move the current relationship forward, we need more bold steps and political will to take hold of the immense opportunities and turn them into realities. An opportunity missed is an opportunity lost. The answer is not tomorrow, but now.
Although trade lies at the heart of nearly every interstate partnership, the China-Canada relationship is much more than mere sales and purchases. The relationship goes far beyond, to lively exchanges in sustainable development, law enforcement, education, culture, academics, and so on.
Next year we will mark the fortieth anniversary of diplomatic relations between China and Canada. There is a lot to be celebrated. China and Canada have established over 20 bilateral dialogue and consultation mechanisms for cooperation in politics, economics and trade, agriculture, energy, health, arms control, climate change, science, technology and whatever — you name it. China and Canada have worked closely on international and regional issues of common interest, as well as at the United Nations.
Better China-Canada relations require more engagement and dialogue, and perhaps more importantly, vision — vision that will help us jump out of the bottlenecks so that 10 or 20 years from now, we will be able to look back on those efforts and rest assured that we have done the right thing for the Chinese and Canadian people.
Finally, I wish to thank you again for inviting me to this occasion. Your support for a better Canada-China relationship is critical in moving ahead not only our political relationship but also our economic and trade opportunities and more.
The Chair: To go full circle on the relationship between our two countries, which some have described as imbalanced in that we import more than we export, I think we should also include one of the greatest exports we have from China, namely, a large number of your sons and daughters who have come to Canada to make their home and build their futures here. We are forever grateful for that.
[Translation]
Senator Fortin-Duplessis: Your Excellency, my question is not on the statement you made today. I put the following question to his Excellency, the Ambassador of India.
At the April 2 summit in London, with 20 of the world's major economies in attendance, the debate focused on a new world financial architecture. Things are heating up. Russia and China would like to establish a global multipolar organization, but the U.S. rejected that idea and proposes instead to uphold the role of the dollar as an essential means of payment in the world.
In just a few words, could you tell us something of China's initiatives regarding a standard currency that would serve as an alternative to the U.S. dollar?
[English]
Mr. Lijun: That question is very technical. It is also an important issue being discussed in the current situation. The outbreak of the current crisis and its spillover in the world has confronted us with a situation where there are still unanswered questions. What kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth? One of the purposes in establishing the International Monetary Fund was to address this question.
At the last G20 summit in London, this issue was mentioned briefly. There were various attempts to find a solution. You may know that the governor of the People's Bank of China has written an article on this important issue. First, theoretically, the international reserve currency should be anchored to a stable benchmark and issued according to a clear set of rules to ensure order in the supply. Second, its supply should be sufficiently flexible to allow timely adjustment according to changing demand.
This issue is an ongoing one. It will take time for various major parties to reach a consensus. China would like to see the IMF go through certain reforms to adapt itself more closely to the current situation and also to cope with the future. China would like to play a role and work with other IMF members and the international community on this issue.
Senator Wallin: Ambassador Lijun, thank you for your overview of the state of the economy. Maybe you can elaborate on a couple of specific points. You talked about slowing growth — obviously we are all going through that — and the ripple effect of the economic crisis.
Can you give us some sense of how much of the slowed growth is a result of lowered international demand and how much is a result of internal issues you are dealing with?
Since last November, we have seen protests on the streets in China and even some strikes. You have problems internally as you are already dealing with a slowdown. Can you quantify those problems for us?
Mr. Lijun: China's GDP growth over the past years has been heavily dependent on exports. With shrinking demand in the world market, particularly in the United States, our exports are down dramatically. That situation has put a lot of pressure on China's export-oriented enterprises.
I mentioned a few percentage figures for China's slowing economy. At the same time, we have been trying to expand domestic consumption. Various measures have been taken by the central government.
First, we will invest heavily in infrastructure. For instance, in the railway sector this year, the government will allocate about 600 billion yuan in railway development and another 600 billion yuan next year. This investment is only in one area.
Second, we have plans to invest in solving the issue of unemployment. The number of migrant labourers in China who lost jobs was equivalent to about two thirds of the population of Canada; that is, 20 million people, which is a huge number. Originally, farmers who were working in the countryside, as a result of economic development, moved to urban areas to engage in the construction sector, et cetera. That sector has been affected somewhat.
We are also trying to create jobs not only for urban dwellers, but also farmers. The target for this year is the creation of about 9 million jobs. It is necessary to maintain 8 per cent GDP growth in China according to our estimate to achieve this target. For each percentage of GDP growth, we will be able to provide about 820,000 jobs. Various efforts will allow us to provide about 9 million jobs this year.
In the first quarter, I think we have created about 2.5 million jobs already. There will be a long list of what has happened and what we are doing.
Senator Wallin: You have the impact of external forces and lessening demand from the rest of the world and domestic issues. I know it may be hard to put a number on that situation, but when you have migrant workers or others exiting the city, then internal demand goes down as well. I am looking for a sense of whether that situation is an issue.
I have the same question on the 8 per cent growth in GDP that you are trying to maintain and your 4 trillion yuan or $578 billion in stimulus. I am asking for some assessment of whether that is 6 per cent of the 8 per cent or 2 per cent of the 8 per cent. What is that stimulus aimed at in terms of percentage of keeping your GDP growth up?
Mr. Lijun: It is hard to measure the stimulus package vis-à-vis GDP growth. Some projects in the stimulus package will take some time to generate a real effect, but some will bring immediate effect, such as lowering the purchase tax of some cars in China. China, for the first time, overtook the United States in terms of numbers of cars we sold in the first quarter of the year.
Senator Wallin: That was ten thousand a week; something like that?
Mr. Lijun: In January alone, the first month, we sold close to 700,000 cars. Usually February is a slow month because of the Chinese New Year celebrations and the long holidays. Overall, in the first quarter, we sold close to 1.5 million cars. This sector is only one in which government is encouraging people to consume.
In China, many families have become rich and have large savings in the bank. The total savings, as I remember, is 46 trillion yuan in the banks, so people have cash in hand. They are hesitant to spend because they have to care for their houses, their education, their medical services, et cetera. If we ask people to spend more, we need to have relevant plans or packages for them. Not long ago, we issued a nation-wide medical insurance plan. People in the urban and rural areas enjoyed the medical coverage. For the first time, we have a nation-wide medical coverage service. That coverage also relieves some of the worries people have.
There are other measures. For instance, we have encouraged farmers to consume. The government has encouraged the companies that are manufacturing household electronic appliances to bring their products to the rural areas through government subsidy. If farmers buy colour television sets, refrigerators, washing machines, et cetera, or if they exchange old ones for new ones, the government offers them subsidies. In this way, the government is also able to encourage spending.
The rural population in China accounts for about 80 per cent of the Chinese population, which is a huge potential market in China. Hopefully, these measures, with others, will bring about more positive and promising results. Even though our GDP growth for the first quarter is only about 6.1 per cent, we are more confident and optimistic.
Senator Grafstein: Welcome to this committee. As you pointed out, Canada is an old friend to China. We preceded the Americans in recognizing China, and we are proud of that fact. We have fostered good relationships between my city of Toronto and China. I was involved in the twinning of Toronto and Chongqing. The mayor the head of the party and the governor there became good friends. We invited them to Toronto, and the first time they came to a Western country — it was when you were a young man — they came to Toronto. Toronto, China, Chongqing and the Sichuan province have good working relationships.
Having said all of that, I have four brief questions. First, you suggested that we need to take bolder steps in our trading relationships, and I agree with that. What are the bolder steps you would recommend to this committee?
Second, there has been criticism of China that the exchange rate is not a floating rate. In Canada, to liberate our economy, we floated our exchange rate. We have a free and open rate. What is the current position as to exchange rates, which will help foster trade?
Third, what is the situation with respect to tariff walls in China to open up China to more agricultural products from Canada to reduce the trade imbalance?
Finally, my favourite little topic is services. I agree with you that services are the way to go. They are the wave of the future. How do we facilitate a greater exchange of services between our two countries? I notice it is $1 billion in some sort of static relationship. It is too small. With all the expertise and language skills we have in Canada with respect to the Chinese language, I do not see why it cannot be bigger, faster and greater. Can you provide some answer as to why we cannot foster greater exchange of services?
Mr. Lijun: For the bolder steps, we should look at the complementarities of our two economies and find where the two can come together; the merging point of our two economies. The recent step taken by the Canadian government in terms of having the Minister of International Trade, Stockwell Day, visit China to look at the opportunities where the two economies can cooperate is a good step. During the visit, the Canadian government decided to open the new trade offices to promote trade. Steps like that are more than welcomed.
We should look beyond that step at what we can do and what potentials there are for us. My colleague here is specialized in the economic and commercial trade relationship. He has been trying to promote our bilateral trade relationship all these years, even back in China. First, we should have a correct vision of how we should look at each other; whether Canada matters to China or China matters to Canada. On the Chinese side, we attach great importance to our relationship, not only our political relationship but also our economic and trade relationship. Through joint efforts,we would like to develop even closer relationships covering all areas. I personally would like to see that we continue to discuss and to find the right way to expand our economic and trade cooperation, as well as investment.
As you are involved in the policy-making process, I would like to say that the Chinese government encourages Chinese enterprises that have good credibility and capability to go global. Many of them invest in Canada. I hope that the right conditions can be created to enable Chinese companies to consider investment opportunities and projects in Canada in order to expand our investment arrangements. I also hope that there will be a change of perception of Chinese state-owned enterprises. This is what I have been telling government ministers and officials.
Over the past 30 years of China's economic reform and of opening up, state-owned enterprises have also gone through dramatic structural reforms. Almost all state-owned enterprises today are publicly listed. The nature of state- owned Chinese enterprises has changed. When a Chinese company comes to Canada, I hope these companies will be regarded as commercial entities rather than something otherwise connected.
On the exchange rate, since July 2005 we have adopted reform for the RMB exchange rate formation mechanism. We have implemented what we call a managed floating exchange rate regime based on market demand and supply with reference to a basket of currencies. In the past, we pegged the RMB to U.S. dollars, but it is currently pegged to a basket of currencies.
China has been active in nurturing and developing the foreign exchange market and improving our foreign exchange management. As a matter of fact, by August of last year, the RMB exchange rate had appreciated by 21.3 per cent against the U.S. dollar. I remember that several years ago, one U.S. dollar was equivalent to 8.2 RMB and today it is equivalent to 6.8 RMB.
Senator Grafstein: It is 5.5 today. We checked it.
Mr. Lijun: That is Canadian dollars. I am talking about the U.S. dollar.
Senator Grafstein: We are in Canada.
Mr. Lijun: Yes, compared to the Canadian dollar it is $5.5.
We have adopted precocious but also gradual steps to reform the exchange mechanism of the RMB, and we will continue, but the exchange is largely based on supply and demand in the financial market.
Recently, the U.S. Department of the Treasury made a statement —
Senator Grafstein: It was a non-statement.
Mr. Lijun: — about so-called manipulation of China's currency.
Senator Grafstein: We read it, but we take it with a grain of salt.
Mr. Lijun: I want to assure you that the Chinese RMB will continue. The formation of the RMB and exchange rate will be continued. That is why we made a proposal to the international community to look at the creation of a super sovereign currency with the IMF.
Senator Grafstein: Ambassador, on that topic, you have convinced me on the one, but you have not convinced me on the other.
The Chair: Senator Grafstein, we can deal with that issue some other time. Time is flying.
Senator Grafstein: the issue is important.
The Chair: I know it is.
Mr. Lijun: I will leave your third question to my colleague. He has figures with regard to the import of Canadian agricultural products to China.
Shan Jiang, Minister-Counsellor (Commerce), Embassy of the People's Republic of China to Canada: China has opened its doors widely to Canadian products, particularly agricultural products. You mentioned the tariffs. To be frank, we do not have any restrictive tariffs against Canadian agricultural products in China.
I was involved in the negotiations on China's admission to the World Trade Organization, and I dealt in particular with Canada. So far, China's average tariff level is low, only around 9 per cent, which is much lower than the tariffs of many developing countries. China imports large quantities of raw materials and agricultural products from Canada such as pulp and paper, nickel, wheat, barley and canola.
Last year we imported pulp and paper from Canada valued at about US$1.4 billion, nickel valued at US$900 million, canola valued at US$8.8 million, potash valued at US$500 million, and many other products. That is huge.
As I said earlier, we do not have high tariffs against Canada's agricultural products. Our market is open. We are currently expanding our domestic consumption. Imagine how much our consumption is with a population of 1.3 billion. We need to import from Canada.
I had the opportunity to meet with a couple of Canadian agricultural companies. They are optimistic about entering further into the Chinese market.
Mr. Lijun: On the last issue, I will mention briefly the service exchange. In the financial sector, several well-known Canadian companies, such as Manulife and Sun Life, as well the Bank of Montreal, the Royal Bank and Scotiabank have branches in China, and they are doing fine. We welcome more financial institutions from Canada to operate there. This exchange is also part of China's commitment to joining the WTO.
The Chair: Thank you, ambassador. I assure you and all of my colleagues that we intend to invite you again, probably in the fall, when we move further into our study.
Senator Stollery: I join with my colleagues in welcoming the ambassador and his colleagues.
I am an advocate of closer and continuing trade relations and other relations with China. We should promoting these relations.
Witnesses have come before the committee who have been critical of our current state of affairs. Changes have been taking place and we seem to be opening trade offices.
I am from Toronto. When people talk about the diaspora, I live right in the middle of it. I can tell the difference when people are speaking Mandarin and Cantonese. I hear more and more Mandarin spoken in Toronto. Traditionally, people came from south China to Canada, as we all know. We have huge Chinese supermarkets; they are massive places, and there are many of them. Yet, our relations seem to have cooled considerably over the last several years.
I was a member of a small group that met with the President of China. How many years ago was that?
Mr. Lijun: It was in 2005.
Senator Stollery: I was at the meetings, and a small group of us met with the President. A Progressive Conservative minister, George Hees, was responsible for the major trade agreement in 1960. It was the first grain agreement with China. I remember that agreement well. George Hees was the minister of trade, as you know.
Senator Grafstein: It was 1957.
Senator Stollery: I have the feeling that something seems to have gone off the track over the last several years. I am one who thinks it should go back on the track. Did we not sell a couple of nuclear reactors not long ago to China?
Mr. Lijun: Yes, it was in the 1990s. A CANDU reactor was installed in Qinshan, Zhejiang Province. I visited that site in the 1990s.
Senator Stollery: I understand the problems of reserve currencies and that China has a huge domestic problem. I have heard it said that China needs 10 per cent growth because of the vast numbers of people the country needs to bring into the economy. We all understand that. I know that you must be diplomatic about these things; we appreciate that.
How did we go off the track here? How can we get back on the track?
Senator Prud'homme: That is a long track, I tell you.
Mr. Lijun: Before I came to Canada, and after I left the China-Canada desk, there was an absence of almost eight years. Both my colleague Mr. Jiang and I worked together back in Beijing at the China-Canada desk. He was on the commercial side; I was on the political side.
When people talk about the relationship being off the track, I think they mean that over the past few years we have seen a downturn in our relationship. There has been no active exchange of high level visits.
The approach taken on certain issues is not conducive to developing a sound, better relationship. However, as we can see, Canada was one of the first Western countries to recognize China, in 1970. Between China and Canada, we have no historical disputes; we have no territorial arguments. Also, among the Chinese, Canada is well regarded because of the early relationship and the wheat sales to China in the 1960s that really helped the Chinese people; and also because of the selfless contribution made by a well-known Canadian doctor, Norman Bethune. All of these relationships were viewed as a positive and good sign for developing a sound relationship between our two sides.
In view of the world today, China and Canada should and can enjoy an even better relationship. We have been trying to say that when dealing with state-to-state relationships, we should have mutual respect, equality and non- interference into each other's internal affairs, and seek common development. As long as we follow these basic principles in dealing with state-to-state relationships, I do not see any problem for China and Canada to enjoy an even better relationship in the future.
Personally, I have seen the development and the environment of the Canada-China relationship from the early 1970s until now. As ambassador, I am optimistic. With our joint efforts, I think we will be able to see a better future for our relationship.
The relationship needs to be cared for and nurtured from both sides. We can discuss issues where we have differences but, as the Chinese saying goes, we are trying to seek common ground while shelving some of the differences. Shelving differences does not mean that we should not discuss them, but how? In what format should we discuss these differences? China and Canada have different social, political and economic backgrounds. We have different perspectives on some of the issues. We should take into consideration the perspectives of each side and forge a better understanding. This is what we are trying to do; to promote mutual understanding and to develop our respective countries together.
I also welcome any suggestions or advice that honourable senators have for us. We would like to work together with you.
Senator Stratton: Welcome, Mr. Ambassador, and others. I had the delight of having dinner with you four or five weeks ago, which was a fascinating evening. You enthralled me with how your economy works, on a basic elementary approach, at any rate.
I am fascinated when you talk about trying to achieve an 8 per cent GDP growth rate, which would be ideal. You talked about that growth at that dinner. I am curious when you say you have sold 500,000 cars in the month of January.
Mr. Lijun: It is close to 700,000 cars.
Senator Stratton: We have a real problem in Canada and in the U.S., in particular. That would be an enviable number to achieve. The problem is that the financial system needs fixing in the United States. While our financial system is sound, it is difficult for the banks to loan money. While the interest rates from the Bank of Canada are dropping, the interest rates on car loans have gone up.
How do you overcome that problem? If you sell 700,000 cars and people do not have ready cash, I assume they are like normal consumers and they go to the bank for a loan. How do you encourage the banks to give out those loans?
You used the word ``encourage'' two or three times on the part of the consumer. I am interested in how you encouraged the banks to give those loans.
Senator Prud'homme: They own the banks.
Senator Wallin: That is right; they own the banks.
Mr. Lijun: The Chinese people are accustomed to saving in the banks. We trust the banks because they are state- owned banks.
Senator Stratton: I heard that answer the other night at your dinner.
Mr. Jiang: They operate commercially.
Senator Stratton: Yes, I realize that.
Mr. Lijun: On the other hand, at the beginning of 2007 the government saw a much heated economy developing in China. The government tried to slow down our economy because we felt that so many loans by the banks to enterprise, as well as to the private sector, might upset the normal economic development in China. However, by the second half of last year, because of the economic slowdown and the world economic crisis, the thinking of the government, as well as the banks, has shifted a bit.
Although we continue to adopt a more proactive monetary policy, the government started to ask the banks to release more loans to those enterprises in order to keep them operating. Since the banks are state-owned, of course they try to cooperate with the policies of the government. For last month alone, the banks released about 1.8 trillion RMB to the various enterprises to support their economic stability and development.
On the whole, by the end of the first quarter, I believe the total loans by the banks to enterprises reached over 4.5 trillion RMB, which is huge; much faster than what has happened in the past. The numbers are huge but when we talk about this issue we must bear in mind the number of Chinese people. However huge the number, once it is divided by 1.3 billion, it is small. We sold about 700,000 cars in China but the U.S. sold about 600,000 cars. If we divide that number among the population, the total number is huge but the average is small. When we talk about these figures we must bear in mind the size of the population in China. Any problem that we have, if we multiply by 1.3 billion, it is a huge problem.
To maintain stable and rapid economic development, the government has put forward a number of stimulus measures, including reducing the purchase tax on certain types of cars. For instance, if a car's emissions are less than 1.6 litres, then the buyer will enjoy a 5-per-cent reduction of the tax. It used to be 10 per cent and it is now reduced to 5 per cent. That reduction also encourages the people and it gives incentive to those who wished to buy car in the past. They can come forward and purchase them.
Also, the farmers can exchange their old, run-down cars for a new car, with a government subsidy. These things are some of the measures we have taken to stimulate and expand domestic consumption.
Senator Stratton: There is concern about the possibility of this recession continuing beyond two years. You expressed the concern, and the governments in Russia and Tunisia expressed the same concern about the length of this recession. Do you still see that concern or are you seeing in China a turnaround on the near horizon? If so, what is that horizon? Is it six months or a year away? What is your best guess?
Mr. Lijun: Today many say, particularly in the West, that China's economy will recover first, and China will be able to help the world —
Senator Stratton: You have sure helped Canada.
Mr. Lijun: — but that view is a bit exaggerated, in my view.
First, we are trying to run our own business well and to be able to revive and rejuvenate our economy first. The indicators for the first quarter of our economic performance show that we have seen positive changes in China's domestic economy. Hopefully, by the second half of this year, we will be able to start normal economic development.
Having said that, today no country is an island. We all become interdependent to each other, like China's exports. Trade heavily involves other countries. If China alone does well and the rest of the world is not doing well, we will try to help each other form a solid and close cooperation to cope with the current financial challenges. More importantly, we are trying to help the developing countries. That is why China has joined the international community to put more funds together to help developing countries to tide them over during this difficult period.
There are different predictions about when the economy will recover and start to grow again. It is anyone's guess, but the more widely held view today is probably by the end of the year or the beginning of the next year we will see that the economy will rebound. Hopefully that will happen, but we need to have confidence. If one does not have confidence, then one loses hope. If there is no hope, there will be no future. We must have full confidence in ourselves, in our own country's economic performance, and also we should join together in our efforts.
The Chair: Senator Grafstein, we have already gone over the ambassador's request for time by 20 minutes. I have one last questioner, which I beg you to allow. Senator Andreychuk was been waiting. I will make Senator Andreychuk the last questioner of the day.
Senator Andreychuk: Thank you, ambassador, for appearing here this afternoon and for sharing frank observations with us as well as in-depth observations.
I want to touch on this area because although we are looking at China as an emerging economy it is in the context of our foreign policy. We are here, perhaps, to give advice or recommendations to our government in the long run.
You indicated that you wanted to pay more attention to developing countries in this crisis. I am pleased you raised that point because it is one issue that is not talked about enough. In those least developed countries that are starting to emerge, this financial crisis will hurt them more and probably take longer to correct. We all need to pay attention to that fact.
I am asked this question in Canada as a senator. We see on our shelves every day ``made in China'' and we talk about imports into Canada. You are visibly here.
Yet we have a development aid project with you. You opened your presentation by talking about China as a developing country. However, you are now talking about China's responsibility towards developing countries. The question I am asked is this one: We should be exploring our trade and investment opportunities; why is Canada still giving aid to China?''
How do you see that situation? Is that aid something we should reconsider, and put our efforts more into trade strategies, supporting trade areas, developing dispute resolving mechanisms and strengthening courts as opposed to development aid?
Mr. Lijun: First, we appreciate the aid projects extended to China to alleviate poverty in certain areas over the years by the Canadian government. The aid has helped efforts of the Chinese government to bring more than 200 million people out of poverty over the past decade.
Second, current aid from Canada to China is small. It is minimal, and mainly in educational training.
Senator Andreychuk: I have that it is approximately $32 million. It may have gone down in 2006-07.
Mr. Lijun: My colleague, Mr. Jiang, tells me it is less than $20 million currently.
Mr. Jiang: China is not on top of Canada's list of aid to other countries.
Mr. Lijun: If we look at China, we are talking about two or three Chinas. First are the developed regions in China, the coastal areas. If you visit China and travel to the coastal cities of Shanghai or Beijing, you will think China is not a developing country. I often hear this comment from my foreign friends. Second, if you travel to the central part of China, you will see that the areas are between developed and underdeveloped. Third, if you go to the north-western part of China, it really is a developing area.
China primarily relies on our own efforts, but we also welcome international cooperation. The current programs provided by the Canadian International Development Agency are primarily in educational training. For example, the National People's Congress has training programs with the Canadian Parliament, and in the judicial arena, the Supreme People's Court has programs with Canada's Supreme Court. Programs are largely on the civil side of the equation rather the development side.
Senator Andreychuk: I have one more short question.
You indicated that perhaps we had differences and that we stated them in ways that were problematic for both countries. I am inclined to agree. I have been in international environments where national sovereignty and territoriality are important. On the other hand, some values that Canadians believed in were the issue.
Over the last 15 years as a senator, I have reflected that we should address international standards on human rights, health and safety, labour, the environment and trade. Do you agree that approaching our differences within that rubric of international standards would be a good way to approach them, and to see how our respective countries are adhering to the commitments they have signed?
We can leave it to those mechanisms within the international arena to address whether we have adhered to those standards.
Mr. Lijun: As I mentioned earlier, China and Canada are countries with different social and cultural backgrounds and different levels of economic development. Of course, we should comply with international norms of human rights standards. Over the years, China has promoted human rights in all areas of the country while we developed our economy.
We have lifted people from poverty and we have changed our laws and the constitution several times to adapt to the changing times. We have been trying to provide various standards of services to our people. We have also conducted human rights dialogues with a number of countries — for example, the European Union, Australia and even Canada several years ago. We would like to continue to have such exchanges.
At the same time, China has signed several international conventions on protecting economic, social, cultural and political rights of our citizens. We have tried to promote the cause of human rights in China in collaboration with the international community. For a country with 1.3 billion people, the basic human right is to have a decent life — to have housing, education and a means of support.
When you talk about human rights in Canada, it is easy because you have not had any wars on your territory for many years. People in Canada enjoy a good life. You have rich resources and good education — all this richness is taken for granted.
However, for the Chinese, the primary objective of the government is to provide a better life for our people and to give them proper education, proper housing and jobs, which is an urgent and heavy task. Every year, we have over 6 million university graduates who need to find jobs. They need to join the labour force. We also have schools and factories that have gone bankrupt. The government needs to provide those people with retraining in order to facilitate them rejoining the labour force. The emphasis on human rights in China is currently more on a better life for the Chinese people. At the same time, on the political side, we have given people more rights to vote, to speak out and even to criticize the government, so they have enjoyed a better human rights situation.
Having said all of this, looking across the border and around the world, we see that no country has a perfect human rights record. There is always room for improvement. China is willing to conduct human rights dialogues with other countries to exchange ideas, to have a better understanding and to improve where we need to improve. With Canada, we had established a human rights dialogue. We conducted human rights dialogues on several rounds, but due to reasons on Canada's part, that dialogue has been stopped. I understand the government has an intention to revive that mechanism.
In view of the time, I will stop here, but I hope we will have more opportunity to exchange our views on that subject.
The Chair: Your Excellency, I thank you. Once again, you have been generous with your time. We had set aside an hour, and we have gone an hour and a half, and I still have four senators on the list to speak. Allow me to close by extending my appreciation to you and your colleagues. I was pleased at your comment during your remarks this evening that you are looking forward to continuing dialogue and continuing to talk to each other. I, too, think continuing dialogue is the proper way to resolve issues, as long as we keep an open mind and show goodwill on both sides.
On the issue that we invited you here for this evening, which is the trade and foreign affairs issue, we look forward to continuing this topic. As I suggested, we hope to visit China sometime in the next three or four months, after which time, or even before, if you wish, we will extend another invitation. Hopefully, we will have a little more time. As you see, there is a great deal of interest. We can continue to build our friendship in mutual trust and mutual respect. Thank you for appearing.
(The committee adjourned.)