A. Costs of Doing Business with Chinese Firms

In commenting on the reduced foreign exchange costs for Canadian exporters, the Canadian Chamber of Commerce told the Committee that Canadian businesses could save an estimated $6.2 billion over 10 years if they can convert the Canadian dollar into the RMB directly, rather than indirectly through an intermediary currency, while the Canadian Council of Chief Executives said that the reduced exchange costs will help Canadian companies compete in the global marketplace. Export Development Canada indicated that the existence of the Canadian RMB hub will encourage the development of an RMB derivatives market in Canada to reduce exchange-rate risk, especially if the relative value of the RMB appreciates in the future.

The Toronto Financial Services Alliance mentioned a survey conducted by HSBC that showed that 55% of Chinese businesses would offer a discount of up to 5% for transactions denominated in the RMB rather than in the U.S. dollar. According to calculations by BMO Capital Markets, Canadian businesses will save between 5% and 8% on each contract with a Chinese supplier because of the ability to convert the Canadian dollar to the RMB directly. However, Export Development Canada stated that, as Chinese companies have to pay for their inputs with U.S. dollars, the U.S. dollar is preferred to the RMB. It also said that it is less costly for Chinese companies to raise U.S. dollars for their expenses than to obtain the RMB.

BMO Capital Markets said that, once the Canadian RMB hub becomes operational, businesses will be able to store their RMB in deposit accounts, which will reduce currency exchange costs associated with doing business with Chinese companies that request payment in the RMB.

B. Trade

In informing the Committee that Canadian exports comprise 1.3% of Chinese imports, a proportion that can be compared to Switzerland’s 1.5% and Germany’s 5.1%, the Canadian Council of Chief Executives indicated that the most significant benefit to Canada of the Canadian RMB hub is its potential to facilitate trade between China and Canada. It said that Canada could increase its petroleum and gas exports to China, while China could increase its exports of electrical machinery to Canada. Similarly, BMO Capital Markets suggested that bilateral trade will increase significantly once the Canadian RMB hub is operational, and projected that Canada’s forestry, fisheries, and oil and gas sectors will benefit. John Curtis – who spoke to the Committee as an individual – commented that the Canadian RMB hub will assist Canada’s manufacturing sector by facilitating participation in global supply chains.

The Canadian Chamber of Commerce estimated that, because of the Canadian RMB hub, the value of Canadian exports to China will increase by between $21 billion and $32 billion over the next 10 years. According to British Columbia’s Ministry of Finance, the value of B.C. exports to China is expected to rise by $9.4 billion over the next decade.

According to the Toronto Financial Services Alliance, the Canadian RMB hub will make it easier for Canada’s small and medium-sized businesses to export goods and services to China without the need for financial contracts to convert to an intermediary currency. Similarly, the Canada China Business Council stated that the hub will encourage such businesses to export to the growing Chinese market. The Canadian Chamber of Commerce noted that businesses that receive payments in the RMB, such as wineries and companies that sell through Alibaba, will benefit from the hub.

In speaking to the Committee about increased trade between Canada and China, the Canadian Council of Chief Executives and the Toronto Financial Services Alliance suggested that Canada should establish a long-term vision for Canada–China engagement that includes a strategic partnership and a free trade agreement. The Canada China Business Council indicated that the Canadian RMB hub will be a positive development in Canada–China relations, and it supported more structured frameworks for economic relationships.

C. Financial Services Sector

The Toronto Financial Services Alliance told the Committee that Canadian insurance companies are active in Asian markets, and that the Canadian RMB hub will raise the stature of Toronto specifically and Canada generally as a global financial centre. According to the China Construction Bank, the hub will promote Toronto as one of the world’s largest financial centres and will increase the competitiveness of Canadian capital markets.

Finance Montréal noted that the Canadian RMB hub will assist Canadian financial institutions in creating and distributing RMB-denominated financial products, which will provide institutional and retail clients with new investment opportunities. It indicated, for example, that derivatives to hedge against RMB exchange rate fluctuations will be traded on the Montréal Exchange.

Finally, John Curtis suggested that the central role of the U.S. dollar in global financial transactions will not be challenged as a consequence of the Canadian RMB hub.