President Hugh Segal,
Ladies and Gentlemen,

I am very much honored and pleased to attend the luncheon and speak to such a distinguished audience.  First of all, I?d like to thank President Hugh Segal for the kind invitation and the IRPP for its effort in putting together this event.  Today, I want to take this opportunity to brief you on the economic situation in China and share with you some of my reflections on China-Canada relations.

Let me start with a brief introduction to the current state of China?s economy.  As many of you undoubtedly know that despite the impact of the Asian financial crisis and the slowdown of the world economy, China has managed to maintain a fairly rapid rate of its economic development since it adopted the reform and opening-up policy more than 20 years ago.  This achievement has won the admiration and respect of the world.  However, recently there have been some negative comments on the state of China?s economy, among which are the theory of ?China Threat? and that of ?China Collapse?.

Those of the ?China Threat? school view the huge potential of China?s economy as a threat to all the other countries in the world.  They predict that China will overtake the United States in terms of its economy and even in military strength in less than 20 years.  They harp on the possibility of China becoming a ?world factory?, choking the global economic growth and threatening the survival of other Asian countries with its cheap labor and high productivity.

By contrast, those who sell ?China Collapse? theory have their eyes fixed on the widening wealth gap, problem of unemployment, and degrading environment, and conclude that China?s economy will collapse in near future.  

In fact, neither of these extreme views is correct or well grounded.  With regard to the theory of ?China Threat?, I would like to point out that China?s high economic growth, though impressive, is not something unprecedented in history.  Japan and Korea had achieved the same kind of miracle at their zenith of economic development.  With its increasing adoption of market economy, China?s trade figures are just another success story in Asia.  

Since the world has become more interwinded economically, the state of China?s economy, now the 6th largest in the world, has an important bearing on the world economy.  The experience of the last few years has proven that China?s rapid economic development not only benefited the world economic recovery, but also contributed a great deal to the regional development of Asia.  In 1996, China became a formal ?dialogue partner? of the Association of Southeast Asian Nations, known as the ASEAN plus three.  

Since the beginning of the 1990s, trade between the two sides have been increasing at an annual average rate of 15% and above, with a total volume of US $ 42 billion in 2001.  China?s imports from the ASEAN countries have grown faster than those from the rest of the world.  It is estimated that China?s imports from the ASEAN will reach US $ 35.5 billion in 2005, an increase of US $ 13.3 billion over those of 2001.

Almost a year ago, Chinese Premier Zhu Rongji made the formal proposal on the establishment of China-ASEAN Free Trade Zone, which has won the enthusiastic support among the ASEAN countries. China stands for closer economic and technical cooperation and common development with ASEAN members through increased trade, more direct investment and equitable division of labor.  

As for the theory of ?China Collapse?, I agree that there are problems in China?s economy.  But these problems are not insurmountable barriers, but rather the necessary price we'd have to pay in the course of economic restructuring.  Take unemployment for example, we have to close down those loss-making factories to raise efficiency and competitiveness.  This phenomenon is unavoidable to any country that is in the process of transition.

Then what is the correct view of current economic situation in China?  I would say China has made remarkable progress and laid a solid foundation for continual development for the years to come.  Let me cite you some figures to prove my point.

In the past two decades, China witnessed an average economic growth rate of 9.4%.  During the same period, China?s foreign trade volume increased by 20 times, elevating China from the 27th to the 6th among all the countries and regions of the world.  China?s foreign exchange reserve has hit the volume of US $ 250 billion, second only to Japan.  Meanwhile, with the accumulated foreign investment standing at US $ 568.4 billion last year, China will soon surpass the United States to become No.1 foreign direct investment recipient country in the world.

There was also good news for the first half of this year.  In the first six months, China registered an 8% economic growth rate with inflation standing at almost zero.  Investment is climbing up at the rate of 29%.  According to the latest statistics, by the end of September, China?s trade volume totaled US $ 445.14 billion, up 18.3% compared with the same period last year.    It is estimated that China?s total trade volume by the end of 2002 would hit US $ 600 billion or more.  China?s committed foreign investment reached US$ 69.85 billion, up 37.5%; the paid-in investment US $ 41.18 billion, up 22.4%.  This growing capital influx is, undoubtedly, the best indicator of the world?s confidence in China.

The World Bank, the Asian Development Bank, the American Goldman Sachs Co. all predicted that in the first ten years of the 21st century, China?s economy will continue to develop rapidly and maintain a growth rate of more than 6%.  All these achievements did not come about easily.  They were the result of the forceful policy measures taken by the central government in recent years.  They include a proactive financial policy, a prudent monetary policy and measures to increase domestic demand and maintain a good balance among reform, development and stability.  These policies and measures have greatly increased investment, reduced financial risks and cultivated new consumption hot spots.  This, I would think, is the key to our success.

To achieve a sustainable development and overcome disparities among regions, China is now implementing a grand development plan for its western region.  A number of key projects have been launched such as those of transmitting natural gas and electricity from west to east China, the Qinghai-Tibet Railway, natural forest conservation and returning cultivated land to forests.

Of all the large projects for Western Development, the flagship project is a gas pipeline, running from west to east all across China.

This 4000-kilometer-long Gas Pipeline is designed to start from Xinjiang Uygur Autonomous Region at the northwest end of Chinese territory, and to cross 8 provinces before reaching its final destination in Shanghai at the eastern coastline of China.  For the Xinjiang Autonomous Region alone, the pipeline is expected to add over US $ 8000 million to its revenue.  For the southeastern coastal area, it will get an annual natural gas supply of 10 billion cubic meters in place of 9 million tons of standard coal.

This project has aroused a great interest among the international business communities.  A joint investment group composed of global oil giants including Royal/Dutch Shell, Exxon Mobil and Gasprom of Russia has decided to take the stakes.

We can foresee that China?s successful accession to the WTO will bring more foreign investment into China?s western region and boost China?s economy as a whole.

We all know that it took China 15 years to get into the World Trade Organization.  China treasures the hard-won entry into the WTO.  Here, I wish to use this opportunity to thank the Canadian Government and business community for the support they rendered China in the endeavor.  The entry into the WTO has brought both opportunities and challenges for China, and on balance the former far outweighs the latter.

China has, since its entry into the WTO in November 2001, been working energetically to fulfill its accession commitments.  China has made tangible progress on the following fronts:
1. Reforming the management system of foreign-related economic activities according to the rules of the WTO;
2. Laying a solid legal foundation for the fulfillment of its WTO commitments.  China has basically completed the stock-taking and revising process of all the pertinent laws and regulations;
3. Narrowing the range of commodities that used to be subject to quota and licensing restrictions in accordance with the relevant WTO rules; and lowering the tariff rates for over 5332 import commodity categories, which ensures that China will make good its promise to reduce tariff rates on imports to 12% on the average by 2005;
4. Shifting exercise of macro-control and adjustment of the national economy from administrative measures and planning to economic means and market mechanisms, thus accelerating the establishment of the market economy in China.

While making strenuous efforts to live up to its WTO commitments, China has also enjoyed the benefits due to a WTO member in the following areas:
1. The WTO entry has served to quicken the pace of the restructuring of the state-owned enterprises;
2. As a member, China has full access to the WTO dispute settlement mechanism.  China is no longer the ?punch bag? in international trade disputes, always at the receiving end;
3. As a member, China enjoys greater market access for quite a number of its export commodities especially fabrics and apparel items; and
4. Since its entry into the WTO, the inflow of foreign direct investment has increased by 13.2%.

There are always two sides to a coin.  Challenge is always the twin, if not Siamese, brother of opportunity.  At present, the immediate challenges are as follows:
1. Systemic challenge.  The entry into the WTO poses a challenge to the way the national economy is run in China, as its economy is in transit from a centrally planned economy to a market economy;
2. Challenge to the traditional industrial sectors of the economy.  These are the industrial sectors where there is a concentration of state-owned enterprises that are supposed to be the pillar of the public sector of the national economy.  However, due to historical reasons, these enterprises are not as competitive as they should be;
3. The service sector is exposed to unforeseen foreign competition.  Increasing numbers of foreign banks, insurance companies and intermediary financial institutions are flocking into the Chinese market, making competition all the more fierce;
4. The farming sector is at once the most important and the weakest link in the Chinese national economy.  The prices for a number of domestically produced food grains are well above the world benchmark prices.  That gives foreign farm produce a natural price edge over Chinese farm produce;
5. A domestic brain drain may ensue upon China?s entry into the WTO.  With an influx of foreign companies into the Chinese market, the government and the whole public sector will come under severe pressure to attract and retain talented people.

The list of challenges could go on and on.  Yet, one thing is clear, that is, the impact of the WTO entry on China is profound and China is ready to face up the difficulties and meet the challenges.

At this conjuncture, I guess that you must be wondering how the bilateral relations between China and Canada features against the backdrop of the further integration of China and its national economy into the global system and the world economy.

More than 30 years have passed since China and Canada established diplomatic relations in 1970.  The relations between our two countries can well be described as fruitful and mutually beneficial.

As two great Pacific countries, Canada and China share an interest in global and regional issues.  The relationship between the two countries has become multi-dimensional, ranging from trade and economic exchanges, peace and security cooperation, sustainable development to cultural and academic exchanges.  The basic principles governing international relations, such as the principle of the respect for each other?s sovereignty and territorial integrity and that of non interference in each other?s internal affairs, have provided the political foundation for China-Canada relations.  The shared economic interests derived form the complementarity of the two economies have driven our economic cooperation and trade forward and have served as the cement that holds the building blocs of the overall relationship secure in place.  More importantly, the frequent exchange of visits and ideas at the highest possible level has helped to form common grounds as well as to thrash out possible differences of opinion.  It is entirely inconceivable for countries to see eye to eye on every issue.  However, the important thing is to contain the differences within a manageable range so that they will not disrupt the overall relations.  And that is exactly the way China and Canada have managed to handle their relations over the past three decades.  

Thanks to the joint efforts on both sides, the trade and economic relations between our two countries have progressed by leaps and bounds.  According to the statistics of 2001, China is now the third largest trading partner of Canada with a two-way trade volume of US$ 7.4 billion (equivalent to $17 billion Canadian), while Canada is one of the most important foreign investors in China and is the tenth largest trading partner of China.  Last year, the 600- strong Team Canada led by Prime Minister Jean Chretien was the largest ever trade delegation from a single foreign country to visit China.  While in Beijing, Shanghai and Hong Kong, Team Canada signed contracts worth more than $3.7 billion Canadian.  According to the latest statistics released by the Chinese Customs Administration, in the first half of 2002, the total trade between the two countries amounted to US$ 3.59 billion, up 1.3% compared with the same period last year.

As the two economies possess respective advantages, and are thus highly complementary to each other, the prospect for further expansion of our trade is very bright.  At present, we have over 400 Canadian firms established in China with more than 4,500 projects funded with Canadian dollars.  The entry of China into the WTO, especially the implementation of the grand strategy for the development of vast western region of China, will create numerous opportunities for Canada.  But when we take a closer look at numbers and percentage they occupy in each other?s total trade, we can see there is ample room for further development.  Canada?s exports to China, though standing at US $ 4.028 billion in 2001, only took up an average 2% of the total annual imports of China while China?s exports to Canada accounted for only 1.4% of the total imports of Canada.  They can in no way reflect the important positions the two economies occupy in the world.

Recently, I have been thinking to myself about how to further expand trade between our two countries.  I have come up with several proposals.

First, take full advantage of the excellent over-all bilateral relationship and speed up economic cooperation;

Second, look beyond the traditional areas to identify new spheres of cooperation.  For instance, moving from agricultural merchandise to high-tech products;

Third, strengthen technology trade and transfer technology for a larger share of market;

Fourth, encourage the small and medium sized enterprises to play a bigger role in bilateral trade;

Fifth, carefully handle trade friction, including those over dumping allegations; and

Sixth, balance trade in the course of expanding trade.

I firmly believe that there exists a tremendous amount of interest in both our countries to increase this bilateral trade, as China needs more foreign capital and technology to develop its national economy while Canada needs a more diversified international market to reduce its dependence on a single country for the export of its goods.

If I am asked to give advice to those who are interested in doing business in China, I think you should keep three Ps in mind.  They are Patience, Perseverance, and Partnership.  By those three Ps, I mean that only by working patiently and refusing to be discouraged by short-term problems, persevering in exploring business opportunities and developing long-term personal and business partnerships with your Chinese counterparts, can you overcome the odds and make a success of your investment in China for a long time to come.   Experience shows that in some cases, a good local partner is essential so as to gain a foothold in unfamiliar economic territory.  There is also a fourth P, which is profit.  It will come automatically if you do well with the three Ps mentioned earlier.

When we talk about bilateral relations, we should not forget the human aspect of this relationship.  I fully endorse the recent statement made by the Honorable Mr. David Kilgour, Secretary of State for Asia-Pacific to the effect that ?people to people links between China and Canada bring our two countries closer together?.  China is now the largest single source of new immigrants to Canada.  Moreover, students, academics, and administrators on short-term exchanges form a ?human bridge? that promotes and invigorates mutual understanding.  More than 20,000 Chinese students are studying in Canadian universities and colleges.  According to the CIDA estimates, 47,000 Chinese officials have come for short term learning stays since 1982.

In the past two years, people-to-people links between China and Canada picked up speed.  Among the numerous cultural exchanges between our two countries, the Winnipeg Ballet Troupe visited China and an exhibition of the School of Seven Paintings was staged in China.  The ballet performance and the painting exhibition came off successfully, which enabled the Chinese people to know that the native country of Dr. Norman Berthune produces not only fine medical doctors but also great dancers and painters.  Both the jade exhibition from China at the National Gallery in Ottawa and an exhibition on Sanxindui discoveries held at ROM have attracted a large number of visitors and won praises from all around.  Last month, a Tibet Culture Week made its rounds in Toronto, Ottawa, and Vancouver.  Many Canadians directly experienced the unique culture and traditional performing art of the Tibetan Autonomous Region of China.

Today, an important outcome of China?s reform and opening up policy is not simply that the Chinese people are richer but they are more eager to travel and study abroad.  Mr. Jim Watson, President and CEO of the Canadian Tourism Commission said, ?Given the enormous growth in travel from China to Canada and the future potential, the CTC has placed China high on our priority list as an emerging target market.  In fact, the World Tourism Organization has predicted that China will be the number one source of tourists for the world by 2010?.

Canada, with its beautiful natural scenery, traditional hospitality and high-level economic development, will certainly attract more and more Chinese tourists and students.  According to Statistics Canada, Chinese nationals made 86,000 trips to Canada in 2001 alone, contributing an estimated $123 million to the economy.  During the first half of this year, the number of Chinese visiting Canada rose 40 per cent over the same period last year.  The number of visitor arrivals from China has increased by about 65% since 1995, compared to a fall of more than 20% in visitors from all other Asian countries.

It is estimated that once China and Canada conclude an agreement on ADS, the Approved Destination Status, the number of Chinese visitors to Canada will soon double.

Needless to say, the increased number of Chinese tourists to Canada will not only generate huge economic benefits, but also promote cultural exchanges between the two peoples.  

Before I conclude, please let me acknowledge once again the valuable contributions made by the Canadian business community and organizations like the IRPP and the CCBC to the better relations and closer business ties between our two countries.  We want to see more Canadian companies expanding business relations with China, including those from Toronto area.  By working together, we have succeeded in building a friendly relationship of cooperation in the past 32 years and let us join hands and work towards a more dynamic and stronger relations in the years to come.  Thank you for your attention.