BUSINESS WATCH

China’s pain is Vancouver’s gain

The fact that most Orientals regard B.C. as a model of political stability says a lot more about their world than ours

Peter C. Newman October 2 1989
BUSINESS WATCH

China’s pain is Vancouver’s gain

The fact that most Orientals regard B.C. as a model of political stability says a lot more about their world than ours

Peter C. Newman October 2 1989

China’s pain is Vancouver’s gain

BUSINESS WATCH

The fact that most Orientals regard B.C. as a model of political stability says a lot more about their world than ours

PETER C. NEWMAN

Only now are the long-term financial implications of the tragic events in Tiananmen Square beginning to emerge. The clear loser—outside China itself—will be Hong Kong, while economic benefits from the aborted uprising are expected to shower on Taiwan and Vancouver.

“I am convinced that the Tiananmen episode will mark the end of the ascendancy of Hong Kong in terms of its influence on China’s economic future,” I was told by John Bruk, president of Trilon Pacific Corp., the Peter Bronfman empire’s offshore investment arm in the region. “The Chinese are a proud people,” Bruk went on, “and they will not allow what is basically a Western, white bastion on their periphery to dominate their march into the 21st century. Hong Kong is regarded by them mainly as a monument to what Europeans can accomplish with Chinese labor.”

Bruk and other close observers of the Pacific Rim predict that Taiwan, especially its capital city, Taipei, will gain the most advantage from that trend, and they note that the former island of Formosa did not join in the universal condemnation of the Chinese student massacre. Said Bruk: “The Taiwanese perceive a double opportunity arising out of the current circumstances. They want to become the primary conduit of money and technology into mainland China while, at the same time, transferring their own labor-intensive industries there, so that they can evolve their economy closer to the Japanese model.”

Bruk himself is trying to capitalize on the expected boom through his recently formed Canada-China Investment & Development Co., jointly owned by Trilon and 11 of Taiwan’s largest private and government-owned corporations. They are working on several large projects in Canada and Taiwan, including a major petrochemical plant in Western Canada. Although it still is not clear exactly how much new business will flow into Vancouver as a fallout from the Tiananmen violence, the first

massive wave of flight capital will come from Hong Kong—at least doubling current outflows—as the colony’s bankers realize that they are about to be bypassed. That kind of quantum money-transfer will be motivated by the quest for political security ahead of shortterm returns. (The fact that most Orientals regard British Columbia as a model of political stability says a lot more about their world than about ours.)

Because Vancouver has yet to acquire the communications, legal and accounting services infrastructure to handle global deals, its prime attraction for now will be as a safe depository for offshore funds, guarded by our surprisingly lax disclosure regulations. That might turn Canada’s West Coast into a laid-back Switzerland—but much more accessible to Asian investors who also want to have homes and raise their families here. The incoming megadeposits will initially create only minor custodian-type employment. But eventually, those funds will have to be managed in more imaginative ways than by buying gold bullion, U.S. treasury bills or Canadian government bonds. It is at that point that Vancouver’s hard-won status as an International Financial Centre (IFC) could kick in as an important

consideration for offshore investors.

That Ottawa-sponsored designation, which until recently was more slogan than reality, is suddenly receiving a lot of belated attention from Canada’s own financial institutions. Those institutions, by registering for IMF designation, become eligible for a provincial tax refund for themselves and for some of their employees and are encouraged to get into such profitable operations as financing offshore trade, longterm leasing and insurance.

Michael Goldberg, a commerce professor on leave from the University of British Columbia and now the IFC’S executive director, recently told me: “We don’t expect or intend for Vancouver to develop as a broadly based financial services centre along the lines of London, New York or Tokyo.” He added, “We’re modelling ourselves more on such specialized places as Singapore, Geneva and Zurich.” (All those comparisons with Switzerland leave open the nomination for Vancouver’s chief financial gnome, that shadowy figure with no name who secretly stage-manages behind-the-scenes fiscal manoeuvres. Murray Pezim somehow doesn’t quite fit the part.)

Looking ahead half a decade, Goldberg pre: diets that Vancouver’s new downtown—to be built on the former Expo 86 land now owned by Hong Kong billionaire Li Ka-shing—will include many an office tower housing IFC operations, employing thousands of financial-sector specialists. Paralleling that influx will be an equivalent scale growth of legal and accounting service factories, consulting firms of various stripes, trade fairs and an exponentially expanded hotel and tourist industry. Goldberg sees the Canada-U.S. Free Trade Agreement as an important element in such commerce because it will allow both exporters and importers in the huge American market to be nonCanadian residents, yet to finance their deals in Vancouver.

Another long-term possibility, which Goldberg is quietly exploring with the federal government, would be to have Vancouver designated as a maritime centre. That would allow the registration of deepsea merchant ships in Canada, even if for tax purposes they continued to fly flags of convenience. Such fleets could then be leased, insured and even have their construction financed by Vancouver-based companies.

The move to attract massive money-flows from the Pacific Basin may or may not turn Vancouver into another Geneva. But history is on the move, and the traditional patterns of commerce are changing. “What’s really happening,” said Bruk, “is that the two main spheres of Communist influence in the world are moving in opposite directions. The Soviets—mainly through Hungary, Poland and Latvia—seem to believe that the most important aspect of the future is to gain basic freedom for their peoples, that this is the base on which every other kind of progress can be built. The Chinese, meanwhile, are marching in the other direction, certain in their faith that it’s possible to separate economic and political liberalization.” Either way, the world as we know it will never be the same.