, what about the more general issue of the integration of asia, and particularly china, into the world economy? china's rising prominence in world trade has been partly a reflection of its increasing importance as an assembly platform for a broad range of exports. china's exports in the 1980s and early 1990s were concentrated in clothing, footwear, and other light manufactured goods. more recently, its share of world exports has increased in nearly all categories, with rapid growth in areas such as office machinery and telecommunications, furniture, textiles, travel goods, and industrial supplies. the increasing sophistication of chinese exports means growing competition for canadian products, both at home and in world markets. 1 but we should not forget that the emergence of china and india as major economic players also offers canadian firms the opportunity to profit by expanding into these huge export markets and by tapping into cheaper sources of supplies. let me now elaborate a bit on the implications of these global trends for canada. implications for canada the rise of china and other newly industrialized countries to economic prominence, and the need to resolve the existing large global imbalances, have triggered sizable movements in key relative prices that are particularly relevant for canada. i am referring specifically to the dramatic rise in the world prices for raw materials and energy, and to the marked appreciation of the canadian dollar since 2002. 2 when prices for energy and non - energy commodities rise relative to the prices of other goods that canada produces, it is a signal that economic resources need to be shifted into the production of commodities. that's one implication. another implication, given canada's strength in commodity production, is higher real incomes for canadians. as those incomes feed into stronger demand, the benefits extend to the sectors of our economy that are less exposed to global forces, such as housing and various services. but, of course, that's only part of the story. the other part is that large segments of the manufacturing sector, because of their exposure to growing competition from asia and because of the higher canadian dollar, will expand less rapidly relative to other sectors. as this process unfolds, labour and capital are reallocated across economic sectors. a quick look back at the asian financial crisis of 1997 - 98 might help to put this current challenge in perspective. what we went through then is essentially the reverse of the current situation. at that time, world commodity prices plummeted, the canadian dollar depreciated sharply and, in response to these price signals, production

resources moved out of commodities into manufacturing. and so we saw a period of exceptionally strong growth in output, exports, and employment in the manufacturing sector. how are sectoral developments affecting regional economic growth in the current environment? because of the differing industrial bases of canadian regions, the effects of the recent sharp movements in relative prices are playing out differently across the country. b. desroches, m. francis, and f. painchaud, " growth and integration : the emergence of china and india and the implications for canada. " in canada and the global economy. proceedings of a conference held by the bank of canada ( november 2004 ) : 229 - 75. m. francis, f. painchaud, and s. morin, " understanding china's long - run growth process and its implications for canada. " bank of canada review ( spring 2005 ) : 5 - 17. the energy - producing provinces of western canada are certainly benefiting from higher prices for raw materials and from surging oil and gas revenues. the result is increased profits and investment, strong growth in output and employment, and fiscal surpluses. but the sudden rapid economic expansion is straining the region's infrastructure. and it is creating labour shortages, not just in the energy sector but also in mining, manufacturing, and construction — all of which are competing for the same pool of labour, especially skilled labour. certain professions ( notably accountants, engineers, and project managers ) are also in short supply. other parts of canada with a significant resource - production base, including new brunswick and atlantic canada more generally, are also benefiting from high commodity prices. for example, the construction this spring of a liquid natural gas ( lng ) plant, right here in saint john, has been spurred by high demand and prices for energy. as the largest producer of zinc and lead in canada, this province is also benefiting from surging prices for these minerals. but in central canada and in those parts of new brunswick where there is a concentration of manufacturing activity, overall economic performance has not been as strong. since manufacturers export a good part of their production, the appreciation of the canadian dollar and rising energy costs have reduced their competitiveness. reduced profitability and declining employment in the manufacturing sector are a reflection of this. several traditional industries, such as the fishery and forestry, have also been affected because of increased global competition, low selling prices, and the higher canadian dollar. but it is important to note that, at the same