This last week I have been in Beijing at the NZ –China Council Forum. Led by Minister Steven Joyce and co-chaired by Sir Don McKinnon, it has been all about building partnerships.
There were about fifty New Zealanders there, including industry folk and staff from the relevant Government ministries – Trade and Enterprise, Foreign Affairs and Trade, and Primary Industries. And there was a similar number of Chinese people from industry and their government.
Now to some people, the idea of building partnerships with China is anathema. Ten days ago I was involved in a passionate debate in Wellington about just that topic. It is all right to trade with the Chinese, so the argument went, but we should not think of partnering. The Chinese are different, and we should not in any way imply support for their way of doing business.
When I get into these debates I try and put a different perspective. When people talk of corrupt practices and bribes, I reply that if you are paying bribes in China then you are dealing with the wrong people. But most people don’t hear me when I say that.
It is certainly not easy doing business in China. But then the Chinese would say that it is not always easy to do business in New Zealand – just ask the Shanghai Pengxin people who were trying to buy Lochinver Station, and waited 14 months only to be eventually turned down last week.
Having purchased the mismanaged and run down Crafar farms and turned them around, Shanghai Pengxin wrongly thought they had the credibility to purchase Lochinver. They were at the Forum and they were indeed feeling a little bruised.
My experience of going to China, is that once you get over there things start to look quite different. There is a saying that after a week in China one could write a book, after a month one could write an article, and after a year one is not sure about anything anymore. Whenever I hear anyone claiming to be an expert on China – and I do hear those claims – then I write that person off as either a fraud or just plain ignorant.
For me, my first life changing experience of China came back in 1973. Those were still the days of the Cultural Revolution, although the worst excesses were by then in the past. The Cultural Revolution started off as an attempt by Mao to ensure that the new officials were not all the sons of the old officials, but somewhere it got hijacked along the way.
As a young agricultural economist who also had a background in agricultural science, I found that my kitbag of techniques did not seem to apply over there. Some of the science seemed to work but the economics did not. It was indeed like being on another planet. It was also an incredibly emotional experience watching the Chinese building their new society.
A long time ago, I decided I was not going to lose any sleep trying to understand China. Rather, I would climb aboard for the ride, and take things as they came.
What I have experienced there in visits over the 42 intervening years is incredible change. I am still trying to figure out what is going on.
Of course there are lots of things wrong with China. In Beijing, the pollution is awful, and personally I would not want to live there. The air in Shanghai is not so bad, but it is still not good. But go to Kunming, the city of eternal spring down in Yunnan, and most of the time the air is fine. And up on the grasslands of the Qinghai-Tibet Plateau and also in Inner Mongolia, the sky is blue for weeks on end – except when the wind decides to blow in spring, and dust storms prevail. So as with everything in China, there is no simple answer.
The censorship laws are frustrating. As the card in my hotel room said with just a hint of apology, there are many websites prohibited in the People’s Republic of China. They include Facebook, Twitter, YouTube, Picasa, Dropbox, Google, Gmail, and Instagram. They also include any websites, like my own, that have ‘Wordpress’ in the title.
For most expatriates living in China – and also locals who work for international companies – there are ways of getting around these restrictions. But for the average Chinese, and also most tourists to China, these sites are all off limits.
But one should not make the mistake of thinking that news from the outside world is banned. International newspapers are accessible online and that includes New Zealand media. In all likelihood, someone over there is right now reading this article at interest.co.nz – although not directly off my own website.
I started off this article by talking about partnering in China, and it is time to get back to that topic. And the first point to make is that for most of those at the Forum, the notion of partnering is totally non-controversial. The challenge and the debate were all about how to make that happen in ways that would maximise mutual benefit.
There were four major themes at the Forum. They were investment, tourism, people to people, and agri-food. The reason I was invited was because of my interests in agri-food. But in this article I want to focus mainly on investment with a little on tourism. The other issues will have to wait for another day.
Our Chinese colleagues were very concerned that the Shanghai Pengxin decision re Lochinver Station was evidence that the New Zealand investment environment had changed. So Minister Joyce went to considerable pains to outline that there was no change in policy. This was something that he also had to reiterate in his private meeting with top-level Chinese leaders.
New Zealand’s official position remains that we want and need investment from China. However, it has to be evident that it is bringing benefits over and above the ‘counterfactual’; i.e., that which would happen if the investment did not go ahead.
Determining this counterfactual can indeed be controversial. Working out what would happen in the absence of the foreign investment, and whether or not comparable local investment would still occur, has elements of subjectivity. In the judgment of the New Zealand Government, acting on the advice of the Overseas Investment Office (OIO), these net benefits were not demonstrated for Lochinver Station.
Well, that was the story I thought I heard over there. But now I read in our media that it was actually Ministers Paula Bennett and Louise Upston who turned down the application against the advice of the OIO. Mmmm! That is not quite consistent with the story that we operate by rules rather than by political whim. I can hear our Chinese friends saying that the New Zealand system is actually not all that different to theirs!
Minister Joyce was able to gain some grudging acceptance of the New Zealand’s position by pointing to a wide range of investments that had been approved in recent years. These included the Chinese funding of PGG Wrightson when they were in distress, the funding of Synlait when they too could find no local funds, the investments in advanced dairy processing being undertaken by Yili in South Canterbury and Yashili in the Waikato, and a new super-large five star hotel that is in the offing for Auckland.
One of our New Zealand frustrations is that the Chinese can be slow to sort out import access issues. In that context, taking 14 months ourselves to assess the Lochinver Station application has not set a great example. Time is money, and that applies to both sides.
Turning to tourism, the key issue is not how to grow the market, but how to manage the exponential growth that is occurring.
In this last year, there have been some 320,000 Chinese who have come to New Zealand. Well over 200,000 have been tourists, about 30,000 have been students, and the rest are family and business visits. Tourist numbers have grown 30 percent in the last year, and in dollar terms the growth has been 60 percent.
The three big locations from which tourists come are Shanghai, Beijing and the Pearl River Delta (including Guangzhou, Shenzhen and adjacent cities). At this stage there are about 26 million Chinese who meet the wealth and world-perspective criteria to be prime tourism candidates for New Zealand. And of course that number is going to grow rapidly.
Until recently, the only direct flights between New Zealand and China were by China Southern between Guangzhou and Auckland, plus Air New Zealand daily between Shanghai and Auckland. But that is all changing.
China Southern is now upgrading to two flights per day and by Christmas will have also added three direct flights a week each way between Guangzhou and Christchurch. Air China is about to start a daily service from Beijing to Auckland, code shared with Air New Zealand. And China Eastern will be flying four times a week each way between Shanghai and Auckland. That adds up to a lot of seats!
Managing all of the tourism and maintaining and building the tourism experience is indeed going to be quite some challenge.
There is also an expectation that student numbers are once again going to build. That too is going to need a lot of careful management. We need to not forget the painful experiences of the China student bubble in the early 2000s. That bubble burst, in large part because we rushed for quantity and did not build sufficient quality into our own delivery.
Partnering with China is going to be an interesting journey. As for me, I have no doubts that we do need to partner with China. But managing that partnership is going to be full of challenges.