What does Chinese investment mean for New Zealand?
Wednesday, 29 March 2017
ANALYSIS: Chinese Premier Li Keqiang's plane took off from Auckland Airport on Wednesday morning, but Kiwi businesses will be hoping the impact of his two-day visit endures far longer.
After Li and Prime Minister Bill English sat down for talks on Monday, a flood of government press releases came out announcing new deals and a date for negotiations on the upgrade of a free trade agreement (FTA) between the two countries.
Intriguingly, there has also been a suggestion that the Chinese government could play a role in funding and constructing infrastructure projects right here in New Zealand.
But why does China want to invest so much money here, and are there any hidden hooks?
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*** Chinese premier rejects steel dumping claim
Among the agreements unveiled was a memorandum of understanding for the One Belt One Road initiative, referred to by some as the New Silk Road.
The $1 trillion initiative, launched by Chinese President Xi Jinping in 2013, aims to improve the country's connections with Asia, the Middle East, Africa and Europe by funding hundreds of infrastructure projects along ancient trade routes.
There have been claims that state-owned China Rail has signed a memorandum of understanding with the Northland Regional Council to build road and rail infrastructure linking Whangarei to Marsden Point, although a finalised deal is yet to be announced and it's unclear how, if at all, it would fit into One Belt One Road.
NZ China Council executive director Stephen Jacobi says the 'extraordinarily ambitious' initiative is about far more than infrastructure projects.
'It's…so that goods and services and people and capital and technology and everything can flow along these routes in a more modern way.
'So it's really an economic development strategy, and it's also an integration strategy: it's trying to bring all of these economies that are located along this Belt and Road closer together and to join them up more seamlessly.'
Canterbury University international relations professor Anne-Marie Brady, who specialises in Chinese politics, says China has several different motivations for the initiative - similar to its Go Out policy from 1999.
On the one hand, it provides new opportunities for economic growth and expansion, with slow domestic growth within the country.
There are also geopolitical considerations, with China trying to boost its leadership credentials through 'soft power' as the United States increasingly looks inward, having withdrawn from the 12-nation TPPA free trade deal under Donald Trump.
So should we be wary about taking sides?
Jacobi says it's not about New Zealand picking a winner, but doing whatever deals are possible while 'pushing on any open doors there are in the US'.
'The best way to get the United States back into the game is to be demonstrating they're losing out, so I think if we do a bit more on the other side, that can only be to our benefit.'
One Belt One Road is not without its risks for China.
In a report, credit rating agency Fitch Ratings warned that the focus on soft power, rather than commercial viability, meant a risk that projects could fail to deliver expected repayments.
'In some cases, genuine infrastructure needs and commercial logic might be secondary to political motivations.'
The report also cited risks with delivering the projects, as Chinese companies would be operating in unfamiliar markets and dealing with 'challenging and unpredictable business environments'.
But what about the risks for New Zealand?
NZ First leader Winston Peters, who opposed the initial China FTA deal in 2008, warns that any infrastructure deals will come with a cost.
'No-one's going to build a rail or a road without wanting to own a share of it: whether that's done by tolls or whatever, that will be required.'
There have been reports of problems with some Chinese aid projects in the Pacific, including a hospital built in Fiji with ramps so steep that an ambulance, rather than a trolley, was required to transfer patients between wards.
Peters also has concerns about a possible influx of Chinese workers to build any projects, rather than providing jobs for Kiwis.
'This country's large infrastructure was built by its own people, with some exceptions…the idea that an offshore labour force, with offshore materials and offshore steel, will do the job, would be a serious concern for NZ First.'
However, English has ruled out 'any special provisions' for Chinese workers, saying any infrastructure projects would have to follow local requirements.
'We do have the RSE scheme which brings migrant labour in for seasons, but we don't have in mind any particular arrangements.
'It's up to them to decide to take part on the terms and conditions that the New Zealand infrastructure industry operates on, and that's commercially competitive.'
Peters says more general talk about the benefits of an upgraded FTA and closer trade links are 'hyper-spin at its worst', citing what he sees as the inferiority of our original deal compared with that between China and Australia.
'Everybody's interested in trade, but trade must benefit your country, not another country…
'Where is the thinking that since this deal's started, the benefits for New Zealand, its exports over imports, is just about $10 billion - that's a lot of money.'
Jacobi understands that some people have concerned about an influx of Chinese money and people, but says the benefits outweigh any negatives.
'Often people are frightened about what they don't know, but this country was built on foreign investment, it's always been built on foreign investment and our country needs to have foreign investment because we lack the capital domestically to grow our businesses, and we lack the connections in international markets.'
However, he warns against excessive optimism in the wake of Li's visit.
It will be complicated to work out how New Zealand fits into One Belt One Road, while settling on the terms of an FTA upgrade will also be far from easy.
'This is a negotiation - the Chinese aren't going to give us this access for nothing, they're going to want things here in New Zealand as well, potentially around our investment regime, maybe around immigration.'
He says China has also been clamping down on outwards investment, making it harder to take money out of the country so more funds are available for domestic development.
'We are going to see some lessening of what we've seen in the past - certainly around town, there are fewer deals coming through than we saw a year ago.'
There are also 'irritants' which may come up from time to time. One looming on the horizon is an inquiry into whether China has been dumping steel in New Zealand at lower than market prices.
'If we do tell the Chinese, 'Actually sorry, you've been dumping, we're going to whack a duty on', they will be extremely annoyed, and I don't think for a moment that means we shouldn't do it if that's what our processes and rules tell us happened.'
However, Jacobi says New Zealand can navigate such roadblocks, provided we keep our eyes on the larger prize.
'There's limitless opportunity in China, limitless, because of the size of the market and its increasing openness to us.'