Hon Tim Groser Address: China Business Summit

First, I would like to congratulate the Auckland Chamber of Commerce, NZ Inc and all the agencies and sponsors for putting this event together.

I know and have worked with many of you on the New Zealand side over the years either on the China relationship or closely related matters. Many of you are genuine China specialists. Others are like me – we have been involved in aspects of our relationship with China for many years. In my case this dates back to 1972, when, under the auspices of the NZ China Friendship Society, I spent six weeks in China as part of a student delegation – a delegation of a distinctly radical tinge. This was, after all, a long time ago.

But on behalf of all the New Zealanders here I want to welcome in particular you, Liu Feng, Managing Director of that great global company Cosco and all our other Chinese guests. We very much appreciate your presence here.

China has always devoted considerable resources to its relationship with this small country. And the return on that investment both to China and to New Zealand over successive Administrations and over many decades has been considerable. During the last visit by our Prime Minister to Beijing, I sat next to our Prime Minister when Premier Li Keqiang said that China’s relationship with New Zealand was more than a ‘very good relationship’, it was the ‘model of the relationship China would like to have with developed countries’.

This is a significant statement. It has not happened by accident. It is based on following a rigorous one China policy and very careful diplomacy by both sides over many years. Whatever we have been able to achieve in the economic domain – and it is considerable – this rests on the foundation of the political relationship. This has been built up personal relationships and has created a climate of trust.

This issue of trust is fundamental to our relationship and in meetings last week at the APEC Leaders Meeting and then at the East Asia Summit, this issue of trust in New Zealand was mentioned quite explicitly in the bilateral meetings my Prime Minister had with the President Xi and Premier Li. This has allowed us to explore some novel, even otherwise controversial, initiatives, such as being the first country to negotiate a comprehensive Economic Cooperation Agreement with Chinese Taipei.

You also need trust and sound relationships when things go wrong. I have said to a number of Chinese officials and Ministers that in my view, with respect to trade, as countries get closer, then almost by definition the scope for difficulties and disputes increases. We will, I assume, never have a trade dispute of any materiality with Slovenia, since our exports are less than $5 million. The mark of a productive and vibrant economic relationship is not whether you have trade disputes or difficulties but how you manage them when they do arise.

That has been tested in recent months by a series of incidents around our outstanding food industries. We have to take some lessons from this – that is why I like the sub-title to this China Business Summit – ‘A Wake-up Call’. And we will draw lessons from these incidents. But we are very confident that we will find the right pathway through these matters, precisely because of the strength of the overall relationship. The President of China used a very deliberate formulation in his discussions at the APEC Summit with Prime Minister Key. In English, it was translated as “Both Fonterra and the Government have adopted a positive and responsible approach.”

We will not misinterpret this. We are perfectly well aware that there are important questions still in the minds of Chinese agencies, and no doubt in the minds of our customers – and they are probably largely the same questions that are in our minds. So there is no danger of our misinterpreting such positive statements and descending into complacency. But it does give us every reason for confidence that we can work through these issues and resolve all outstanding matters.

This will take time. I recall an early TV interview when it was not at all clear what we were dealing with, saying –‘When you are fighting an alligator, you are not that interested in advice, however well intentioned, that you should have drained the swamp’. Be assured that I don’t see myself as a policy wonk equivalent of Crocodile Dundee, but it is fair to say that we are more or less on top of the alligator, so to speak.

There are still some pretty tricky issues on market access to be dealt with, and not just in the most important market to us, China. We will continue to do this in a systematic way, working with the companies and agencies involved. Putting these medium-term management issues to the side, we are not far off the point where we will be able to make an assessment of the broader lessons we can draw from this incident. I and others have said right from the start, people should be very wary of drawing any firm conclusions about the way forward until all the facts are on the table.

Intuitively, I doubt we will collectively conclude we need to drain the swamp, so to speak. By any international measure, our food standards and quality are the envy of the world so radical change is hardly likely to be the correct prescription. But people should be ready to make changes and adjustments when we do have the full picture in front of us. The CEO of Fonterra, Theo Spierings, is one of the speakers who will follow me and I know where he stands on this – he has already implemented changes within his company. Obviously, I will leave it to Theo to elaborate.

China: the Bigger Play

I will have some observations about some general, not specific, lessons we might draw from the WPC incident, but let me stand back from the issue and frame the matter in a broader perspective of where we as a country are going.

I am not going to traverse the usual – and utterly correct – argument about the rise of China, the dimension of its opportunities to this audience. The distinguished speakers who are to follow me will describe those in far more accurate commercial terms that I could. I suggest that you can take it as read that this is fundamental to the strategy the Government has developed for engaging with China. At the macro level, just a few statistics suffice to underline the importance of China to jobs and companies in this country:

· Our exports have tripled since 2008 and China is now our largest export market;

· It is not just about dairy and timber products, though they are vital. If you exclude all dairy and all timber products, what remains of our exports to China in 2012 would still be bigger than in 2008;

· The FTA has been vital and the returns from that trade negotiation are still coming in. Since 2008, value-added products exported to China have grown by approximately 35%, significantly more than growth in the same categories that NZ exports to other countries.

· We are absolutely on track to meeting the objective set by Prime Minister Key and former Premier Wen of two-way trade of $20 billion by 2015. And when you reflect on the fact that two-way trade between China and the United States, the two largest economies in the world, is around $400 billion that is a pretty significant achievement for an economy of our size.

· We are also seeing the growth of two-way investment – and most of it in dairy in both countries is greenfields investment, the type of investment that even ideological opponents of foreign investment find difficult to argue with. There are similar highly positive statistics on tourism flows.

But in a sense, China raises general issues for New Zealand. The economic fruits of closer collaboration are typical of what lies behind the astonishing activity taking place in the Asia Pacific region around FTAs. I have to say that the term, FTA, is hardly adequate to describe these mega-regional deals we are involved in, sometimes with China as in RCEP, or the Regional Closer Economic Partnership Agreement, and sometimes separately – such as the parallel discussions China is having with Korea and Japan and NZ is having with the Trans-Pacific Partnership, or TPP.

Further, with certain recent developments in NZ, these issues are starting to rise to the political surface again. So I want to devote a few minutes of my time to those issues.

China is, of course, the biggest player in a whole new international game where the balance of economic power is shifting to where most of the world’s people live. And we, a tiny number of the world’s people, are clearly as well placed as any people on the planet to benefit from these huge geo-strategic shifts. Provided, as always, we are smart and make the right choices.

We are at the early stages of what a group of distinguished academics at the Peterson Institute for International Economics calls ‘The Hyperglobalization of Trade and Its Future’. Our Embassy in Washington has excellent links with this policy-oriented and centrist think-tank and I have frequently been involved in their seminars and discussions.

In some political corners of New Zealand, the very word ‘globalisation’ evokes fear and anguish. God knows what ‘hyperglobalisation’ will do to their minds: “Where are the political tranquillisers Rona? I think hyperglobalisation has just landed!” But whether we call it globalisation or hyperglobalisation, it is not a disease that you catch, it is a choice that you make. Nor is it a choice that political parties can make and then delude themselves that settles it for New Zealanders. This is a world of unparalleled choice and opportunity, including the mobility no longer just of capital, but of labour and above all, ideas.

I used to think that beyond the great Kiwi cultural institution of OE, international mobility of labour applied largely to professionals and skilled workers. My own family history supported that view. My family arrived here in 1958 because both my parents were skilled professional actors and New Zealand was short of such people. They were readily employed.

The only negative was that I recall constant complaints from my mother to my father about Wellington being devoid of coffee houses, as if this was the end of civilisation as she knew it (which it probably was). Well, as anyone familiar with Wellington’s barista culture today, how that has changed. No wonder that as Minister of Trade, I support emotionally, not just professionally, a number of small services exporters we have which export both coffee and coffee franchises. Who in 1958 could ever have imagined NZ as a coffee exporter – which is exactly what we are! Thank goodness for the rich opportunities globalisation brings us.

Well, whatever the truth may have been yesterday, so to speak, that view of labour mobility which I used to share is plain flat wrong today. Transport and information costs have come rattling down leading to the extraordinary slicing and dicing of the global value chain and we need to be part of that or get left behind. Digitization is now even influencing direct manufacturing – I am thinking of the phenomenon of 3D printing. People have choice to locate their lives, jobs, families and futures. But they can do all this and still maintain their culture and identities.

This is a great country with, I believe, an astonishing future ahead of us given the very issues driving this ‘hyperglobalisation’. Few countries have as much to gain from it as New Zealand – just look at the positive effects of our extraordinary economic relationship with China as the harbinger of this. But we still have to make the right choices because the World ain’t going to stop to let us get off.

The political debate behind TPP is in effect this debate, and it is not a lot different to the debate we thankfully largely missed – bar the extreme anti-trade, anti-globalisation left which will never go away – when the previous Labour Government negotiated the FTA.

That was a considerable achievement and it allowed this Government to extend its logic to include the separate WTO customs territories of Hong Kong and then, more recently, to Chinese Taipei. The Agreement was signed by the NZCIO Director Stephen Payton and we have completed our domestic legislative procedures and are now just waiting for the Legislative Yuan in Taipei to ratify the comprehensive economic agreement that will bring very significant additional benefits to NZ. Taiwan is after all, one of the largest 20 economies in the world. Certain extreme anti-trade voices opposed even this deal.

The benefits will be immediate and commercial – immediately on entry into force, the thick end of half a billion dollars of exports goes duty free. Nearly 99% of our exports are completely free in four years. One simple example – our kiwifruit exporters, and there are about 2,700 of them, will save $14.7 million in duties. That is over $5,000 per grower. And heaven knows, with the huge stress of PSA on their families in recent years, they deserve some good news.

I have even better news for our cherry growers in Central Otago, but I will leave that for another day. Beyond these immediate gains for jobs and businesses are strategic gains to NZ from joining what I call the three points in the Chinese economic triangle – Beijing, Hong Kong, Taipei – into a single opportunity for NZ exporters, investors and others wishing to use these opportunities.

And I would like to give credit here to a person in the audience today, our Chief Negotiator, Charles Finny. Charles was my Deputy in the original NZ-Singapore FTA negotiation which is the foundation stone for P4 and thus TPP, for his outstanding job as the Lead Negotiator of the NZ team.

As a huge supporter of Maori Trade and Maori Economic Development, I am particularly proud of the fact that our new economic cooperation agreement with Taiwan is the first agreement ever to have a comprehensive chapter dealing with indigenous business. Given the ancient genetic and cultural links between Polynesia and the indigenous people of Taiwan, it is entirely appropriate.

This is a world-first on every count showing what this small country can do when it has a coherent and realistic strategy, with broad political buy-in geared to the very long-term. I have just come back from my first visit to meet the new Australian Ministers of Trade, Climate Change and Foreign Affairs, since the Australian Foreign Minister has carriage of the international aspects of Climate Change. But I also met a series of industry and agriculture lobbies who would give their back teeth to have the opportunity New Zealand has.

TPP is just as big an opportunity for New Zealand, possibly bigger. And it may turn out to be wrong even to draw a comparison with the opportunities for us in the Chinese economic triangle involved in our three, inter-locking comprehensive free trade and economic cooperation agreements. There are increasing signs – this will sound political heresy to the so-called ‘China realists’ (actually Cold War Warriors in disguise) who think that Australia and New Zealand need to choose between China and the United States – we absolutely do not – that China is becoming increasingly positive towards TPP.

Does this mean the possibility of China joining TPP in the current composition? In reality, this is not a question about China, but about the further expansion of TPP. And it is deeply improbable that any country will now join the TPP-12 as we seek to close the deal. But the whole point of TPP was to act as a building block for an entire Asia-Pacific zone of trade and economic integration. That, by definition, could not happen without the eventual involvement of China whether literally in TPP or some logical extension of it.

And some people in NZ think we should opt out of TPP? It beggars belief, frankly.

China and Speed Bumps

While I will stick firmly to my view that we should not draw too many specific conclusions about the WPC incident until all the facts are on the table, there are one or two general points that I do not think will be altered by a more complete view.

The first is that we have been victims of our own success – hence my phrase ‘China and speed bumps’. Our dairy exports have tripled in the last five years. Our sheep-meat exports in the last twelve months have gone from around $250 million to over $550 million and Sir Graeme Harrison, one of the next speakers, is probably going to tell you that the real play is not even in sheep-meat; it is in beef.

But I sense a growing consensus that our very success in China has run ahead of NZ Inc’s capacity to service this exploding economic relationship. We have seen already a response from MPI – a significant upgrading of their China-based operation. Mr McCully is already looking at the pattern of MFAT representation through this lens as this expansion relentlessly marches on testing the boundaries of our resources.

Whatever the next moves will be, the direction is clear: China is a huge and growing part of our future. All Government agencies with responsibilities for providing the infrastructure behind our China operation need to be asking themselves issues that are finally not political issues within the control of their Ministers – have they got the long-term HR strategies to keep up? I am certain the answer for many of them is ‘no’. And I have made no secret of this both in private over the past few years and, more recently, in public.

Nor is it just a matter of the quantum of resources. It is also about the composition and outlook of their expert staff, starting with their language skills. As one of our well-trained and highly competent past Ambassadors to China, John McKinnon, put it simply: “How would we rate a Chinese Ambassador to NZ who was incapable of holding a conversation with us, except through an interpreter?” The implication was clear: do you seriously think it looks different the other way round? Fair point, John. And your point resonates at a level far beyond the position of NZ Ambassador in Beijing.

I do not wish to imply we are hopeless here. Far from it. Pockets of NZ inc have indeed invested heavily in this area. I had the privilege a couple last year of leading a trade delegation of 14 NZ export companies to Chongqing, a huge city in Western China. Amongst them and the accompanying NZ officials I was the sole person who could NOT speak Mandarin. I was delighted at the China literacy around me. I just hope this is a more common occurrence.

Clearly, this is a matter larger than even China, because the future of New Zealand trade – and the future prosperity of New Zealand – depends on a wide range of language and cultural skills, not just Chinese. But China must be front and centre.

Mike Smith, the CEO of the ANZ Bank, and one of the most Asia-literate Australasian business personalities of my generation, made a speech recently. He called it ‘Eight Lessons on Doing Business in Asia’. I am sure he won’t mind me drawing from them. In fact I would be astonished if he did, since the ANZ Bank is one of the Sponsors of this Summit. There is nothing radical about Mike’s observations:

· It’s critical to avoid treating Asia as one country. It is almost comical that Mike should feel the need to say this, but I assure you, it needs to be said in certain quarters.

· There is often a mismatch between the timelines of western investors and those in Asia.

· Asia is rapidly evolving, so position your business to respond quickly but in a way that does not compromise its foundations.

· Developing strong internal talent across regions.

· Many Asian cultures place a special priority on relationships so spend time cultivating deep business connections, which can only really be done effectively in person.

· Demonstrating a strong commitment to long-term relationships throughout what can be turbulent investment cycles is often paramount to success.

· Not fleeing when times get tough and possessing a strong sense of loyalty to people and to communities is critical. In China, for instance, trust lies at the core of all relationships

I started thinking about these issues seriously when I went to be Ambassador in Jakarta in 1994 and later as the CEO of the Asia-NZ Foundation, then called the Asia 2000 Foundation. I regard Mike Smith’s simple but important observations as ‘codified common sense’.

But if there is one unifying theme behind them it is this: a purely ‘transactional approach’ to trade ain’t going to cut it in the 21st Century. We need to nurture over the next 10 years or so a whole cohort of officials, not just in MFAT and NZTE (who do understand this), but other agencies. And they need to be matched by a whole cohort of young business leaders in NZ companies who get this. We prospered between 1880 and 1970 in an Anglo-Saxon dominated world. This is a very different world we are entering, but a world with even larger opportunities for the almost 5 million people living here.

The middle class of emerging economies is estimated at some 500 million. It is forecast to explode to 3.2 billion by 2030 which is only 17 years ago. Seventeen years. How long does that seem? Well, how long ago does 1996 seem to you? What were you doing in 1996? Does that seem like ancient history?

We are uniquely well placed to take advantage of this massive demographic and economic shift but access to their markets is essential. After all, there were plenty of wealthy people in Europe and North America we could have sold our high quality exports to. But they did not want them and used protectionist barriers to exclude us and then subsidies to pursue us in third markets. Economic development in itself will not deliver Asia on a plate – we need access to their markets.

That is why TPP, the agreement we and Australia have with ASEAN called the AANZFTA, plus a range of other trade agreements complete or under negotiation are so important to our future.

Provided TPP is high quality and accommodates essential NZ red lines – a matter on which I have talked extensively in public – NZ must be part of TPP. To stay outside would be an historical mistake of immense strategic significance – a bit like, to be frank, the UK missing the boat completely in the early formation of the then EEC and then some 15 years later seeking to join with no influence on its direction in the intervening period. Well, this Government will not be making that mistake, I can tell you that.

Ladies and Gentlemen, as always political choices have to be made and then defended in front of the people who will finally decide. I was in Canberra, a few days ago, and was once again deeply moved by one of the architectural choices made by those responsible for their magnificent Parliament Buildings. The roof is of grass. Why? Because it allows the people of Australia to walk on top of the building, reminding everyone inside that finally it is the people, not the legislators and certainly not the unelected political apparatchiks around the elected parliamentary representatives, who finally decide.

ends

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