'THE NATION'

TIM GROSER & DON NICOLSON
Interviewed by SEAN PLUNKET

Sean This week the government's mounted what looks like a campaign. It says China's cash has a part to play in supporting our economy. John Key says it's helping to create jobs and expand business, and Bill English says China's not into profiteering or plundering. This comes in the talk China's poised to invest six billion dollars in New Zealand. Meantime our exports to China are soaring thanks to our free trade deal. We asked Trade Minister Tim Groser why China is so important to us and how we can get the best out of Beijing.

Well it's shaping up as a controversial election issue whether we should sell land to foreigners, particularly Chinese, and now Acting Treasury Secretary Gabriel Makhlouf has entered the debate going for more foreign investment in New Zealand. All this comes amidst reports that China's state owned Investment Corporation wants to spend up to six billion dollars here. Mr Makhlouf says it's become fashionable to question foreign investment particularly on land, but the issue is really how the land is used rather than who owns it. Meantime our trade with China continues to boom, figures out this week show our exports to China are up 7% on a year ago. So with that level of business can we afford to say no to Chinese who want to buy our farms. With me is the Trade Minister Tim Groser.

Our second largest trading partner now China, but the story isn't over, is there more potential there? How big is China in our future?

Tim Groser – Trade Minister
When the Prime Minister went to China the first time he came back to us the other Ministers and he said look I think China can be transformational for New Zealand, and I want all of you to embed that thought in your strategies. I don’t think I can add anything to that. The reality is that we are connecting the umbilical chord that used to exist between New Zealand and the UK a hundred years ago, when the UK was the world's greatest economic power, and they had a middle class that wanted what New Zealanders of a previous generation could produce. We're doing the same in the 21st century with what will be the world's leading economy, and that’s the story. I don’t think we've scratched the surface yet, a lot to be done.

Sean So China is the new mothership?

Tim Yes but I don’t think we'll ever become as dependent on China as we were on the United Kingdom. I mean when I was born something like 80 or 90% of New Zealand's exports went to the United Kingdom. Our exports to China are now 11-12%, it's about half what we sell to Australia. The India story is very similar. We have these transformational opportunities but China is the big opportunity.

Sean Alright, our continued and growing access to Chinese markets is it also reliant on the fact that we let them in here, is there a quid pro quo? And if we want to leverage the most out of the ability to export to China, do we have to open our doors to them to invest?

Tim Well first of all the macro situation is, New Zealanders don’t save enough to establish their standard of living and government services at the current level. As John Key has said, New Zealanders have proven they can spend like a first world country, we now have to prove we can earn like a first world country. So in the meantime we need foreign investment. If we didn’t have foreign investment we would see a catastrophic increase …

Sean But there is resistance, particularly to Chinese investment?

Tim It's an interesting question, I'm sure there are people in that category. My own view is that the New Zealanders who are concerned about purchase of land by foreigners would be just as concerned actually if it was being quote "gobbled up" by Australians or Americans or Germans. I actually don’t buy the argument that this is some racist thing in disguise.

Sean Yeah well I'd like to quote from an article written by David Mahon the Managing Director of Mahon China Investments. He says and he's quoting here a Chinese Venture Capitalist, and I know you’ve read the article. He says the feeling there is "already the focus on New Zealand that came from the Free Trade Agreement is shifting because Chinese companies have seen the businesses of a small country procrastinate. I have invested in New Zealand but I'm worried that the New Zealand media is feeding the idea that Chinese investment is bad, and yet your politicians (that'll be you) say nothing. Australians can buy dairy farms but we can't. The growing impression in China is that investment in New Zealand is decided on the basis of race."

Tim Well I've read the quote. I've just expressed my view, which I don’t think that is correct. The formal position is quite clear. We need foreign investment, we welcome foreign investment, but we do have a screening regime, and the screening regime is in place, we've had a look at it recently, we've tightened up a few criteria on it. It did reject the first investment in the Crafer Farms, there's another investment proposal going through. It's also approved several Chinese investments.

Sean Well what I'm asking you Minister is to do more than say nothing as is suggested in that quote. Will you say that we need to do some work on making Chinese investors feel more welcome here?

Tim I absolutely agree with that, and we need to make it quite clear that this is not a race based process, and I think that needs to be said at several different levels. We need to ensure that we understand as the Chinese do that trade and investment are linked. We've also got a very strong strategic interest in investing in China. So this is not a one way street.

Sean If we don’t do that is there the danger that we will find it more difficult to grow our trade with China, if they feel that we are xenophobic about them?

Tim Oh no question, if they decide collectively that New Zealand is switching off China, the consequences would be quite severe for our country, but I don’t think that that is the point which we're at at all. What I think is we have a relationship described at the highest level of politics, as outstanding shape by the Prime Minister and President Hu and Premier Wen. We've had six ministers go up to China last year, five times myself.

Sean There's no doubt government to government the relationship is fantastic. I guess many are also asking the question, including David Mahon, has the private sector, have New Zealand businesses besides, and perhaps including Fonterra, really made the most of that?

Tim No, no. New Zealand businesses have not yet made the most of it, and this is going to be a long journey for New Zealand. Getting people China literate is a major major challenge.

Sean David Mahon suggests actually that there's gotta be a real New Zealand incorporated approach to that, that maybe the government has to step up, create a new agency for trade with China, or to get the private sector over the line. What do you think of that idea?

Tim A complete non starter in the way that David – David by the way is a close personal friend of mine, has been for 15-20 years, but not in the way David described. We're not about to privatise our relationship with China. What we have done is establish, first of all it will have escaped I'm sure many people's attention, that the two most important institutions we have in New Zealand to handle the external side, which is MFAT Ministry of Foreign Affairs and Trade, and NZT, are for the first time ever headed by private sector CEOs, and they're bringing a private sector focus, but we're not gonna carve out the China relationship and set up a new agency.

Sean So you're rejecting the idea of any specific initiative on this, you say you're doing okay?

Tim No I don’t think we're doing okay. I think what we need to do is have a much more targeted approach. We've identified 190 companies where they have said to us, we want to develop China strategies. Now we will work intensively with those, and at a lower level we're trying to educate a larger number of companies about China opportunities. This unfortunately is gonna take time.

Sean In the meantime do you say to New Zealanders get used to the idea that the Chinese will own some dairy farms in New Zealand at some stage?

Tim Well China will own assets right around the world including New Zealand. They’ve got 2.4 trillion in foreign reserves. Most of the foreign investment in the past has come from our principal trading partners…

Sean So we have to get used to that idea and get more relaxed with it than we are now?

Tim Absolutely, but we still want to maintain a screening regime to make sure that this is in New Zealand's interests at the same time. This is not an open door policy, anyone can come in.

Sean Do you think we're there yet? Do you think we're ready to receive ...

Tim No, you see I found David's critique really quite encouraging because okay perhaps it's a little exaggerated, but the point is we can't afford to be complacent. We have a set of unique strategic assets in China, you know a great political relationship, the best trade policy platform, but we've gotta bring a whole bunch of New Zealand companies now up to speed with that opportunity. I don’t think we're anywhere near finished.

Sean Thank you very much indeed for your time. The Trade Minister, Tim Groser.

Sean Well watching that interview from Invercargill was the President of Federated Farmers, Don Nicolson. Good morning Mr Nicolson. Well quite clearly there Tim Groser says get used to it, we've got to let the Chinese invest here. Indeed if we don’t, perhaps we might damage our ability to sell into China. Do you buy that?

Don Nicolson – Federated Farmers President
Well I think the Minister put it more clearly than anyone I've ever heard in that interview about the relationship with China and the need to have a vitally strong relationship with China, and he did warn New Zealanders if you put up the don’t do business in New Zealand sign you're in serious serious trouble as an economy and I think that is a tacit warning for all New Zealanders. But he also warned us or acknowledged that we do have rules for foreign investment in New Zealand and those rules need to be rigorously enforced.

Sean Fair to say Mr Nicolson though that the farming community seems for whatever reason to be more concerned about Chinese investments for an example, dairy farms than anyone else?

Don I don’t think the farming sector is, I think New Zealand society is. New Zealand farming sector is trying its best to do the best by the country actually, and we know we need to trade with China, as we need to trade with many other countries. China just happens to be a growing part of our trade dynamic, and that’s great.

Sean And welcome and accept Chinese investment if they meet the rules that are there for everyone else?

Don Have to. If we don’t we're in serious trouble. I mean we need the capital flows for this country. We gorged on debt ourselves, we need new capital in this country and China is one of the countries willing to invest here.

Sean So as head of Federated Farmers are you prepared to if you like join the movement and say welcome to China, we are not xenophobic, we welcome your investment in our primary industries here, and we see you as a partner, not a threat?

Don Absolutely, and I've been on Bloomberg TV saying exactly that Sean. New Zealand is open for business in a farming sense. New Zealanders have to get to come to realise that no one's taking the land away. People pay tax in New Zealand, they consume while in New Zealand, they employ New Zealanders or residents in New Zealand. Nothing's moving, and the OIO has now got the good character test and a whole pile of rules and regimes around that. Make sure the OIO do their job and everything should be okay.

Sean Okay, so you're saying if the Overseas Investment Office says it's okay, it's okay. This would seem Mr Nicolson to be a development on where you were and perhaps farmers were say a year ago?

Don I don’t think so. I think Federated Farmers' position has been set in stone since 1999, and I've just explained it, we've now reviewed our policy on foreign ownership. The only couple of things we've changed are around the good character test, we acknowledge that, and we acknowledge that there are some elements of concern around vertical integration, and that’s where perhaps processing is done offshore, but I think we need to understand that that’s going to occur. We have to understand how the business dynamic plays, and I think there has been a lot of conjecture badly founded.

Sean Yeah but last year you were suggesting there should only be reciprocity, only companies that let us invest in them overseas, should be allowed to invest here. Has that position changed?

Don Well that was my private position that I talked about at the time. I tried to convince the Federation of that. I lost. At the moment we've got that it is not in our draft policy that we're about to discuss again at our next national conference. I would like it to be in there because I think it is a useful platform, but it's not.

Sean I wonder if in your heart of hearts you are on board with what Tim Groser's just told us?

Don I'm absolutely on board, I've been to China in the last 12 months, that country is very buoyant, New Zealand is well respected there, and I have to say that I think New Zealand would be foolish to try and pull down the shutters on foreign investment to anywhere, but China especially because it is a burgeoning economy and we need to be there, and Minister Groser said it perfectly as far as I was concerned.

Sean I thank you for your time this morning. That is Federated Farmers President Don Nicolson.

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