Fran O'Sullivan: NZ behind eight ball on China's pool table

New Zealand may find itself economic toast if it doesn't get a comprehensive China strategy together - and fast.

Our political leaders and policy-makers continue to portray China as a developing nation that will be grateful for a little New Zealand's help with technical expertise and intellectual property to further its economic miracle.

But it's hard to credit that a Communist country that has already fired a man into space, built the world's most architecturally challenging bridge and roading networks, leap-frogged Western nations with its mobile cellular technology, and is now building the world's fastest high-speed rail network is in any way dependent on New Zealand for other than raw commodities.

That was certainly the clear perception I reached after interviews with two Chinese food industry billionaires on previous trips to China.

In 2005, Nui Gensheng, the entrepreneurial chairman of major Chinese dairy giant Mengnui, scoffed openly at visiting Trade Negotiations Minister Jim Sutton's claim that New Zealand could assist China by providing specialist services to help its dairy industry become internationally competitive.

"What competition? ... New Zealand legislated its competition away," he bellowed across the table at Sutton.

Nui later made it clear to me then that he'd been down to New Zealand years earlier to study how Kiwi dairy companies did business. He had already imported cows from New Zealand and got plenty of advice from our agricultural educational institutions. Go figure.

Three years later, Hangzhou-based billionaire Zong Qing Hou - bristling at the doubling of milk powder prices - criticised dairy co-operative Fonterra's market power.

"Fonterra - for us - looks like a monopoly. Monopolies are not good things. I believe in open markets where people can compete freely and I believe only open and fair competition will help businesses develop."

Zong, who is boss of China's largest beverage maker, Hangzhou Wahaha, said then the China-New Zealand free trade agreement would increase New Zealand's profile among Chinese entrepreneurs.

The FTA certainly won't be a one-way street - particularly when it comes to cross-border investments. He was looking at coming to New Zealand to investigate the establishment of a powder-processing plant here because the international milk powder price was too high.

There was plenty more besides. In particular, pungent comments on how New Zealand expects to prosper when it paid too many of its citizens to do nothing.

Said Zong: China will lose its competitive edge if it copies Western models. People should improve their livelihoods "through hard work" not through government handouts.

At the time Fonterra's top brass dismissed Nui and Zong's claims.

Two years have passed.

Natural Dairy's attempt to buy the Crafar farms with the apparent financial backing of two other Chinese billionaires has obviously ruffled the dairy giant. But Fonterra would be even more spooked if a credible Chinese food player emerged on the scene. The reality is New Zealand is a long way behind the eight ball.

After studying the barrage of rhetoric emanating from the Prime Minister's Asian trade tour my perception has been reinforced.

John Key has clearly been blown away by the pace of change in China. But after a week of wall-to-wall news coverage on Key's discussions with China's top brass, major questions are still unanswered.

First, how does Key propose to treble NZ's estimated $4 billion annual exports to China to reach $12 billion within five years? He used the figure in his interview with Guyon Espiner on last Sunday's Q&A programme but failed to support it with any clear strategies.

Key initially told reporters he had a commitment from Premier Wen Jiabao to double the current $10 billion in bilateral trade by 2015 - a natural mathematical progression based on trade statistics.

But it wasn't until Espiner drilled down that it became clear that what Key really had in mind was that New Zealand should move to a trade surplus with China by 2015 through annual exports of $12 billion of products and services and imports of $8 billion Chinese products.

Second, how does Key plan to arrest an apparent trend of Kiwis becoming "tenants in their own country"?

Key used strong rhetoric to assuage domestic concern over the Chinese-funded bid for Crafar farms; but that had yet to be underpinned with any policy response at all such as a commitment to tightening foreign ownership rules around NZ pastoral land.

Third, is Key going to insist that Mandarin becomes a core component - or even an alternative language - as part of the curriculum in every secondary school in New Zealand?

Surely, it's not too much to ask that a policy response to these core questions should be part of the discussion when Key chairs next week's Cabinet meeting.

By the close of 2010, Cabinet Ministers will have led at least six business missions to China to capitalise on the hosting opportunities offered by the Shanghai Expo.

NZ Trade and Enterprise have done a lot of hard yards to make sure the right doors are opened for Kiwi businesspeople. But what happens to those high-level connections in 2011 when the Cabinet's focus switches to the Rugby World Cup tournament and trying to win the general election?

After a 10 month hiatus since former boss Tim Gibson stood down as chief executive, NZTE is expected to finally announce a successor this week.

The first job on the new CEO's plate should be to form a comprehensive China strategy.

Fonterra has had a marked uplift in milk powder exports to China since the melamine contamination scare resulted in a premium on safe, imported food products. SMEs are fast learning that they need to combine forces under a common umbrella to penetrate the Chinese market.

Key was obviously taken by suggestions from China's leadership that the two countries work together to develop joint ventures in other countries (Kiwi IP backed by Chinese capital). Not just in manufacturing which is already under way with Haier and Fisher & Paykel Appliances. But also within the dairy industry.

Frankly, if our own large dairy companies take fright at the emergence of vertically integrated Chinese competitors here, what makes the Prime Minister think that they will score an upside from co-venturing with China offshore?

The likelihood is they will develop competitor companies that may be even more efficient - particularly with labour costs - than the NZ domiciled industry. And what happens to plans to develop the New Zealand industry further.

All this points to the need for NZ to develop a clear China strategy - not simply play to the cameras.