Looking for a win win deal

By Fran O'Sullivan

Prime Minister John Key spoke to Fran O'Sullivan about Chinese investor interest in New Zealand following his official visit to China

John Key meets Chinese President Xi Jinping at the Boao Forum in China. Photo / Supplied
John Key meets Chinese President Xi Jinping at the Boao Forum in China. Photo / Supplied

Prime Minster John Key says there is considerable Chinese appetite to invest in New Zealand because "they can see economic returns and it's obviously in their strategic interest."

China's strategic interest is the fundamental recognition that "New Zealand is a food bowl and they have increasingly wealthy and demanding population which is demanding food safety".

That won't come as a surprise to anyone who has watched Chinese firms invest in the local dairy industry.

Key says infant milk powder has the potential to be "somewhat of a gold rush ... but there is a massive market there and NZ branded product is immensely attractive to consumers".

Chinese interest in acquiring New Zealand farmland has been a hot button issue for many Kiwis. During his recent China visit, Key indicated his Government's preference was for investment in food processing. He relates that the Chinese liked his "reasonably blunt" approach.

"They are not offended by that they just want to know they will be treated the same as everybody else," he says. "They would rather be invested in places that welcome them than face a contested battle.

"Quite a lot of them said 'We have lots of money to invest. We have lots of options around the world. So, just tell us where it would be a win-win'."

Key concedes it is, of course, still possible there will be more Chinese farm acquisitions. But the message is out there.

Key hosted VIP receptions in Shanghai and Beijing during his official visit. Major entrepreneurs already invested in New Zealand - like Pengxin's Jiang Zhaobai - attended, as did representatives from SOEs like China Southern and Bright Dairy, private companies Agria and Haier and newbie investors Yili and Yashili. Jiang also hosted a roundtable for Key with the Shanghai Entrepreneurs Association, which the Chinese businessman later related, had resulted in increased investor here.

Key said there was considerable interest in infrastructure investment ("it takes a lot to move the dial in China") with the Christchurch rebuild, the Auckland waterfront and various transport projects all featuring as talking points for potential greenfields investments at the VIP receptions.

That fact that China recently became New Zealand's number one export partner means it is inevitable that the next part of the developing relationship will be about investment and finding common ground.

Key points to the two Chinese banks that are establishing in Auckland to foster bilateral trade and investment. "That is a recognition that they are spreading their wings and have more interest and that their clients have more interest."

The Chinese are already regular buyers of NZ Government bonds as they are attracted by yield and the stability of the country's outlook. But Key questions whether the NZ corporate bond market could also be more heavily marketed in China.

"I appreciate my vintage, but nevertheless you only really need to have a look at the Japanese market to see how that evolved over time in the corporate sector, not just at the investment level, but the retail level.

"That's the next step away for Chinese consumers who probably have limited capacity to buy, but over time that will change."

Key doesn't talk about it publicly, but Herald inquiries indicate there have been Chinese approaches to offer New Zealand "soft money" to fund major investments. But the Treasury has advised such investments could raise dependency issues and send international markets the wrong message. The official NZ preference is to tap the international market on normal commercial terms.

The Treasury is now pursing an agreement to enable direct convertibility between the two countries' exchange rates. "In my view it will happen," says Key. "It is not a massive economic play on Day One, it is more symbolic and strategic, but long-term it helps."

A major prospect is bringing Chinese capital together with New Zealand "know how" to produce consumer products in third markets. The prime minister spruiked this potential during both his Latin American and Chinese visits.

"There is huge potential there in Chile and Brazil, it is about putting scale into those markets.

"There is a limited amount of capital that Fonterra will want to put on the line in those markets. But a combination of Fonterra and potentially other participants is very interesting."


CIC PROPOSAL

China Investment Corporation (CIC) wants to collaborate with the NZ Super Fund to invest in innovative companies in both China and New Zealand.

CIC's Jin Liqun revealed the potential for the two sovereign wealth funds to execute joint-venture investments at the inaugural China New Zealand partnership forum in Beijing.

Jin, who is chairman of CIC's board of supervisors, also expressed his open admiration for the NZ Super Fund's prowess in the governance arena.

- NZ Herald

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