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Martin Jacques: NZ has a headstart in growing strategically with China

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As China becomes increasingly prosperous and consumer-orientated, we can expect standards in general to become the subject of much tighter control and regulation. Photo / David White
As China becomes increasingly prosperous and consumer-orientated, we can expect standards in general to become the subject of much tighter control and regulation. Photo / David White

There is understandable concern that the recent food contamination scandals in China, starting with the Fonterra melamine dairy product crisis in 2008 and book-ended by the fresh concerns over botulism this August, could have a corrosive effect on the trading relationship between China and New Zealand.

The relationship matters a great deal to New Zealand. China is now by some margin the country's second largest trading partner, having rapidly overtaken the United States and long outdistanced Europe. And we are only at the beginning of what will in time become New Zealand's most important economic relationship.

New Zealand is right to be concerned. China has for long taken a tough line with countries deemed to have offended it.

A classic example is Norway. Norway and China were on the verge of signing a bilateral trade agreement in 2010 when the Nobel Peace Prize was awarded to the imprisoned dissident writer Liu Xiabo.

In response, China broke off trade negotiations and they have been in cold storage ever since, with signs of a thaw becoming evident only this year.

There are several examples of foreign heads of state meeting the Dalai Lama and finding their countries out in the cold as a consequence: it has happened to the British Government only recently.

China, it is clear, has shown a strong willingness to use economic weapons in order to punish foreign governments that have strayed politically, though it is far from being alone in this, as the example of the United States demonstrates.

New Zealand's case, however, is different from all of these. It has not crossed China politically but rather in the conduct of its trade. Fonterra failed to monitor a Chinese company in which it had a huge stake: at best it was found asleep on the job, at worst it was guilty of malpractice.

In the recent case of botulism, the Chinese authorities have accused the New Zealand regulators of lax standards. This should be seen in the broader context of a growing willingness by the Chinese regulatory authorities to take a tougher attitude towards the practices of foreign firms, and, it should be noted, Chinese firms as well.

The most well-known recent example of this has been the action taken by Chinese regulators against Western pharmaceutical companies involved in corrupt practices, most notably GlaxoSmithKline, which has admitted culpability.

As China becomes increasingly prosperous and consumer-orientated, we can expect standards in general to become the subject of much tighter control and regulation.

It is clear that many Western companies, not just Chinese companies, have taken advantage of the low standards prevalent in the past, Fonterra being a case in point.

For Western companies the challenge is to be in the forefront of the effort to raise standards, not dragging their feet in a short-sighted attempt to maximise profits and market share at the expense of the Chinese consumer.

Meanwhile, the Government needs to ensure that the regulators possess adequate resources and expertise, genuine independence and the necessary far-reaching authority, all of which have been casualties, certainly in the Anglo-Saxon world, of the neo-liberal excesses of the last three decades.

But there is no undue reason for pessimism. China and New Zealand have enjoyed for some years now a strong and growing economic relationship. In 2011 China accounted for over 12 per cent of New Zealand's exports and almost 16 per cent of its imports. In 2008 New Zealand was the first developed country to sign a Free Trade Agreement with China.

This should not encourage complacency on the part of New Zealand, an assumption that nothing could seriously harm the economic relationship with China, but we should bear in mind that the Chinese have always put great store by continuity, loyalty and, above all, longevity in their relations with foreign countries.

The Chinese think long-term and they like others to do so as well. In this respect, New Zealand clearly has credit in its reputational bank with China.

While taking action to ensure that firms operate according to best practice in China, the country should develop a long-term strategy for its relationship with China.

It will not be alone: it is becoming an increasingly competitive field with a growing number of countries thinking in similar terms.

But New Zealand has a headstart. It has the Free Trade Agreement. It is reasonably close geographically. Unlike many Western countries, it is relatively unencumbered by geo-political constraints (unlike Australia, for example). And in its rich agrarian sector it has much to offer an increasingly prosperous Chinese population.

New Zealand's future is Asian, above all Chinese. The West was yesteryear. This should overwhelmingly inform how the country contemplates its future.

Dr Martin Jacques is the author of the global bestseller When China Rules the World: The End of the Western Worldand the Birth of a New Global Order. He is the keynote speaker at the new New Zealand Forum being held on Wednesday in Auckland.

- NZ Herald

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