NZ Herald business editor at large

Liam Dann: China v USA - NZ's dilemma


China's muscle-flexing in the East China Sea won't affect NZ - or Air NZ's planes - but we have to take notice.

China's growing military and economic strength is changing the balance of power in the world. Photo / AP
China's growing military and economic strength is changing the balance of power in the world. Photo / AP

The bloke on the phone was cross about the sale of Air New Zealand shares, and had decided to give me a piece of his mind.

When the US and China go to war then we'll regret selling our airline, he said.

I didn't quite follow his logic. In the column that upset him I had said that Air New Zealand was already listed, wasn't a state-owned enterprise, and shouldn't be lumped into the debate on state asset sales.

The Government has sold a 20 per cent stake and its status as the majority, controlling shareholder remains unchanged.

"What I think you're saying is that you think Air New Zealand is so strategically important that we should nationalise it," I said. "That's a different issue."

Needless to say, it wasn't a winning line.

For this concerned reader, the share sale was a dilution of control and would weaken New Zealand's ability to keep hold of its planes in the event of World War III.

"But surely," I persisted, "if things deteriorate so badly that the world goes to war and Air New Zealand planes are stranded in foreign airports, it won't really matter what percentage is owned by the state. We'll lack the military muscle to get them back regardless."

That argument wasn't turning my caller either.

At this point I should probably have cut my losses, although the epic apocalyptic sweep of his world view was making for lively debate.

But I found myself heading for awkward territory, in danger of mocking him for his fears about World War III.

So I told him we'd have to agree to disagree and hung up.

I didn't think any more about it until I woke last week to the news of rising tensions in the East China Sea.

China had claimed a new air defence space above an area which includes islands which Japan also claims as sovereign territory.

America - to prove it can't be bullied on this stuff - flew two B-52s through the airspace and China responded by sending fighter jets through.

It was the kind of old school, cold war stuff that the plot of Top Gun was built around.

And as serious as it was - or could be - it made me laugh because I knew that somewhere, my angry caller was mumbling "I told you so".

And fair enough. As outlandish as much of his argument was, it did highlight the extremely difficult diplomatic position New Zealand could face this century as China grows in economic strength and inevitably asserts its political muscle as a global super power.

I don't think we're headed for World War III. The events of the past week are the kind of posturing that has been going on over these islands for decades.

But the difference now is that China is a lot wealthier. America and the Western capitalist system are considerably more economically dependent on China than they have ever been.

There has been no adverse market reaction to the escalating tension - in New York, Shanghai or Tokyo. Both governments (or all three if you count Japan) are smart enough to anticipate the reactions of the other.

Investors are unrattled and are likely to stay so, as long as events continue to play out in a predictable fashion.

For New Zealand, this is still a distant and small enough conflict that we can steer clear of comment or the need to pick a side. That is just as well.

China is now our major trading partner, while the US remains a closer cultural and political ally.

And that is an interesting position to be in if you accept that this is part of a broad historic trend which will see China assert an ever greater political role in the world.

It could get more interesting yet if New Zealand is selected for another turn on the UN Security Council. If we are, then we really will be hoping that nothing develops during the next two years that requires us to pick a side.

For now, the United States is in no mood for a scrap with China. The military flights through the disputed airspace are the minimum it could do to appease its Japanese ally.

But Washington has advised US commercial carriers to not fly through the zone - a move that suggests China has achieved a result in its long-term strategic play.

That, hopefully, is where things will settle for now. Everyone will get on with doing business and trading with each other.

The commercial links between China and the US are something that ensures little appetite for military conflict. But as China's economic might grows, the balance of power shifts.

The Chinese understandably want to see that recognised by the world, which has long been politically dominated by US and European interests.

For my worried caller, World War II still loomed large as a reminder of the scale of global meltdown that is possible.

He was right in saying that for younger generations it can become increasingly difficult to conceive of that kind of horror scenario.

We shouldn't forget our history but neither should we live our lives in fear and pessimism.

New Zealand is almost uniquely positioned to benefit economically this century as a country aligned closely to both China and the US but, hopefully, servant to neither.

We lack the military might to enforce that position - we always have.

Instead we will try to play our part on the world stage as affable, peace-loving, environmentally friendly farmers and tourist hosts - almost Flight of the Conchords style.

A bit of faux-naivety isn't such a bad tactic for negotiating a path through the looming geo-political minefield. But we shouldn't actually be naive.

We need to start thinking hard about our strategies for the coming decades as China and the US jostle for position in the new world order.

On Twitter:@liamdann

- NZ Herald

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NZ Herald business editor at large

Liam Dann is business editor at large at the New Zealand Herald. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy. He hosts The Economy Hub video show every Thursday.

Read more by Liam Dann

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