Fran O'Sullivan: Key on critical China mission

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Prime Minister John Key is to meet with Chinese President Xi Jinping with stops in Beijing, X'ian and Shanghai. Photo / Supplied
Prime Minister John Key is to meet with Chinese President Xi Jinping with stops in Beijing, X'ian and Shanghai. Photo / Supplied

No piggyback

New Zealand Prime Minister John Key will touch down in China on Sunday two days after Malcolm Turnbull's first mission as Australian Prime Minister wraps up. But this is not a mere piggyback exercise.

A successful Beijing visit is mission critical for Key who wants the ground-breaking 2008 China New Zealand Free Trade deal upgraded so that Australia, which now has its own FTA, can't steal a march on NZ in critical areas like the dairy trade, export education and tourism.

Key will be on message when he meets President Xi Jinping and Premier Li Keqiang in Beijing. The Ministry of Foreign Affairs and Trade (Mfat) will have prepared detailed talking points. But Key has shared enough private dinners and 'pull-asides' with China's leaders to have developed the necessary rapport to address some delicate questions in a nuanced fashion.

This is an advantage Turnbull does not share.

Turnbull is being accompanied by a 1000-strong business mission which is taking part in 'China Week' - a logistical epic that is said to have tied up Austrade for the best part of three months. Unlike Turnbull - who will spend a mere 36 hours on the ground (his trip gets under way in Shanghai today) - Key will spend the best part of next week visiting Beijing, X'ian and Shanghai.

Dairy

NZ dairy farmers are hurting as the lengthy commodity slump continues to erode their earnings.

There are two thorny issues for Key to navigate. First, the perception that China is now favouring its own dairy champions following moves to consolidate its domestic dairy industry. The more important touchpoint is the safeguards within the FTA which result in higher tariffs being applied to NZ dairy imports once relatively low volume thresholds are surpassed. This was singled out when Xi visited New Zealand in 2014 as an area to be addressed under the FTA upgrade. It's become more urgent for NZ farmers given the commodity slump.

The Australian FTA is also more beneficial for its food exporters in certain areas, something NZ exporters want addressed under the most-favoured nation clauses in our own FTA.

Key's mission includes senior representatives of NZ's prime dairy companies such as Fonterra, Synlait, Westland, and Tatua as well as Miraka which has links to Shanghai Pengxin.

Awkward questions

Key will no doubt canvas the South China Sea issue. But China is relatively intransigent when it comes to regional neighbours such as New Zealand and Australia butting in, particularly given Washington's background pressure tactics.

Yesterday, Defence Minister Gerry Brownlee said there was nothing provocative in New Zealand taking part in a military exercise in the South China Sea while Key is in China.

The issue would have been carefully covered in the pre-mission meeting between Key and Chinese Ambassador Wang Lutong who will accompany the PM in Beijing.

Nevertheless, there are sensitivities given that the South China Sea is one of the world's most important shipping lanes.

Another awkward question - this one for Key to address - is how New Zealand's foreign direct investment regime operates.

Shanghai Pengxin withdrew its planned judicial review of an Overseas Investment Office ruling which contributed to a ministerial decision to jettison its bid for the Lochinver station. Pengxin recently hinted at behind-the-scenes moves to fine-tune the regime and that it did not want the review to get in the way of discussions between the two governments.

This is an issue which has exercised China's Ministry of Commerce and senior Chinese politicians who have spoken openly about their concerns at the NZ stance.

'Behind the border'

Trade jargon (read euphemism) for pesky issues which tend to arise and get in the way of free trade agreements being honoured in full. Under NZ's free trade agreement with China, tariffs on many products are due to be phased out over time. Problem is, new regulations affecting imports spring up from time to time.

These range from the rules which effectively put infant formula into a quasi pharmaceutical-type category and other rules to reduce the number of infant formula companies playing in the China market.

A crackdown on e-commerce platforms - where China's tax bureau has brought in a tax on imported products purchased online - has caused jitters in the Australasian dairy market.

Operation 'Fox Hunt'

Xi's crackdown on corruption has extended to NZ's shores with a number of "persons of interest" being identified by China.

There are concerns bent officials may have spirited capital out of China to invest in NZ residential property and other favoured destinations.

Beijing authorities earlier signaled they wished to extradite a "reasonable number" of Chinese from New Zealand to face charges of financial corruption.

In late 2014, Key revealed that Xi had earlier raised the issue with him on his visit to New Zealand.

New Zealand has cited China's death penalty and has so far declined requests for an extradition treaty, but the issue will come up again.

Debate on this article is now closed.

- NZ Herald

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Head of Business for NZME

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

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