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Fran O'Sullivan: China cable connection shows the way

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New Zealand IT exporters will need support if they are to take advantage of opportunities presented by a US fibre-optic link. Photo / File
New Zealand IT exporters will need support if they are to take advantage of opportunities presented by a US fibre-optic link. Photo / File

Baiting 'big money' investor for fibre project vital precedent for NZ's future

Trade Minister Tim Groser is upbeat at the interest shown by a major Chinese investor in visionary New Zealand plans for a new fibre-optic cable to the United States.

Groser introduced Pacific Fibre to the Chinese investor during a New Zealand ICT mission to China last week. Groser and Pacific Fibre are keeping mum over the Chinese investor's identity - but it is "serious money".

"It will be an inspirationally clever thing if we can ever do it ... but they need a core investor."

The Pacific Fibre consortium has some high-powered members such as Sam Morgan and Sir Stephen Tindall.

Their plan to build a new fibre-optic submarine cable linking Auckland, Sydney and Los Angeles is visionary.

It seems predicated on the belief that the United States will continue to be a major growing market for New Zealand exporters from the weightless economy.

But while many of New Zealand's ICT companies nudge on "best of breed" status, particularly within Australasia, too many are under-capitalised and lack the ability to scale-up quickly to meet demand from larger and more thrusting offshore markets.

Groser clearly relished the opportunity to lead the "impressive" New Zealand companies during their visit to Shanghai and Zhejiang.

Among the companies were Rakon, Tomizone, Pingar, OpenCloud and Datacom, as well as Pacific Fibre. The NZ ICT group - which has a broad membership from the ICT sector - was also on board.

But while the Pacific Fibre-proposed deal exemplified the push to leverage New Zealand's growing "weightless economy", there were other more thorny issues to attend to.

Groser was the first New Zealand Cabinet minister to have face-time in Beijing since its Wellington-based political consul Cheng Lei sent an unmistakable message that China expects New Zealand to open its doors to more Chinese investment.

Cheng Lei had related that Beijing wanted the New Zealand side to have an "objective approach when considering investments from China".

At issue was China's wish to have its investment applications - particularly for strategic assets like mines and dairy farms - treated on an equal footing with other overseas investors.

Cheng's deliberate choice of words such as "reciprocity" and "honour" and his linking of them to the bilateral free trade deal that China and New Zealand inked in 2008 had obvious connotations.

But Groser front-footed the thorny issue of Chinese investment in New Zealand's key strategic assets in a Beijing meeting with Chinese Commerce Minister Chen Deming.

As a skilful trade negotiator turned politician it shouldn't surprise that he opted to table the controversial issue first rather than wait for it to emerge during his talks with Chen. He maintains it was not a difficult conversation and there was "no tension". The Chinese side understood that the issue was one of "political management".

Groser says he had listened carefully to what Cheng had to say. It was "very fair" and "reasonable" and he related that view to Chen.

"I think it's important to be proactive," Groser said on his return to Wellington. "I listened carefully to the political messaging from the Chinese embassy and realised this is an issue in their mind and I think it's better for us to be front-footed.

"I gave assurances they are welcome but like any country they have to go through the screening processes."

Chen Deming is a very experienced player. There is no doubt he would easily understand where Groser - and the New Zealand Cabinet - is coming from. Particularly, the construct that the New Zealand side has tweaked its foreign ownership policies because of a political issue.

But Chen's Commerce Ministry officials will also be carefully monitoring just how the NZ Overseas Investment Office deals with the Pengxin bid for the 16 Crafar farms.

The brutal reality is New Zealand needs other people's capital.

This is a resource that China brings to our table. It has substantial foreign reserves but the amount invested in hard assets within New Zealand is piffling.

Groser suggests New Zealand should be trying to have a mature debate on the issue.

"The idea to me that we wouldn't want Chinese money when we are capital-short - and we are trying to build this incredibly important economic relationship - is just nuts."

He is adamant the Overseas Investment Office was right to dismiss the Natural Dairy bid for the Crafar Farms - it was "fronted by a bankrupt" - and that the character test was important wherever an investor came from.

But while he says New Zealanders are not en masse xenophobic, a lot do worry about farmland being gobbled up. The upshot was the policy was tweaked to ensure deep benefits did accrue to New Zealand when farm land passed into foreign hands.

Before the Groser visit, Beijing indicated it expected the Overseas Investment Office to determine whether it should accept or dismiss Pengxin's bid for ownership of the 16 Crafar dairy farms before the election.

It is too early to know whether that view has changed in the wake of the Groser visit.

New Zealand will clearly continue to benefit as China further diversifies its purchases of foreign debt - particularly debt which has sovereign risk status. But to keep on acquiring Chinese capital, New Zealand will have to put much more time into how it does business with China.

Groser concedes there is a need for greater leadership by New Zealand business on this score.

The ICT mission visited Shanghai where it touched base with Shanghai Unicom, Shanghai Telecom, China Communications Services, the Shanghai Communications Administration, China Mobile and Huawei's Shanghai R&D Centre. In Hangzhou - which is the provincial capital of the bustling Zhejiang Province - the mission visited the Zhejiang Communication Administration, Zhejiang Unicom, Alibaba, and Zhejiang Telecom.

The group also visited Jiangsu Telecom, Jiangsu Unicom and Jiangsu MIIT in Nanjing. Some of New Zealand's most innovative ICT companies - which are currently doing business with China - will demonstrate their prowess at next month's Technology, Trade and Investment forum.

The forum, at Auckland's Langham Hotel on September 26 and 27, is part of the Rutherford Innovation Showcase.

- NZ Herald

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