Off the back of economic growth not seen since pre-the Western Industrial revolution, China has emerged as key market for many countries. For New Zealand, the upside is undeniable with exports to China growing by 143% since the signing of the Free Trade Agreement (FTA). But it's not all about goods trade - achieving a deep economic relationship, like the one we enjoy with Australia will, over time also see investment flows increasing - both into and out of China.
Alongside the trade relationship ($12.6 billion as of May 2011), the investment story is now gaining momentum. Mainland China's investment in New Zealand is still small (NZ$1.9 billion) compared to foreign investment stocks held by Australia, USA and the UK ($100 billion as of March 2010). But it is growing fast and adding in investment via subsidiaries in Hong Kong and Taiwan, Greater China's share of FDI stock ranks 4th, slightly ahead of Japan.
On top of this, China's 12th five-year plan sees a liberalisation in the use of foreign exchange and the role of the RMB in cross-border trade and investment which will accelerate this trend.
So the time has arrived. China is now wealthy and like any global investor, is seeking strategic and productive assets in stable countries. And in our own way, we have many things in our favour. New Zealand Trade and Enterprise (NZTE) research comparing our performance in attracting investors from China against other developed countries (including Denmark and Sweden), showed that while New Zealand is the smallest economy, we've done very well.
Anecdotally, China has had mixed experiences with outward investing and is increasingly focusing on stable markets closer to home. The NZ-China Free Trade Agreement (FTA) gives investors in both countries additional protection and a guarantee of fair and equitable treatment. For many Chinese state and private companies, recent outward investments are some of their first and without wanting to draw too long a bow, it is attractive for them to do this in a friendly jurisdiction.
That said, there's no room for complacency. All countries are competing hard to attract Chinese investment. There are niche areas where New Zealand companies can make a difference, for example helping to fill some of the technology gaps for potential Chinese investors. New Zealand's infrastructure development is also interesting - opportunities ranging from the telecommunications sector to the re-building of Christchurch - helping us to build what we need to compete in today's global markets.
Much is made of China's interest in dairy and other food & beverages, and it understandable given the consumption trends of their burgeoning middle class. We will continue to build trade & investment in these "traditional" sectors because the growing demand for quality food simply cannot be ignored. Looking past protein, however, innovation, technology, management skills, good old Kiwi problem solving and our "can-do attitude" will be play an equally important role in attracting Chinese investment and business partnerships.
So how do we make this work for New Zealand? Like any happy and lasting relationship, the key to success is ensuring that all parties win. Good examples of recent Chinese investment in NZ that demonstrate this are:
New York-listed Agria Corporation, which is headquartered in Beijing, owns 50.1 percent of PGG Wrightson (PGGW). Both companies engage in joint development and commercialisation of seed cultivars, livestock development in China and the establishment of livestock trading systems in China using PGGW's expertise. The South Island Ngai Tahu tribe also has a stake.
Chinese appliance manufacture Haier purchased a 20 percent stake in whiteware manufacturer Fisher & Paykel for $NZ46 million. The deal formed part of a $189 million capital raising plan and has more recently provided greater access to markets through Haier's distribution network.
Chinese giant Bright Dairy invested $82m in Synlait Milk bringing much-needed capital for growth. In China the market for premium milk products from New Zealand is growing rapidly and the deal will help establish a market-leading position in the infant formula and milk powder category with a co-branded range.
And equally there are increasing business drivers for New Zealand to invest in China. Across farming, agritech and F&B and the ICT sector, New Zealand companies are starting to invest in offshore manufacturing, supply chain and distribution. New Zealand's investment in China has increased 19% in the past year to around NZ$540 million as at March 31, 2010. And whilst small, it is the trend that is important - indicative of the fact that New Zealand companies like their global competitors, are internationalising their manufacturing & supply chains, and investing closer to their customers.
We will continue to actively seek investment from our traditional markets like Australia, USA and Europe. On top of providing important capital for growth, they are also key sources of science and innovation and the international business connections that help our economy keep pace. However at this point in history, it is vital to show our commitment to working with and in China and to make the most of the trade and investment opportunities on offer.
NZTE's and MFAT's largest international presence is in China and the investment team based there is currently being strengthened. NZTE and its network of business advisors is available to help companies to pre-qualify potential business partners and opportunities, through tailored research, co-funded feasibility studies and its Visiting Investor Programme.
* Richard Laverty is NZTE Acting General Manager (Capital)