China Business: A silk route from Wellington

Charles Finny. Photo / Kenny Rodger

I was privileged to be part of the business delegation accompanying the Prime Minister on his recent visit to China.

As someone who has devoted much of his career to advancing this relationship it was fantastic to see the genuine warmth in the interaction between the Prime Minister and Ministers Nathan Guy and Todd McClay with their Chinese counterparts. It was also gratifying to see how broad and deep the relationship has become.

In 1992 (which is really not that long ago) when I first arrived to serve at the Embassy in Beijing the commercial relationship was essentially all about one product — wool.

We had protesters barricading the Embassy because immigration policy had allowed a situation where Chinese students were out of pocket, and many in the Ministry of Foreign Affairs and Trade were questioning the amount New Zealand was investing in China (surely the future lay in Japan!).

The prevailing view seemed to be that Chinese didn't like eating lamb or dairy products so there was little need to put effort into the market.

In 2016 China is now our biggest goods trade market and a very important services market.

The delegation was dominated by meat and dairy interests. There was no one (apart from me — just) representing wool interests.

Pretty much every other sector of the economy was represented.

China is our major education market. Tourism is booming and the film and television relationship is going from strength to strength.

This is the result of years of investment by the Government in both people and travel, cutting-edge diplomacy, hard work and investment in relationship building by the private sector, and an excellent legal underpinning of the relationship by the China-New Zealand free trade agreement (FTA) and other trade and economic agreements.

These agreements have been made possible by New Zealand showing international leadership in ways the Chinese Government has seen as being incredibly important.

The New Zealand delegation in Xian.

New Zealand helped broker the Chinese entry into APEC along with Hong Kong and Taiwan. We were the first country to complete the bilateral components of Chinese World Trade Organisation accession. We were the first in the OECD to recognise China as a market economy. We were the first to launch and complete a FTA with China. And we were the first to complete the trifecta of FTAs with China, Hong Kong and Taiwan. Most recently we became the first in the OECD to support the creation of the Asian Infrastructure Investment Bank and to negotiate a television co-production agreement to complement the film agreement already in place. So with the relationship in such good heart why am I worried about it?

I worry because I can't see where the next "first" is in the bilateral agenda. These "firsts" are important as they give New Zealand a prominence in Chinese eyes that would otherwise not be there.

Our value to China is not the size of our economy, the size of our armed forces or our weight in international organisations. Our value is in helping China at a strategic level. We are seen as an independent minded innovative country China is willing to learn from and to work with to prepare for initiatives with larger players.

Some of us joke that China likes working with New Zealand in this way because if they make a mistake it doesn't really matter.

On this recent visit to China one issue stood out as offering potential for a new initiative between New Zealand and China. The idea came to me as we stood in Xian at the new inland port that is being created at the start of the "silk road".

President Xi Jinping has, for the past couple of years, been promoting an idea called "One Belt, One Road". The concept is based upon the overland ("silk route") and sea link between China and Europe, and appears to involve China playing a leadership role in developing infrastructure — road, rail, port — along the routes. And the Asia Infrastructure Development Bank will be involved in funding some of this development.

The trouble is that detail on the initiative is all a bit vague and without more detail the idea is not really resonating globally. This is where New Zealand could help. We are really good at trade strategy.

So here is my concept.

We use the China New Zealand FTA as the nucleus for the One Belt, One Road initiative and rather than begin the road in Xian, let's begin it at Wellington. Wellington Airport to be precise. It would stretch from New Zealand through Asean and the Pacific China and then on to to Europe — either by sea or land.

While it might begin in New Zealand, China (Zhongguo — the middle kingdom) would be at its centre.

A series of key infrastructure projects would be developed and a framework linking the China/New Zealand FTA , our bilateral and regional FTAs, and some new FTAs involving several countries including Sri Lanka, Kenya, the Gulf Co-operation Council, Iran, Tajikistan, Uzbekistan, Turkmenistan, Azerbaijan, Georgia, Turkey, and eventually the European Union.

The start of the new "silk road" where multi-modal transportation is explained.

How do we operationalise this idea? A good start would be to make a strong statement of support for this initiative from New Zealand and an offer of practical support for the development of the design.

What might this look like?

• We share the above strategy.

• We offer to appoint a special envoy or ambassador for the One Belt One Road Initiative

• We offer to re-orient our agriculture co-operation with a view to exploiting the opportunities for joint trade and investment along the One Belt One Road.

• We offer the possibility of co-operation on some infrastructure development projects by the likes of Beca, Fulton Hogan and Hawkins, and offer China the chance to tender to build a couple of key infrastructure projects in New Zealand.

• We offer to make the development of this concept as a central element of the wider NZ-China FTA Upgrade.

I can't see any downside and you never know — China might like the idea enormously.

Charles Finny is a partner at government releations consultancy Saunders Unsworth and is a former trade negotiator with MFAT

One Belt, One Road

• Xi Jinping's idea, raised in 2013, to jointly build the Silk Road Economic Belt (essentially all countries on the original Silk Road plus South and Southeast Asia) and the 21st Century Maritime Silk Road.

• The Maritime Silk Road component links China's ports with the African coast, through the Suez Canal into the Mediterranean.

• Involves building infrastructure, increasing cultural exchanges, and broadening trade.

• Eurasian Land Bridge — a rail transport route for moving freight and passengers from Pacific seaports in the Russian Far East and China to seaports in Europe.

• Economic corridors throughout China-Mongolia-Russia, China-Central Asia-West Asia, and China-Indochina.

• Secure efficient transport routes connecting major sea ports along the Belt and the Road.

• Primarily creating better transport infrastructure, both land and sea, between the regions involved.

• In May 2015, European Commission President Jean-Claude Juncker made comments which seemed to indicate potential for the EU to integrate its Investment Plan for Europe with One Belt, One Road.

Funding

• Asian Infrastructure Investment Bank

• The bank includes many countries also on the Silk Road Economic Belt

?Registered capital US$100b

• New Development Bank

• Made up of the BRICS (Brazil, Russia, India, China, South Africa)

• Headquartered in Shanghai
?Initial capital of US$50 billion, intention to increase to USS$100b

Silk Road Infrastructure Fund

• Designed to increase investment specifically in One Belt, One Road countries

• Distinguished from the banks as it invests in businesses rather than lending for infrastructure projects.

• $40 billion funding

Motivations

• Increased connectivity in the region may increase economic growth, particularly for China's less developed regions such as Yunnan, Gansu, Guizhou.

• A form of economic stimulus in poorer Chinese provinces — necessary in light of slowing economic growth.

• Provides for increased exports from industries in which China has significant over-capacity — for example steel, cement, aluminium.

• Outlet for Chinese companies who invested heavily in capacity during the construction boom but are now suffering from the country's flagging growth prospects.

• Geopolitical goals — neighbouring nations more incentivised to pursue co-operation with China due to their ability to fill their infrastructure gap.

• Furthers the goal of internationalisation of the renminbi. Useful Q&A summary.