Economy Hub: China rift - 'They now feel they cannot trust us'

Chinese President Xi Jinping. Photo / AP

In an exclusive extended interview Beijing-based Kiwi businessman David Mahon tells the Economy Hub why he's worried about New Zealand's China relationship. The raw 20-minute interview is embedded below.

"We need to stay out of these things and not takes sides," says Beijing-based Kiwi businessman David Mahon. "Because if we choose to take sides we will be crushed."

They are strong words, but Mahon has serious concerns that New Zealand's relationship with China has deteriorated to the point where we may now face a political retaliation and our exporters may face border difficulties.

Mahon has lived and worked in China since 1984. He set up his business advisory and investment firm Mahon China in 1985 and has watched New Zealand's commercial relationship evolve and grow over the decades.

When we organised an Economy Hub video interview the plan was to focus on the Chinese economy and the risks of slowing growth - although the trade war and tension over telco Huawei were part of the discussion.

But in past week the issue of New Zealand's deteriorating diplomatic relationship with China has exploded into the public arena.

On Tuesday the Herald reported that Prime Minister Jacinda Ardern was scheduled to visit China early this year but the invitation has been put on hold.

The 2019 China-New Zealand Year of Tourism was also meant to be launched at Wellington's Te Papa museum next week, but that has been postponed by China.

We have had a "brilliant relationship" with the Chinese Government in Beijing, Mahon says.

But he believes that in the last 12 months it has gone into reverse.

"So there is now a very different view, almost an opposite view of New Zealand."

What's caused that?

Rising tension between China and the US - the trade war and the stand-off over telco Huawei's ambitions to build the new 5G mobile network around the world have put New Zealand in a difficult diplomatic position.

And the messaging from the New Zealand Government has not been clear enough, he says.

The Government decision to exclude Huawei from Spark's 5G network tender process has now been qualified as a "concern" but it was initially presented as "ban", Mahon says.

"And that's how it was taken in Beijing," he says. "We didn't have discussion with them over concerns. We announced this publically and as a result they now feel they cannot trust us."

• Watch the full-length video below

Mahon says he expects China will now take action to demonstrate its displeasure.

"One of them is that our Prime Minister is yet to be invited to Beijing. I understand she will not be invited until this is cleared up."

There is a the perception that New Zealand has been following Washington's lead.

"It's seen as a Five Eyes stitch Up – it may not be and I have no special insight - but that is how it perceived in Beijing at the moment," he says

"Is there evidence that Huawei is a backdoor into New Zealand's security integrity? That's a very hard case to make, although our security service have said that."

A speech in Washington by deputy Prime Minister Winston Peters, which appeared to indicate New Zealand had reset its Asia Pacific policy to a more pro-American stance, had also created mistrust, Mahon says.

So too had the wording of a defence paper last year which cast China as the aggressor in the South China Sea.

The Prime Minister has denied there is a serious diplomatic issue with China, although she has acknowledged challenges.

"There are challenges in our relationship, there are challenges in our relationship with a number of countries at any given time, when you run an independent foreign policy," she told parliament on Wednesday.

The Government has work to do to mend the bridges, Mahon says.

"Qualifying that strategic position comes first. Then Huawei is the major issue."

We need to reiterate that a process is in place that doesn't ban Huawei outright, he says.

"Maybe if there is a process now that can be more transparent. If we look at Ericsson and Nokia and the other bidders alongside Huawei. And if we don't decide to choose Huawei we have very clear reasons why."

We should also be more specific about our attitude to foreign investment in New Zealand.

"We have correctly prevented non-residents from buying houses, to reduce speculation. But is general New Zealand is open for business? Businesses are for sale and we want people to put cash into our country."

New Zealand needs to reiterate our own independent foreign policy stance, Mahon says.

"We're not an American surrogate, nor a Chinese surrogate, we are not going to follow Australia just because we are close to them. We will follow our own judgement, out own set of standards, our laws."

David Mahon:

• Mahon, 62, was born in Takapuna and went to Westlake Boys' High.
• He went to China in 1984 to lay carpet for Feltex.
• Mahon China works for, and has worked for, some of NZ's biggest exporters, and a range of SMEs.