Fran O'Sullivan: Key hits stride with Crafar farms decision

Allan Crafar on one of the 16 farms that Sir Michael Fay says Shanghai Pengxin is paying too much for. Photo / Christine Cornege

The Crafar decision is a victory for economic rationalism over blind xenophobic nationalism. Long may the former reign.

Instead of bowing to whipped-up public pressure (which it can't do anyway without breaking the law and marring New Zealand's international reputation), the Government has stuck to its guns and allowed due process to triumph.

The approval for the Chinese bid by John Key's government is a welcome sign that he intends to hit his stride in his second term and make the most of the economic opportunities that are available to New Zealand.

Not to run a mile the moment the xenophobes or the greenies start belting their predictable tambourines and unsettle the nervous nellies in his own caucus.

This is what we want to see more of from our Prime Minister. Not the poll-driven behaviour that (at times) played too big a part in his first term in office. Key has the opportunity to make some very bold calls in the next 18 months. His Cabinet minister's decision to run with the Overseas Investment Office's recommendation to approve the bid is the first.

Key is clearly excited about the opportunities for New Zealand from the successful Chinese bid for the Crafar farms. So he should be. The Shanghai Pengxin bid has obviously been carefully constructed to ensure significant economic upside for New Zealand.

But when Chinese billionaire Jiang Zhaobai comes down to New Zealand this weekend as a prelude to writing the final cheque of $200 million his firm is putting up for the Crafar dairy farms, he will still be put on a ministerial-required 'good behaviour' bond.

In fact, the first condition the two ministers have put on the bid is that "the individuals with control of Milk New Zealand must continue to be of good character.

That individual is Jiang who has 99 per cent of the shares in the controlling vehicle.

I doubt that Jiang - who is listed as one of China's wealthiest men by Forbes magazine - has ever faced such an extraordinary up-front pre-condition before investing elsewhere in the world. But it is clearly a price the Shanghai Pengxin chairman is willing to pay to get a toe-hold in New Zealand as the first step towards expanding his footprint in the Kiwi dairy industry.

Make no mistake about it.

Despite claims by the Sir Michael Fay-led consortium that Jiang is paying too much for the 16 farms and will eventually exit from the investment, Shanghai Pengxin will, in all probability, emerge with a joint-venture with state-owned Landcorp to run the farms and pave the way for both parties to establish a thriving international dairy business.

Pengxin has pledged to co-operate in developing retail and distribution opportunities within China for high-value New Zealand dairy brands, something that is notoriously hard to do without deep pockets and on-the-ground capacity. It will also later form 50-50 joint-venture partnerships to produce more refined products here instead of simply shipping sacks of milk powder off to China.

Given all of this, I would be surprised if the Fay consortium's upcoming judicial review proceedings succeeds in overturning the two ministers' decision to approve the bid. For one thing, Land Information Minister Maurice Williamson has personally stayed on the OIO's case to make sure it did an in-depth investigation into Shanghai Pengxin's application before forming its recommendation, - though Williamson stresses the OIO's decision "was theirs alone."

The recommendation had also clearly been written with the court case mind - not surprising when the Fay consortium had threatened this in its own submission to the OIO.

There is little doubt that the Chinese conglomerate - which is now expanding in agri-businesses - has been schooled on what is entailed in being a "good corporate citizen" within a Western democracy.

All sorts of dirt was thrown at Jiang behind the scenes.

Submitters who opposed Shanghai Pengxin's bid variously claimed that his company's bid was "tainted by fraud" as he was allegedly associated with the prior Natural Dairy bid (The OIO found no evidence of this).

He was also alleged to have been associated with "underworld characters". Again the OIO discarded this claim after the New Zealand Embassy in Beijing checked with Chinese authorities.

The Chinese investors pointed out to the OIO that New Zealand dairy giant Fonterra has been treated as a local investor and granted consent to set up three dairy farms in China.

China is now the biggest importer of New Zealand dairy products by value. In 2010, it purchased about 353 million kg of New Zealand milk products - a more than fivefold increase from 69 million kg in 2008, the year the bilateral free trade agreement was entered into. In 2010, more than 60 per cent of the imported dairy products in China market were from New Zealand.

These are the kind of metrics that underpin Key's optimism.

But unfortunately the New Zealand public seems not to realise just how big a role the Chinese market has played in underwriting our own economic survival post the Global Financial Crisis.

Any frequent visitor to China (as I am) can't help but be enthused at the immense wealth prospects that New Zealand can capture if it gets the China equation right.

Next Friday we'll hear more about the Government's plans. Good on Key for being bold.