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Xenophobes have had a field day ever since ran an unsourced report suggesting one of the world's biggest sovereign wealth funds "may" spend as much as $6 billion on buying up NZ bonds and assets.

It is unclear yet whether the fund in question - the China Investment Corporation (CIC) - is in fact the prime (or only vehicle) for Chinese State-backed investment in New Zealand.

But even if Lou Jiwei's top-notch fund does finally invest a significant amount in NZ dollar and equity assets, this should not provoke the kind of mad allegations that the current Government is a bunch of quislings bent on selling New Zealand - which have been appearing in the comments section on various NZ websites.

The reality is New Zealand does need overseas players to underwrite the massive borrowing the Government has embarked upon to underpin the NZ economy since it was sideswiped by the impact of the global financial crisis.

The fact that China - with other international investors such as Singapore and Malaysia - are investing in NZ bonds is obviously a vote of confidence in New Zealand as a safe haven for long-term international investment.

If this country was seen as an economic basket-case (like parts of Europe and the languishing US) the offshore interest would be substantially less and NZ would be paying substantially more for its $380-million-a-week borrowings.

In fact, it is likely that the CIC is just one of a number of Chinese entities with their eyes on NZ bonds and assets.

Other Chinese Government-linked entities like the China State Administration of Foreign Exchange (which directs investment of China's substantial foreign reserves), China International Capital Corp (a JV investment company which includes other international shareholders such as Singapore's Government Investment Corporation alongside Chinese Government-linked investors), and the China Development Bank, are increasingly active in this part of the world.

The problem is that Chinese investment in New Zealand is currently seen as "sensitive" by diplomats from both sides.

The NZ Government has yet to finalise its NZ Inc strategy for China, despite having had a draft in circulation for months.

On the China side, suggestions have emerged that that country's foreign affairs and commerce officials will seek to use formal processes under the 2008 China New Zealand free-trade agreement to try to overcome what the Chinese see as a hidden agenda here.

In this environment it is not surprising that the Treasury has been quietly pushing China's prime investors to invest in NZ bonds, rather simply going full out for hard assets like dairy farms, coal mines or the Christchurch earthquake rebuild.

Prime Minister John Key's decision to go on the front foot this week and promote the role of China in under-pinning the recovery will help assuage the Chinese concerns.

But Key also needs to develop a domestic strategy to ensure Kiwis understand just why the Government has wooed and welcomed the Chinese interest.

The increased Chinese interest is not surprising given the concerted efforts by the Key Government to strengthen the Beijing Administration's confidence in New Zealand as a safe destination for it to park some of China's massive wealth.

The CIC has had New Zealand on its radar screen ever since the FTA was inked in April 2008.

But it was not until Key began wooing the CIC during a one-on-one meeting with its chairman Lou Jiwei at the 2009 Baoa Forum that interest stepped up.

At that meeting, Jiwei signalled to Key that the CIC was interested in taking a stake in our dairy giant Fonterra, if there were substantial changes to its capital structure.

Key made clear that it would be up to Fonterra's farmer shareholders to resolve the appropriate capital structure.

But Key also signalled to Jiwei that the Government would welcome increased investment here - particularly in greenfields or co-ventures.

He said then that China could give this country's economy a valuable boost at a time when the ability to source international equity was constrained.

Key also promised the Government would look seriously at any Chinese advances on what he calls a case-by-case basis, particularly where potential investors were willing to contribute capital, be long-term partners and help to develop New Zealand's companies and jobs.

He made the point then that China was hugely under-represented as an investor in New Zealand with just half a billion dollars of foreign direct investment here, compared to the $50 billion of NZ assets that were in Australian hands.

In the wake of the global financial crisis, Chinese companies did come to the rescue of some of NZ's over-leveraged companies such as PGG Wrightson, Fisher & Paykel Appliances and Synlait. But public controversy sparked by Natural Dairy's ill-conceived bid to buy the Crafar dairy farms soured relations.

Finance Minister Bill English is understood to have settled some concerns during his own meeting with the CIC's top brass during his recent visit to China. English also presented to the 2011 Baoa Forum participants on the impact of the China FTA on New Zealand's post-crisis fortunes. It is a good story to tell.

The People's Bank of China under-scored the importance of the bilateral relationship by agreeing to establish a $5 billion swap-line with the Reserve Bank to support the settlement of business transactions.

As the RMB trade deepens some of the pressures on NZ's own currency should lessen.

China is foreign to us. It is a hard market (or more accurately markets) to master. But if we get this relationship right - it will help underpin our own economic security for years to come.