Former PM Sir John Key talked China, Donald Trump and the Prime Minister's Business Advisory Council at the recent Infinz conference.

Question: What do you see as the biggest macro-risk for the New Zealand finance sector at the moment — Brexit, the US, or China?

Sir John Key: What is a real worry is what's happening with trade wars. It is really starting to have a big impact. Where that's starting to play out is in China. If you follow the Chinese stock market, you'll see how much of a downward move it's been this year and how volatile it is. What's happening there fundamentally is that the Chinese for a long time grew their economy by growing credit, and what they've been trying to do in recent times is turn that credit tap off.

Now what's happening is they're saying 'OK we've got to grow this economy without growing credit and we've got to grow it in a much more environmentally sensitive basis'.


I think Xi Jinping's going to go down in history as a good leader of China. But the problem they have at the moment is it is a very complex beast and a very different beast in the macro numbers than 8-9 years ago.

The challenge is I don't think they quite know how this plays out with Donald Trump.

When you look at Donald Trump, he's not necessarily known as the most consistent leader in the world in everything he says and does. But he has consistently been opposed to free trade and I think he's not going to want to change trade conditions in the US because the people that elected him, they think he's right.

Trump has been cutting taxes in the US. He's been cutting regulation. What you don't see in the New Zealand media very much, is that there's a lot of people who don't necessarily like Donald Trump in the US but they voted for him. They will continue to vote for him and turn a blind eye to some stuff, because they like the other things that are happening.

How does New Zealand balance our dual track with the US and China?

Key: It's not new. I remember at one point Barack Obama said to me: "How come you've got such a great relationship with us and the Chinese?" I said, "You've got some advantages from being big, and we've got some advantages from being small ..." But the reality is that our relationship with China is still a very economic relationship.

We've done lots of things together but it's largely been, I think, dominated by an economic focus. In the case of the US and our traditional allies — Australia particularly — it's a much different relationship.

They are the people that we culturally feel most at home with. We share such a massive history. Everything lines up much more closely there and my advice to the Government would be — whether you like it or not — both partners are important to us. I think if we turned our back on the Chinese, we'd find a lot more Irish and Dutch dairy products would flow into China and less would flow from New Zealand.


It might be a bit mercantile but I think that would be negative for the New Zealand economy, for dairy farmers, and for lots of New Zealand businesses — from tourism to education services — that benefit from us having a strong relationship with China. That doesn't mean that you don't raise human rights issues or other issues that are important.

You do, but I think you've got to have a respectful relationship with both.

What are your thoughts on the Prime Minister's Business Advisory Council?

Key: If the role of the advisory board is to provide honest, direct feedback to the Government — and the Government is prepared to listen to that — then I think it is really valuable.

I was a right-wing Prime Minister and I met with the Council of Trade Unions and the Engineering, Printing and Manufacturing Union — none of which would have ever supported me. But that was fine, it doesn't mean you can't have lines of communications.

The one thing I learned when I was Prime Minister is that while you think the Government has power, it has nothing compared to the power that the private sector has.