Tim Groser: Ahead of the curve

Trade Minister Tim Groser visiting Chongqing as part of an earlier delegation. Photo / File

Opinion

We need to read the political trends in order to shape our future in the new world market, says Trade Minister Tim Groser

Our focus in the next few weeks is understandably on China, with the 40th anniversary of diplomatic relations, and the current bilateral relationship. China is, after all, universally expected to be largest economy in the world in a few years. However, I would like to put our strategy towards China in a broader context.

New Zealand has an independent view of the world and our place in it. But it is essential we interpret the world correctly. We then need to frame our external policies, adjusting relevant domestic policies, in line with far broader forces shaping the world in the 21st century.

Technology drives everything. But the political megatrend of our age is clearly the shift in relative power from the traditional developed centres of Europe and North America to the emerging economies. Within that, the re-emergence of Chinese relative power is the single most important facet of this extraordinary re-alignment.

And it is a re-emergence: we are returning inexorably to the distribution of economic and political power that prevailed around 1750 when China and India, then as now the main centres of population, dominated world economic power. We are part way through a process whereby the world's wealth once again becomes distributed roughly in line where the people live.

Global geopolitics is only beginning to adjust to this central reality. But because we are finally an independent actor, as long as we are indeed reading trends correctly and are nimble and practical, we can shape our future and stay ahead of the curve.

I think this is what New Zealand trade policy has been doing for some time and with increasing success. Piece by piece, we are putting in place the long-term frameworks in key emerging markets that will position the next generation of New Zealanders to enjoy better living standards, higher paid jobs and greater economic security.

The narrative around "emerging economies" is not just about Asia - we are at a mature stage in our negotiations with Russia and the Prime Minister has just agreed with President Santos of Colombia to begin a Free Trade Agreement (FTA) negotiation. However, Asia is the primary focus and China is front and centre of our attention.

The cornerstone of a successful trade strategy with China is successful management of our political relationship. I would like to pay tribute to a generation of New Zealanders who have delivered that platform with outstanding results. We have the unique advantage of being China's first developed country partner in a comprehensive FTA We have built on that platform by negotiating a matching FTA with the second Customs territory of China, Hong Kong, and we are well advanced to achieving a similar result with the separate Customs territory (and separate WTO Member), Chinese Taipei. New Zealand could be the first country in the world to "join the dots" of the Chinese economic space together. What a fantastic opportunity that will present to New Zealanders.

On the back of this emerging platform, our exports to China have tripled since 2008. In terms of our services trade, nearly 200,000 Chinese visitors came to New Zealand last year, up 35 per cent on the previous year. In education, China is our largest market. It is no exaggeration that more and more New Zealanders have jobs and futures because of the success of New Zealand entrepreneurs in building on the platform I have just described.

But we need to be bolder still. Most importantly, we need to be open to new thinking about how to move to the next strategic level in our approach to this immense opportunity. Many of these issues are overtly commercial so the real challenge is to the next generation of New Zealand business leaders.

If there is one generalisation that can be made across all business sectors it is the importance of "knowing our customers" and fashioning a value proposition that meets their needs.

Many of our supply chains understandably bear the heavy imprint of our past trading patterns to an overwhelmingly Anglo-Saxon world. While preserving the best of our past, these relationships will need critical evaluation by all those involved in the China relationship. The China strategy of the New Zealand wine industry is a classic example. It starts by asking what the Chinese market wants, rather than arriving in market with a product designed for other markets, other cuisines.

Our education providers and our tourism operators need to think strategically about the specific needs of the China market and be flexible enough to make significant changes in their business models, as several already are. We need to be open to new methods of doing business, including e-business. I am delighted one young New Zealand Chinese entrepreneur has already started down this track with TMall, the b2c arm of the giant internet company Alibaba.

I am not among the critics of New Zealand's great strengths in commodities - there is a huge value proposition there and it underwrites much of the spectacular growth of our exports in recent years.

All our companies need to be careful that in adding further processing, they are adding additional net value, not just cost. This is not straightforward. One of our leading forestry companies is carefully examining the value chain to identify the right opportunity for greater processing. I think they are doing exactly the right thing. The "China market" is a huge complex mix of different markets. Each of them presents enormous opportunities.

But we also know commercial failure is commonplace for the many non-Chinese companies that have failed to analyse these markets with sufficient realism and depth.

Our investment relationship is lagging well behind our trading relationship. The vast bulk of our investment stock is from Australia, Britain, Canada and the US. That simply reflects our past trading relationships. This will change. It has to. The distinctions between physical trade in goods, services, intellectual property and investment are all collapsing in the face of new trading realities. It is inconceivable that we could develop 21st century business models with the world's most important economy without a more mature investment relationship.