Belt and Road overflow capital could be used to finance a proposed Penlink toll road between Whangaparaoa Peninsula and State Highway 1. Photo / Supplied
China's Belt and Road Initiative (BRI), a long-term project planned to establish the People's Republic as the world's biggest trader, could have flow-on benefits for major New Zealand infrastructure projects, says Ryan Johnson, Bayleys' national director commercial and industrial.
Commenting on a report by Knight Frank, entitled New Frontiers: prospects for real estate along the Belt and Road Initiative, Johnson says BRI is designed to enhance China's international ties through development-led trade growth assisted by huge construction schemes.
BRI's massive investment in infrastructure projects, stretching from China's eastern seaboard to the Mediterranean through the Urals and Middle East, and terminating in Eastern Europe, has been described as a modern-day recreation of the legendary Silk Road.
Johnson says Bayleys Real Estate, as Knight Frank's New Zealand partner, took the global report a step further to specifically identify how a mainly land-based Pan Asian, Middle Eastern and Eastern European investment programme could have benefits here.
"The Knight Frank report states that the Belt and Road Initiative will mainly constitute Chinese projects, but there could be indirect impacts for New Zealand from that investment channel," he says.
The report says BRI encompasses "a massive US$900 billion [NZ$1308b] programme of investment" but that figure could be at the lower limit – with the New Zealand China Council estimating the value of BRI work to be undertaken at US$2.5 trillion (NZ$3.8 trillion) over the next decade.
Johnson says schemes designed to improve connectivity and product flow internationally include the construction of new highways, railways, ports and energy plants; with increasing Chinese investment activity into countries having closer 'investor-friendly' ties with China.
In a detailed comparison of the markets in 67 countries, the Knight Frank study ranks New Zealand near the top of a new BRI index of nations that could benefit from the decades-long project. New Zealand is rated fourth behind Singapore, Qatar and the United Arab Emirates.
Knight Frank says a key factor behind New Zealand's high ranking is the New Zealand–China Free Trade Agreement signed in 2008. "The bilateral accord was the first free trade agreement China signed with any developed country. Mirroring the two countries' long-standing economic relationship, New Zealand was also the first western country to formally recognise China's BRI programme."
The Knight Frank ranking also rates New Zealand highly for 'institutional effectiveness' – a measure encapsulating Government efficiency, regulation quality, political stability and the rule of law.
Johnson says New Zealand could be a 'default beneficiary' of the BRI on two counts.
"Firstly, while there will scores of major infrastructure build projects taking place in China, not all potential investors in those developments will secure the amount of exposure they had sought. As a consequence, there will be their additional capital looking for other opportunities.
"We're not talking about 'small' investors coming down here with $10, $20 or $30m to spend. We're looking at an entry level of around $200m and heading well north into the multi-billion dollar range.
"Secondly, as profits begin to flow out of Belt and Road Initiative's many parts, that capital will be looking for reinvestment. As most of the Belt and Road work would have already been contracted out over long-term time frames, international opportunities could come into play for partners like New Zealand."
"So New Zealand could win in the medium-term, and also in the long-term as different players enter our market."
Johnson says New Zealand has at least six proposed major infrastructure projects which could suit Belt and Road overflow capital:
• the Northport road and rail project linking Whangarei and Marsden Point with Auckland;
• the Penlink toll road aimed at freeing up traffic flows and congestion between State Highway1 and Whangaparaoa Peninsula;
• the building of a second Auckland Harbour bridge or tunnel link to the city's North Shore;
• establishing a high-speed commuter rail network linking up Tauranga and Hamilton with Auckland, including the potential rejuvenation of towns along the existing freight rail route;
• the building of a new harbourfront sports and entertainment stadium in Auckland; and the follow-on redevelopment of Eden Park into a high-density apartment neighbourhood; and
• the development of a Queenstown convention centre and potential gondola public transport service linking the town's existing CBD with suburban nodes in Frankton and Lake Hayes.
These large-scale building and infrastructure projects are expected to be among 117 opportunities to be highlighted in an upcoming report being compiled by the NZ China Council.
Two-way trade between China and New Zealand in the past year topped $27b and is forecast to reach $30b by 2020.
Johnson says Chinese investment is already playing an increasing role in New Zealand's commercial property scene - filling in an investment funding gap that could not be scaled domestically.
Bayleys Research estimates 17 per cent of Chinese investment has found its way into commercial properties, hotels, and apartment developments - mostly focused in Auckland.
In the infrastructure and utilities sectors, China's investment track record includes Beijing Capital Group's acquisition of Waste Management in 2014 for $950m, Hong Kong-based Cheung Kong Infrastructure's purchase of Wellington Electricity Company in 2008 for $785m, and its 2012 acquisition of Envirowaste for $490m in 2012.
Johnson says that, because of their size, Chinese construction companies are well positioned to become bigger players in a market whereas big local building firms like Fletchers, Ebert, Hawkins and Mainzeal have struggled to deal with critical mass capacity.
"Our biggest cities are undergoing significant urban rejuvenation – Auckland, Hamilton and Tauranga from a population growth perspective, and Wellington and Christchurch from an earthquake recovery perspective," he says.
"However, New Zealand has a very shallow capital market to finance the commercial property and infrastructure developments contained within these rejuvenations. To get projects up and running we have to source overseas investment – like the Penlink motorway connection north of Auckland which Chamber of Commerce CEO Michael Barnett is promoting Chinese funding for.
"We, that is NZ Inc, realised a few years ago that we can get the land supply issues and planning issues resolved - but if we can't get the key infrastructure funding we're stuck. These are serious jobs and they require serious amounts of capital."
Johnson says investment in commercial property and also large-scale residential property has traditionally come from South East Asia, Singapore and Hong; and more recently from China.
Bayleys' research identified the existing key Chinese players in New Zealand's property sector as:
• Fu Wah International Group (Hong Kong) - which is developing the $200m-plus Park Hyatt hotel due for completion by mid-2019. Fu Wah is seeking consents to build a 435-unit $400m apartment and retail complex on another Wynyard Quarter block and is also looking at a hotel project in Queenstown.
• Shundi Customs - which is the developer of the 187m high Seascape Apartments on Auckland's Customs St East, that will house 221 apartments. The development also includes the conversion and strengthening of a 12-storey office building on the corner of Fort St and Customs St East into the boutique San He Yuan Hotel.
• New Development Group (NDG) – with plans to invest $350m on a proposed 52-storey tower on the corner of Elliott, Albert and Victoria Sts in Auckland - including a 300-room Ritz Carlton Hotel on four floors, and six levels of retail premises.
• Hengyi Pacific – that is developing the 57-storey Pacifica apartment and hotel complex on Auckland's Commerce St, worth estimated $300m, and which will include 295 apartments and 35 hotel suites.
• Shanghai Pengxin – with a $500m investment in New Zealand farming-related assets and a major shareholding in a $550m land development on Auckland's Whangaparaoa Peninsula. The company owns two of the four Spark Towers in central Auckland and in 2014 bought the Queenstown Hilton off the Hong Kong hedge fund Pacific Alliance Group for an estimated $80m.
• Avanda Group – with its largest project being the West Edge housing development on the 11.27ha on the former Crown Lyn site in New Lynn. This staged development will ultimately have up to 2000 dwellings at an estimated development value of $3 billion. It is also developing a 9.9ha housing development block at Hobsonville Point and an associated company last year bought a 14ha housing subdivision in Rolleston, near Christchurch.
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