China keen to trade with NZ despite melamine scandal

Beijing - China still wants to work with New Zealand on building agricultural trade despite New Zealand's part in the contaminated milk scandal, Prime Minister John Key said today.

Mr Key made his first visit to Beijing's Great Hall of the People last night (NZ time) for a meeting with President Hu Jintao.

It is the first by a New Zealand leader since the tainted milk scandal swept through China.

Mr Key took the unusual step of having Fonterra's chairman Henry van der Heyden accompany him to the meeting with President Hu and had the dairy boss sit at the front table during the formal talks.

Fonterra had a 43 per cent stake in Sanlu before it became the first company of 22 Chinese dairy companies to reveal its products contained high levels of melamine, the chemical blamed for the deaths of six babies and urinary problems in nearly 300,000 others.

The issue may have gone off the radar in New Zealand, but it still has some importance in China.

Chinese journalists have so far quizzed New Zealand media on only two issues while in Beijing - former prime minister Helen Clark's appointment to a job in the United Nations and about Fonterra's future in China.

When asked about the issue after the meeting Mr Key said President Hu had discussed lifting the relationship between the two countries in the areas of farming and agriculture.

"I specifically mentioned the fact that Fonterra would like to have continued and greater investment in agriculture over time," Mr Key said.

"I think I would take his comments to be that while that was a very regrettable incident it is behind us know."

The economic fall out from the scandal did not hurt Fonterra's exports to China which lifted by 35 per cent as Chinese householders sought out dairy products from safe countries over fears local produce was poisoned.

However the news has not been so good for Sanlu.

It failed to sell its remaining assets in an auction earlier this week.

On the auction block today were Sanlu's shares in 11 dairy companies, seven of which were controlling stakes.

Representatives of four dairy companies attended the auction in the northern city of Shijiazhuang but they did not cast bids.

Assets offered in the auction included a 70 per cent stake in the Tangshan Kangsheng Dairy Company, which had a starting price of 51 million yuan ($13.16 million).

Sanlu was declared bankrupt in February and a court ordered the auction of its real estate holdings, buildings, equipment along with its investment rights and interests in other dairy companies from March 4. Monday's auction had been the fourth and final sale planned.

Beijing-based milk company Sanyuan Group bought up Sanlu's core assets at an auction in early March for 616.5 million yuan ($158 million).

Sanyuan's products were found to be safe during the crisis last year and the company has said it could use its unscathed reputation to improve its position in the market.

* Ian Llewellyn travelled to China with the assistance of the Asia New Zealand Foundation

- NZPA