All roads lead to China: understanding China's grand trade plans

Stephen Jacobi says China sees One Belt, One Road as showing leadership on globalisation
NZ International Business Forum associate director Stephanie Honey says it is important for New Zealand to operate in a rules-based system

Stephen Jacobi discusses the importance of China's One Belt, One Road project.

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New Zealand tends to have a bit of “FOMO” (Fear of Missing Out, for the non-millennial readers) and if something is happening with trade, we want in.

“It’s very clear the centre of economic gravity will be in the Asia Pacific region, at least for our lifetimes and those of our grandchildren,” NZ International Business Forum associate director Stephanie Honey says.

“We would like to be part of what China is doing. It’s important to see this not just as a pro-development and economic linking model but also as a potential trade model. Because New Zealand is small and distant, it’s important for us to operate in a rules-based system that is clear, transparent, fair and predictable,” she says.

This “opportunity” Ms Honey is referring to is the core strategic plan of Chinese president Xi Jinping called the “New Silk Road” or “One Belt, One Road.” Mr Xi says it will be the “project of the century” and the initiative fits directly into China’s desire to be an example for a new boost of globalisation.

Proposed by Mr Xi in 2013, China plans to spend an estimated $5 trillion on a series of enormous projects to connect Asia with the Middle East, Europe and Africa. The projects include roads, bridges, gas pipelines, ports, railways and even power plants across 65 countries.

The “One Belt” refers to the Silk Road Economic Belt (the land-based section of the initiative), while the “One Road” refers to the 21st Century Maritime Silk Road (the sea-based leg). China says the various projects are open to any country to assist.

The initiative so far is speculative as few projects have gotten off the ground but the concept has received support. A total of 52 nations have confirmed some level of cooperation, including New Zealand on behalf of former Science and Innovation Minister Paul Goldsmith.

Boosting NZ/China trade ties
Ms Honey says although the world is economically recovering from the 2008 global financial crisis, there is “a bit of a political recession” for trade liberalisation and globalisation.

“So this initiative is powerful and important. New Zealand and a lot of other countries were extremely cheered to hear President Xi in Davos earlier this year talk about the importance of trade liberalisation and globalisation, and again at the 19th Party Congress.”

University of Auckland lecturer on Chinese politics Stephen Noakes says there is no reason New Zealand can’t think about China differently

Fonterra director of global stakeholder affairs Philip Turner is excited about China’s project, particularly for the Asia Pacific region, but worries China might be overpromising, both commercially and politically.

“Let’s not get ahead of ourselves as we’re not quite sure where this will all lead” but anything China and New Zealand can do to smooth the flow of goods and services would be mutually beneficial, he says.

“Fonterra has a massive footprint in China with about $1.6 billion invested in China. We employ about 1700 people, more than half of whom are working on our farms as part of our larger strategy of having global milk pools. China is a key supply source of milk in that strategy.

“A rough back-of-the-envelope calculation suggests, of all the dairy products people are consuming in China such as lattes, pizza cheese or milk, Fonterra has perhaps 11-12% share. Bear in mind this figure includes domestic Chinese production. That’s a phenomenal achievement by New Zealand.

“China is very aware it can’t feed itself, and New Zealand is aware that it can’t make money by selling food to ourselves. That’s a marriage made in heaven and there’s a lot more we can do,” Mr Turner says.

Countering pushback with rules
University of Auckland Chinese politics lecturer Stephen Noakes expects some resistance to co-operating more closely with China,- but championing One Belt, One Road will be important nonetheless.

“Everything needs to be done to make it known to New Zealanders in general about the honest good that China is attempting to do around the world.

“There are people in New Zealand who just don’t like China very much. It’s a Cold War-era perception about what China is and what it intends to do that really needs to be fixed. It’s 2017 and there’s really no reason we couldn’t think about China differently,” Dr Noakes says.

Fonterra director of global stakeholder affairs Philip Turner says New Zealand's products and China's appetite is a marriage made in heaven

To that extent, China’s project needs to be shown to be aligned with the business values and ideals New Zealanders hold dear, Mr Honey says.

“It will work best if there is regulatory cohesion along the way, if standards are the same, if trade rules are the same. That is how the real dynamism of the initiative will be enabled. But we shouldn’t forget the trade dimension of the project.

“No country in the world anymore is in the business of selling bulk commodities on a ship that arrives months later at its destination. The whole model of trade and business is about value chains, connectivity, investment and the digital economy. That points in a strong direction to the new regional economic integration underpinned by strong trade architecture,” she says.

Rules: NZ’s strong suit
PwC senior partner Colum Rice says trade architecture, rules and facilitation are what New Zealand is renowned for.

The country is proficient at “the mechanics of getting a product into China and money out” and this comparative advantage will be relevant to China’s 50-year, enormous plans, he says.

“The infrastructure initiative is good but it’s only useful to the extent that people, goods and services can be facilitated. The value does not come from cement and steel – the value comes from the volumes you manage to put through it.

“So, if New Zealand can use its comparative advantage in trade facilitation to enhance those volumes, I think that would be a significant contribution. We survived the global financial crisis largely because of the expansion of trade with China. So we need to make ourselves relevant in the new mechanism because that will be how China develops its trade relationships with other countries in the future.”

Mr Turner says public policy should be a key part of New Zealand’s engagement.

“It will be interesting to see if China and New Zealand can work together to extend the sensible and good government policies shared between them across to China’s other trading relationships. New Zealand might be small but its government and industry are good at understanding those challenges and coming up with solutions that are non-bureaucratic and work for consumers.

“New Zealand diplomats actually pay their parking fines, so bringing good government, transparency and integrity to those processes is an excellent area for co-operation between China and New Zealand,” he says.

Ultimately, Ms Honey says, “all roads lead to Rome, or in this case, all Belt and Road initiatives lead to New Zealand.”

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China has been trading a far greater range of products with more countries for a lot longer (centuries) in larger volumes than NZ has or ever will. Yet somehow we can teach China a thing or too about trade - and they will appreciate and thanks us for it. How cute. How laughable. How utterly hopeless we are at understanding our place in the world.

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If I can paraphrase a Chinese associate with whom we were trying to do business. He said,"you guys are good at rugby, our best sport is business, your third best rugby team would win against our best...

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