Tony Browne discusses New Zealand-China policy in Canberra

15 July 2015

Speech to the ACRI Roundtable at the Australian Centre on China in the World at the Australian National University on 13 July 2015.

May I begin by thanking Bob Carr for encouraging us into this exercise, and for driving us to write this paper that draws together a number of strands in New Zealand’s complex and wide ranging relationship with China.

There is a nice symmetry to New Zealand and Australia’s relations with China.

On the same day in November 1972 the Whitlam and Kirk governments were elected. Within a month both had overturned the history of support for Taipei and recognised the PRC. Kirk acted a day after Whitlam, but to all intents and purposes the modern New Zealand relationship with China covers an identical period to Australia’s.

Some 42 years later Xi Jinping’s proclamation of China and Australia having reached a Comprehensive Strategic Partnership was matched a day later by Xi and John Key issuing a communique that accorded New Zealand the exact same designation.

We have ended up in much the same space. In broad terms we have developed our relationships with China along very similar lines; changes in China have by and large affected us in similar ways. Our judgements about what has been happening in China have been very similar, based in no small part on the closeness of the dialogue that historically exists between Canberra and Wellington, and between our respective diplomatic posts overseas.

But our policies towards China have grown separately, with so much in common but with different emphases, with different drivers.

As the Chinese market has grown New Zealand’s principal competitor in much of what we sell to China has been Australia. That constrains the scope for cooperation.

In security terms the ending of New Zealand’s alliance relationship with the US in 1985 has shaped a generation of security policies that have seen New Zealand occupy policy space that has from time to time caused unease on this side of the Tasman. Attitudes on issues involving China are part of that, though not as markedly as in some other spheres. In our paper we discuss not only some of the detail of our defence and security relationship with China, but also some of the thinking on defence and security policy that lies behind New Zealand sometimes making different calls from those made here.

The domestic political dialogue about China has, I sense, drifted us a little distance apart. I find it improbable that Mr Thawley’s recent comments would have been made in New Zealand.

How important is China for New Zealand today?

If it weren’t for Australia China would be our biggest trade partner, our largest source of tourists, our most important relationship in the Asia Pacific region.

Until the recent fall in dairy prices China had overtaken Australia as New Zealand’s largest export market.

China is New Zealand’s largest source of foreign students. It is increasingly becoming a source of investment capital. It has been by some margin the largest source of skilled immigrants to New Zealand over the last five years – with numbers well ahead of the UK.

If I may revert to the vernacular and quote our Minister of Economic Development in 2011: when reflecting on the Global Financial Crisis, he summed it up saying “If it weren’t for China we’d be buggered”.

Socially China is changing the face of New Zealand. In Auckland 12.1% of the population at the last census were people of Chinese ethnicity. It’s a significantly higher figure than for either Sydney or Melbourne.

So China matters for New Zealand

The paper that we have prepared for this roundtable is not however a comparative commentary on Australia and NZ policies and attitudes towards China. We have restricted ourselves to the New Zealand relationship, the New Zealand experience, and to some extent the New Zealand aspirations for where China fits into our future.

We have argued that there has been a substantial measure of continuity and consistency in the way New Zealand governments have managed the relationship with China. We have not argued that we have always got it right.

From the time in the 1980s that New Zealand attempted to have in place a coherent, whole of government approach to China (the relevance of which, as we have noted, we have rediscovered from time to time as institutional memories have faded). We have been driven by an acceptance that a country of New Zealand’s size and international weight cannot dictate to Beijing the agenda for our China relationship. But it has been in our national interest that we must remain visible, relevant, and active.

That has required us to establish a place in China’s international space that offers value to China that is not constrained by alliance or even like-minded positions. New Zealand proclaims for itself an independent foreign policy. The challenge has been to demonstrate in Beijing that that independence is a mark of our foreign policy, and in particular of our China policy. That not only can they distinguish us from Australia, but they can distinguish us from others with whom our views may in other circumstances normally be aligned.

The nimbleness that has required, a willingness to take risks with China and get out ahead of our friends, is not simply kiwi bloodymindedness. It is the product of some hard-headed thinking about the importance of China to New Zealand, and a willingness to put national interest ahead of ideology or what we have termed the comfort of the like-minded.

China likes to call New Zealand the country of the four firsts, or as some are now saying, the five firsts. The fifth, if that appellation sticks, highlights much about how New Zealand makes policy towards China. New Zealand was the first western country to apply to join the AIIB. Of course there were questions about governance and capital structure of the Bank.

We were well aware that there was pressure from Washington on countries not to join (though not as much on us as on Australia). But the New Zealand calculation was that the bank would go ahead, and that our interests – our wider interests with Beijing - were better served by being a willing rather than a reluctant or late participant. We would gain advantage from being first in a way that being part of the pack could never give us.

The most significant example of this willingness to make idiosyncratic judgements on how to advance our relationship with China is around the series of decisions that gained us the position as the first developed country to negotiate an FTA with China. The impact of that agreement was to see New Zealand merchandise exports to China quadruple in the first six years the agreement was in force.

There are a number of such decisions that New Zealand has made that will offer seams of riches for future researchers. Why for example, did New Zealand, faced with the same risk analyses that were being looked at by Australian ministers, decide to allow Huawei to invest in the national high speed broadband network? Why did we adopt different positions on the ADIZ issue? How was New Zealand able to recognise China as a market economy when others were unwilling to do so? How was New Zealand the first, and in fact the only OECD member to have FTAs with all three of Beijing, Hong Kong and Taipei. As a former diplomat with years spent on managing this relationship I like to think that good diplomacy played its part, but there is a bigger story to be told.

I do not want to sound as if there have not been difficulties along the way. Some of my colleagues on the New Zealand China Council would wax vociferous on the technical barriers that still frustrate and limit areas of our trade. There have been other problems along the way. Twice, in the early 1990s and again in 2002, our student market in China was seriously put at risk. We have seen ground breaking investments in both direction go horribly wrong. We have been through periods of tension and distance, such as after 1989. We have disagreed on human rights, on the rights of protestors, the Dalai Lama, Falun Gong and more.

Our very different political, legal and social systems naturally leave us apart on many issues. We have relationships that have been forged in both war and peace and have much longer standing and closer cultural affinity than we have with China. But we have worked hard on building this relationship, finding channels of dialogue, working on areas of common interest, establishing forums where we can and do address issues of both opportunity and difficulty. We have found ways to make our relationship work. We like to think that we have a track record of achievement.

There are still issues in the relationship with China today with which the New Zealand government is grappling, including around the question of Chinese investment, particularly in Auckland real estate and in the dairy industry. So far the government has resisted calls to introduce policies that might constrain the flow of investment from China. Bob assures me that there will be discussion on this, for on this we are now in a different space from Australia.

This tells you as much about the difference in the two countries’ economies as it does about our political and security settings. Let me say something about overseas investment in New Zealand.

New Zealand is a capital importer; we always have been, we have always needed to be. At nearly 50%, NZ’s ratio of FDI to GDP has long been higher than most comparable developed economies, including Australia. In the last 3 years, FDI was 57 times greater than New Zealand companies’ investment overseas. NZ’s net deficit in the stock of FDI to our ODI is high by OECD standards at 36% of GDP.

New Zealand has an investment regime that places very few hurdles in the way of international investors, and none that are directed at, or have particular application in the case of Chinese investments. Our policies are non-discriminatory, except to the extent that particular provisions may have been negotiated in an FTA or investment treaty. Chinese investors do not have the same access to New Zealand that Australian companies enjoy through CER. But there is an investment chapter in the NZ-China FTA, and the government has made it clear that it is not interested in policies that have a specific intent to disadvantage of otherwise be directed at investors from China.

China is now New Zealand’s fourth largest source of FDI stock. The full extent of Chinese investment is difficult to plot as only a small percentage comes directly from the PRC; most appears in our books as being from Hong Kong, Singapore or the Cayman Islands. But the best estimates are that since 2011, when China appeared as New Zealand’s 11^th largest foreign investor, net Chinese FDI into NZ has increased by an average of $1.25 billion a year, off a low base, but is still only a little over 5% of total stock.

The report gives more detail of where Chinese investment is going in New Zealand. On current trends though that is likely to reach 13% by 2020, an increase of $11 billion. Even that proportion is enough to generate substantial public debate in New Zealand, particularly over the levels of perceived investment in Auckland real estate, the dairy industry, and rural land more widely.

The preparation of this booklet has highlighted again for us just how closely linked to China New Zealand now is – politically, economically, socially. It was not long ago that the Wall St Journal referred to us as a vassal state. I don’t for a moment accept that. But this book does give a picture of a relationship that was not even within the bounds of the wildest extravagance of ambition when we began the journey with Beijing back in December 1972.