PAUL David Mahon arrived in China 25 years ago with a construction crew, working for Feltex to fix out Beijing's first high rise building, and now there are over 300 sky scrapers in the central business district alone. After only a few weeks he decided to stay in China, loved the place, he set up his own business. Today he's the head of Mahon China Investment Management advising people both Chinese and foreigners, how to do business in the people's republic. He's had a front row seat of China's economic revolution. So Guyon began by asking David Mahon just how hard it is to do business in China.
DAVID MAHON - Managing Director, Mahon China
I get to operate in, primarily it's a developing country, so it keeps changing. I mean just look at this Expo, look at the dynamic of Shanghai. But it's a very rewarding country to do business in because the difficulties create tremendous opportunities as well.
GUYON What are those difficulties, how is it tough to do business and operate in this market?
DAVID I think one of the problems that China faces is that unlike New Zealand where we have a very strong legal system, very strong commercial legal system, and the contracts and the general universal recognition of them means that you can do business with strangers, and you know you're in good legal hands. Whereas with China, although they have a very good legal system, it is rather unevenly applied, so people tend to do business with those they know. And that's where the relationship side of business in China becomes so important. So it's difficult and it's slow to start, but once you have momentum in that factor in a business, it offers a lot of opportunities.
GUYON You mentioned in your initial answer that it keeps changing, and you will have seen a lot of that change in modern times, in fact you were here in China and in Beijing when the Tiananmen Square Massacre happened. Tell us about your experience of that night.
DAVID Well to note that in the hours after it had begun to sort of quieten down, that was when I decided that I would stay for my working life in China, primarily because of the way that the people of Beijing dealt with the crisis.
GUYON How was that?
DAVID I think that the actual crackdown, the whole event was something that probably was unintended up until the very last minute. I think that the system got out of control. It was a very ghastly event and of course it could have become much more widespread across China. In a sense it was a litmus test for national stability. Without going into the sort of government side of things, I think it's universally understood what was going on. But the fact that China held together after that, means that it passed a test, that as we look at this present period of enormous economic growth, and other stresses and problems in the society, we can say that China passed in this era a test of stability, that we can actually sort of benchmark going forward and say, well it's unlikely that something like that's going to happen again on the horizon, given present circumstances.
GUYON What are the most visible aspects that change has manifested itself. I mean what do you see on the ground, the differences in the time that you've been here?
DAVID I think one of the major issues is that there's been mass urbanisation, and the growth of the cities has been just so so swift. On the one hand there are some tragic things. You feel in great cities like Beijing they have mortgaged the culture by bulldozing a 600 year old city in many parts to build these high rise buildings that they'll probably bulldoze again in ten more years and replace. So there's that cultural loss. But over 300 million people have moved out of basically subsistence existences into the cities. They're now earning money, the children are going to better schools than they could have otherwise gone to. So there's a liberation of people, probably the largest enfranchisement of people, socially and economically in human history. And just sort of to be part of that, or I would say to have been blown along by that is an extraordinary experience. I think that is probably the most profound change.
GUYON In terms of New Zealand doing business in China, how well equipped are New Zealand companies? Do they understand enough about the culture and the language and the business practice to operate well here?
DAVID I don't think that we are very well equipped. New Zealanders are people who one live in a geographic isolation, and I think we allow ourselves to take on an isolation of the mind because of that, which isn't actually easy to defend any more, with the tremendous interconnection with the rest of the world.
GUYON Are we too lazy? We know one language, we expect others to adopt our culture.
DAVID Well I think we have habits that we need to change. We go to where we're comfortable. We go to Australia to do business, we go to England to do business. Going to Australia is like going to the rich neighbours for lunch. Going to England is like going back to stay with your grandmother, and it's all very comfortable and it's all very within the sort of Anglo-Saxon English speaking world. But the future for New Zealand is Asia, and already China is our number two trading partner, soon to be our number one trading partner, and we are still teaching Latin and French and German in our secondary schools. We should have a whole generation of New Zealanders already that speak Mandarin, or even Bahasa so they can deal in Malaysia and Indonesia. We're a Southern Asian nation economically, but we still have a very Eurocentric mindset.
GUYON This is a country though still which as you write your own words, a market can be fraught with corruption and government interference. How does that corruption manifest itself?
DAVID It manifests itself in petty ways. It manifests itself at official levels. An example. If a farmer is going to sell his land to some foreign company, there's a measurement of land, it's a small parcel, a mu of land, it's like someone's back garden in New Zealand. It's price at the moment around Beijing is 80,000 ... Of that the government takes 50,000, so the farmer gets a pittance and following that he has to become an itinerant worker. It's not a corruption of sorts, but the system means that he is disenfranchised.
GUYON Is that something that you've had to do? Do you have to buy off officials in this country?
DAVID We have never bought off officials, and those that do are then owned by the officials that they have attempted to buy off, and that is the nature of corruption. But let's look at real corruption. The greatest act of corruption since 1930s has been the sub crime crisis. That was monstrous corruption in the most developed well governed legally contained countries in the world. This corruption is petty by comparison.
GUYON Petty by comparison with the United States?
DAVID Petty by comparison to the so-called developed world, whether it is New York, whether it is Frankfurt or whether it was London.
GUYON Have we got double standards in that regard do you think?
DAVID We've massive double standards. China is trying to manage a population of 1.4 billion people. China's dealing with poverty, it's dealing with distance, it's dealing with a lack of arable land, and it's struggling to actually achieve a better standard of life within some measure of a stable existence. It's making mistakes, and it's screwed a lot of things up. But the western world is very quick to judge China.
GUYON One of the things it judges on as well is labour standards. Are there labour standards here, are there minimum wages, safety guidelines for companies? I mean are workers treated well?
DAVID I think we should judge China on its labour standards, and the obligation of any of us who are doing business here, and we from New Zealand have an obligation. Any business that we invest in, that we run, we must bring New Zealand standards to that business, whether it is labour, our relationships with our workers, whether it is their safety in the workplace. China is a place and you've seen with the examples of Foxcon, you've seen the strikes of Honda and of Toyota. Foxcon was paying underneath the minimum wage which is very low anyway. There's been a level of wage slavery in China from foreign investors, many of them sadly Asian investors, which has been scandalous.
GUYON It's interesting you bring that up, I think they were paying them 150 dollars a month and then they got a 30% pay rise when they went on strike. Are we seeing the worker in China find his voice finally?
DAVID We're beginning to hear the worker's voice in China. We could now call this the Workers Republic of China, because China has come a long way depending on cheap labour, but it now needs that labour and the population is getting older.
GUYON And is that ending? Is it the beginning of the end for cheap labour in China. Those examples you mentioned, workers aren't going to put up with it?
DAVID They're moving inland. This is occurring on the coast, and then the sort of classic apology is they're isolated incidents. They're unconnected incidents, but if you move away from coastal provinces and you want to look for labour that is inexpensive you just go further and further west where costs of living are lower, and actually wages are lower, but still there is a change coming to China where workers of all kinds will be treated better. The fault in China is there is no collective bargaining system, and whatever we think of New Zealand's union history, which was pretty chequered in the late 70s and early 80s, we have inherited a legacy that goes back over a hundred years of collective bargaining in the workplace, bringing a level of civil rights. This will come in China, but it's going to come slowly and stutteringly.
GUYON I was talking to the Prime Minister earlier and he was saying what amazing opportunities the Free Trade Agreement has for New Zealand in this market. You believe though don't you that we are at the moment squandering and historic opportunity with China. How so?
DAVID Well we have a situation where we have a government that is in trade policy and political vision ahead of our private sector by about five years. So the Free Trade Agreement signed under Labour and now managed by the National Party and managed very effectively - John Key spends most of his time in Asia - this is a recognition of our own place now in terms of our economic history.
GUYON But you're saying business hasn't caught up with that?
DAVID Business is not catching up. We have a lot of larger companies that are engaging with China, of course you have Fonterra your have Zespri, you have some of the medium size businesses like Hamilton Jet, Tate Electronics, yes they're all here, but the base of New Zealand like most countries is SMEs and for New Zealand they are very small businesses. But their very existence and future depends on becoming regional players. They're afraid of China, they're too slow in terms of coming into China, and New Zealand companies seem to do something that is unusual in the developed world, they don't take advice when they enter markets. Very few Americans, British, Dutch, French, will arrive in China without local advice, strong homework in terms of assessing their sectors. New Zealand companies tend to come in and try and make it up as they go along. It's the No.8 wire syndrome and it doesn't work here. You need to be far better prepared.
GUYON Let's look at what might some back the other way. That's a question a lot of people are asking. What does China want from New Zealand, does it want our food, our land, I mean why are they in this Free Trade Agreement with New Zealand, what's in it for them?
DAVID China saw in New Zealand and ability to set a paradigm, against which other Free Trade Agreements would be compared. New Zealand is blessed with a level of political insignificance. New Zealand also not by choice, but we have become non aligned. We're the only really non aligned country in the OECD. So that China could do a deal with New Zealand at very little political cost. Economically the impact of our economy on the Chinese economy would of course be extremely slight, and we have already removed most tariffs and barriers to doing business in our country. So it's a very lost cost political move on China's part, and also China has developed a trust of New Zealand, that we are not going to be bullied and coerced by larger countries, but we do act with relative independence, and a measure of not kowtowing to China but a sense of sensitivity towards China. So low political cost, low economic cost. They don't want a lot from us. Yes they want to see our milk powder coming into China from New Zealand, they're looking to our forestry resources. I think they would like to see more students going to New Zealand. Their aims are actually elsewhere. The minerals of South America, of Africa, the minerals from Australia. These are the big strategic issues for China.
GUYON Just finally because we are running out of time, I wanted to quote you again where you're talking about tolerance and freedoms in China. You've said that there's been a recent crackdown again, but this loosening will probably resume, and when it does China will need to find the courage to become even bolder in stepping out of the way of the collective aspirations of its people. How far will that go? Will that go to a democratic end?
DAVID In 25 years I have seen a country where everyone wore the same clothes, they couldn't even associate with foreigners, the economy barely moved, to becoming a country where I would argue that individual right, individual mobility, and the ability for individual people, for companies, to seek some kind of recourse, and levels of transparency have been quite phenomenal. So we should compare China with what it was in the 80s to what it is today. Throughout that time it has been driven not because the Party necessarily has had all the good ideas, it has adapted to the aspirations of the people, and the political environment of China forms around those aspirations, which are largely for ordinary common things. And when I say that they will get out of the way, once the level of education is high enough, the level of common wealthy is high enough, then this political culture can behave in a different way in which it governs the country.
GUYON Thank you very much David Mahon for joining us on the programme, we really appreciate it.