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John Key interview on NZ and China

Published: 2:45PM Sunday July 11, 2010 Source: Q+A

PAUL On Friday night in Shanghai Guyon Espiner sat down with Prime Minister John Key. Now last year while other markets shrank, our exports to China grew by 43% and effectively this increase saved us from the global recession. Guyon began by asking John Key whether China was now our economic saviour.

JOHN KEY - Prime Minister

It's going to play a large part in that. If you think about the increase in exports from New Zealand to China last year, it was the equivalent of everything we sold to Indonesia. That was the increase. So it's a huge market and it's growing by an Indonesia every year. And there's two things happening here which are very interesting. The first is with the FTA, the tariffs that we pay are reducing every year, so every year we're becoming more competitive in terms of our goods, and then the Chinese population is getting wealthier. So you know Shanghai, Beijing, 20 million people each, quite high disposable incomes and rising. So yeah I mean you look at it, we've agreed with Premier Wen to have a target of doubling New Zealand's exports from ten billion, or New Zealand and China's two way trade from 10 billion to 20 billion in five years.

GUYON If the aspiration plays out, it would surely surpass Australia as our largest market wouldn't it?

JOHN Yeah, I think in the medium term that's going to be the case actually.

GUYON How long?

JOHN It's hard to know, there's a number of factors and things on the exchange rate, and you know assuming it's a smooth transition here in China, and they keep growing at 8 % a year. But what will change is the balance if we're going to achieve that. So last year we imported about six billion from China and exported four billion, notwithstanding that was a substantial increase. If we're going to get to 20 billion what that's gonna look like, I dunno, maybe six to say - their imports going from six billion to eight billion to New Zealand, but the export's going from four billion to 12 billion. So this is a big export destination.

GUYON Well let's look at some of the pros and cons, or you know what's coming and what's going, because obviously trade is a two way street. If we look at Australia their exports to China also doubled in the last five years, but Chinese investment in Australia went up a hundredfold. Are you expecting those sorts of numbers to be coming the other way in terms of Chinese investment into New Zealand?

JOHN Yeah that's an interesting question. China's actually not a large investor in New Zealand at the moment, last time I looked I think it's about our 13th largest investor.

GUYON Around two billion dollars at the moment.

JOHN Yeah, and it's light years away from Australia which I think is 80 odd billionish.

GUYON So what are the prospects though that a lot of Chinese investments comes back the other way?

JOHN Well I think there will be investment in New Zealand. We saw that last year, just as a good example, Haier taking a stake in Fisher and Paykel, you will see others. And in fact on two occasions now the Chinese leadership have raised with me this idea of China and New Zealand working together on joint ventures, potentially in third party countries. So I think the way they're thinking that might work would be New Zealand puts up some technical expertise, let's say in agriculture, they put up capital, we develop farms in Latin America and export food to China, because their demand is just going to be exponential over the next five to ten years. So it's not necessarily investment in New Zealand, it could be investment in other parts of the world.

GUYON Are you sensitive about that? It's interesting that you raise that as a potential outcome, that the investment goes somewhere else. Are you sensitive about the extent to which the Chinese might want to invest and buy our farms?

JOHN Not really. Well in terms of farms yes, but not in terms of the overall desire to want to do things together. So look I think if you go to the issue of farms, I'm not particularly xenophobic about that, or particular the view that this is an anti Chinese thing. My general view is if we sell farms offshore in large numbers, that's not a good thing for New Zealand, simply because I don't think it adds a lot of value. It doesn't create a lot more jobs. It doesn't bring anything new to the table. But if China and New Zealand were to get together and let's say develop a major processing plant in New Zealand, or major let's say wood processing plant in New Zealand, I think that would be a good thing. So it depends on what value added is coming out of the equation.

GUYON We've had raised before the prospect that China might want to build infrastructure in New Zealand. When you've had discussions with political and economic leaders in China, have they talked about building roads and building infrastructure projects in New Zealand?

JOHN The business leaders when we do. We had a bit of a round table yesterday, equivalent to sort of what we do with the United States, where we have the US/New Zealand partnership forum, we have kicked off an idea like that here in Shanghai, and there were some very heavy hitters around the table. So some big players, both from New Zealand and from China, and they certainly have a desire to want to do things in New Zealand and increase their involvement.

GUYON Are there specific projects that have been looked at, I mean I've seen commentators talk about projects like Transmission Gully in Wellington. I mean is that a realistic thing that the Chinese might come and do something like that?

JOHN They might do, and at the end of the day from New Zealand's perspective I mean we're looking for value for money. So let's take ultrafast broadband, they've got a lot of expertise in that area, Huawei is a big player, they're bigger round the world, they've got a huge partnership in the United Kingdom for instance. No one's saying they would be the final selected partner in New Zealand but they've certainly got the capacity if they wanted to, to come in and look at doing something like that. So you know from New Zealand's point of view the bottom line is, can we get investment, can we get ultimately value for money?

GUYON It's the right type of investment that you want obviously. You seem to be saying that's not farms. You're not interested in the Chinese or anyone else, foreign companies, foreign countries coming in and buying New Zealand farms. Not a good thing?

JOHN Well I can't see what it really delivers for New Zealand. I mean at the end of the day to me I think the future of New Zealand lies in about three distinct areas. So one's tourism, that's why I'm the Minister. The second is fundamentally around food production of any sort, so whether it's wine, agriculture, horticulture, you know you kinda name it, anything in that category is gonna be large, very large increases. And then the last is the high tech sector, whether it's anything from films right through to some of the science based projects that we see. Now if you just go and have someone buying a farm, I really can see what that transforms in New Zealand. But if let's say, I don't know, Fonterra was to build a processing plant with a very large Chinese dairy company, would that be a good or bad thing, well it might be a good thing. So it just depends on what it is.

GUYON Let's broaden this out, China the numbers are staggering. They've got 20% of the world's population, they manufacture something like half of the world's clothes, and half of the world's shoes. So the rise of China is not in any doubt at all. It looks as though they are in the position to shape the world in their own image in a way that say America has done over the last five decades. Do you think that's what's going to happen?

JOHN Well I think a balance of power is unquestionably taking place from to a certain degree the West to the Asia region. Not just China, I mean India's a big player, so are - you're seeing countries like Korea, Malaysia and Indonesia, all starting to branch out and be successful. But you know the 400lb gorilla in the room is China, and that's because of its population, and partly actually believe it or not, it's a capitalist society with this communist state, And so their capacity just to do things instantly is mind blowing.

GUYON I want to talk about that in a second, but what will that mean for New Zealanders? Will that mean that our young people take their overseas experiences in China? Will it mean that our young people migrate to work there?

JOHN Well interestingly enough, if you have a look last year, this is the first year in New Zealand that more students in New Zealand started learning Mandarin than Latin. And I think what that shows you is we've been a little bit slow actually to recognise that power base that's changing. There will be no question a lot more New Zealanders will start studying in China, coming to China.

GUYON It's interesting that you brought that up actually, because we've got something like over two and a half thousand schools in New Zealand, I'm told 89 of them teach Mandarin or Chinese. I mean that's woeful isn't it?

JOHN Totally, and if you think about the number of students coming to study here in China, it's quite small.

GUYON So what are you going to do about that?

JOHN You raise an interesting point which is, it's one thing to have an FTA, I think it's quite a different thing to have a China strategy. And why would you want to have a China strategy? Well you're not going to double two way trade from 10 billion to 20 billion, crossing your fingers and hoping it might happen. I think you've actually gotta sit back and say what are the component parts, what's does it take, and it's unquestionably people ...

GUYON We can't understand these people if we can't understand them literally can we? So what are you going to do about the fact that we have by your own admission, a woeful level of tuition in Mandarin and Cantonese and Chinese languages in New Zealand schools? Are you going to make it compulsory to learn Chinese?

JOHN I don't think we'll make it compulsory, but I do think we should start talking much more actively about thinking about what are the skills that we will need.

GUYON Could you ask the Education Minister perhaps to look at that, because it would seem something that as you say it's not gonna happen if you cross your fingers?

JOHN Well funnily enough we have had both of the Education Ministers in China very recently, both tertiary education and compulsory sectors, so Steven Joyce and Anne Tolley. And I know that's you know just one of the issues they're considering. The other is can we build on that export education, and educate more Chinese students in New Zealand. The answer to that is absolutely we can. We've got a very good reputation in that.

GUYON But do you want to extend significantly the amount of Chinese language learning that occurs in New Zealand?

JOHN Well I would personally be in favour of that. I think that makes a lot of sense for our youngsters to be able to understand the language so they can understand this market. And I mean in the end you look at it and you say, what is going to deliver an economic step-change too New Zealand. And the answer is 1.3 billion people in China who are getting wealthier by the year, who are demanding more of the goods that New Zealand produces, and have the financial grunt to actually buy what we sell. And in my view it's not a question of us being fearful of it, we should actually be embracing what's happening here in China, because that's got the capacity to deliver the sort of wealth effect that we saw in the Holyoake years, where for well over a decade New Zealand was a big producer and a very wealthy country.

GUYON One commentator has suggested bringing Asian teachers out to New Zealand, just what Asian countries have been doing, taking New Zealand teachers to teach them English. I mean is that the kind of thing you might be looking at?

JOHN All of those things we can look at.

GUYON Have you done that?

JOHN Certainly on the tourism side we've done a little bit of that, and we're increasingly doing more. I met with a number of the big tourism operators when I was here in China, and look I genuinely think we've gotta take a step back. I mean one of the things we've done here, just as an example in Shanghai, is 15 months ago I launched an entity called New Zealand Central. Now it's a place where companies can come, hold all sorts of functions and try and get together with the Chinese market, and their customs over here. In the 15 months since I launched it seven and a half thousand New Zealand companies have held functions there, including one just a day ago. That's part of having a logical Chinese strategy. I mean the wine industry just to give you an example, it's very fragmented in New Zealand, we're not really getting the cut through here that we could do, but we're starting to see a strategy emerge. I want to go back and talk to the wine industry about how they really get into this market, because again the volumes are just mind blowing.

GUYON There are big gains there no doubt. Let's talk more though - you mentioned strategy, a China strategy. Let's talk about this though in the broader sense, because our old alliances with Britain and Australia, they were based on shared culture and shared language, shared military history. Other than money and trade, what is our relationship with China actually really based on?

JOHN Well first of all we have quite strong people with people links now, I mean there's about a quarter of a million Chinese New Zealanders living in New Zealand. So it's not exactly as if the population in one sense doesn't represent what's happening here in China. But yes it's very different. I mean we went to war with our friends and our allies in Britain and Australia and the United States and the likes. We didn't with China and we won't in the case of China, so it's a different relationship, it's a commercial relationship.

GUYON It's a commercial relationship?

JOHN Yeah it's a commercial relationship.

GUYON Is that it?

JOHN Well we're geographically in the same sector of the world.

GUYON I just find that really fascinating, because I mean we're miles apart in our world view. I mean they're a one party state, they don't believe in freedom of speech, they lock up people who are dissenters, or that they don't agree with their religious practices. Are they the values of a country that you want to partner with?

JOHN Well the question is one, are they changing?

GUYON Well are they?

JOHN Well I think to a certain degree they are.

GUYON In what respects?

JOHN Well I think you are seeing them starting to reach out and recognise the world's position and view on things like human rights. I'm not saying the steps are rapid, but there is some progress that's being made. So that's the first thing that you're starting to see over here. And the second thing is, what would be served from New Zealand ignoring this market. I think the answer to that would be sure but very very little.

GUYON But we're not ignoring it, we're embracing it aren't we?

JOHN Yeah, but interesting enough though, if you go back to one of the reasons why the relationship's quite strong between New Zealand, very strong actually between New Zealand and China, is that New Zealand's had what's called the four firsts with China.

GUYON Yeah we were the first to recognise them in a number of respects, and I respect that, but we are running out of time a little bit and I do want to focus on those issues of alliances. Do you raise human rights issues when you meet with the Chinese leadership and what do you say?

JOHN We do, and we did last time we saw Premier Wen.

GUYON What do you say?

JOHN Well we say that New Zealand recognises human rights, we want to continue to have that discussion with you.

GUYON Do we say anything specific? I'm fascinated about this. Do we say we don't really like what you're doing in a particular province, or didn't like what you did with certain kinds of people, or what do we actually say?

JOHN At a leaders' level, not we don't go in and berate them if that's the question. But what we do do is we say look we want to have dialogue with you on human rights. We do that through - there's an ambassadorial programme, so we talk to them at that level. The Foreign Ministers get to quite specific details at that level. You know at a leader level I go in there and say look New Zealand has a proud record in human rights, it's an area where we want to continue to have dialogue with you and exchange views and exchange ideas, because we have strong views in that area. Now should we get down to an individual level? I think that's really not what's necessary, unless there's a specific thing that we're concerned about, and at this point you know that's not something we take up at a leader level.

GUYON Just finally, do you get a sense from China that it wants to move towards democracy?

JOHN I don't think they do actually in the very short term, that's not the sense I get. Look I think they've got a model that's actually working here which is they have a lot of people, they've got a very planned and staged strategy of how to bring this country into an economic powerhouse. It's not easy to manage some of the issues that they actually have.

GUYON Democracy's not part of that?

JOHN I don't think they see that as the big - in fact I think they see their current structure as the competitive edge over India where there is democracy, and about a similar type of population. Now will it change over time? History tells you most cultures have, but in China's case they're very focused on getting these people into the 21st century of economic wealth, providing for their people, and probably increasing the reach and the influence of China. And you've gotta say over the last 20 years they've done a pretty good job.

GUYON Good place to leave it. Thank you very much Prime Minister for making time with us on the programme, we really appreciate that.