New Zealand

15 September 2012

An address at the University of International Business and Economics in Beijing

Today, I’ve been asked to talk a bit about my own country, New Zealand, and of course it’s always a pleasure to talk about one’s own country.  But it’s a particular pleasure to talk about New Zealand here in Beijing because it’s very much in New Zealand’s interest for people in this great country to have a better understanding of my part of the world.   New Zealand is not very important to China, but China is very important to New Zealand, and it’s becoming more important with every passing year.

I’m going to cover three main topics:

  • First, I want to make some general comments about New Zealand, its people and its economy;
  • Second, I will talk about the growing links between our two countries; and
  • Third, I will talk about Chinese investment in New Zealand and New Zealand investment in China.

And after I’ve covered those three subjects, I’ll conclude by making some personal observations about the relationship between our two countries.


New Zealand: its people and its economy

Compared to the population of China, New Zealand’s population is tiny.  No, we’re not a micro-state, like some of the islands in the South Pacific with just a few thousand people.  But our total population is just 4.4 million people.  I thought of showing New Zealand’s population compared with China’s population on a graph, but realised that the magnitudes are so different that no plausible scale would be adequate to show the difference.  New Zealand’s population is just 20% that of metropolitan Beijing, or about 0.3% of China’s population.  Put another way, Beijing has five times as many people as the whole of New Zealand, while China’s population is more than 300 times that of New Zealand.

So in terms of population, we are a small country.

In terms of area, we are somewhat larger.  Our total area is 268,700 square kilometres.   That makes us about 10% larger than the United Kingdom in area, but less than 3% of China’s area.  Given that our population is just 0.3% of China’s population, and that our area is a little under 3% of China’s area, it follows that China is more than 10 times as densely populated as New Zealand is.  Of course, these comparisons are not terribly meaningful — in both countries, large areas are quite uninhabitable.

Being an island country, New Zealand also has a very large Exclusive Economic Zone around it.   Indeed, our Exclusive Economic Zone covers some 4,300,000 square kilometres of ocean, some 16 times New Zealand’s total land area.  It’s the fourth largest Exclusive Economic Zone in the world.  Including our Exclusive Economic Zone, we are quite a large “country”!

Because of this very large Exclusive Economic Zone, New Zealand enjoys a very considerable fisheries resource.  And it’s a resource which is very well managed.  As long ago as 1986, we introduced a Quota Management System, under which a yearly catch limit is set for every fish stock.  Under this system, the commercial catching rights for each of New Zealand’s 636 fish stocks have been split into quota shares which can be freely bought and sold among New Zealand residents.  The system is widely regarded as the best in the world for ensuring that our fisheries remain sustainable indefinitely.

More generally, we have a generous endowment of natural resources.  A World Bank survey some years ago concluded that New Zealand’s natural resources per capita were second only to Saudi Arabia.   

Despite relatively little exploration for hydrocarbons to date, we have reasonable resources of oil and gas, and very substantial reserves of coal, including lignite. 

We have a huge abundance of fresh water — in fact, more fresh water per capita than all but two other countries in the world (Canada and Papua New Guinea).   We have some 90,000 cubic metres of annually renewable fresh water per person, whereas China has some 2,000 cubic metres per person. 

As a result of our abundant water resource, a high proportion of our electricity comes from hydropower.   Living on the boundary of two major tectonic plates has some big disadvantages in the form of vulnerability to periodic earthquakes, but it also has the great benefit that we have a substantial geothermal resource, from which we can generate a great deal of electricity.   So in total, a major part of our electricity already comes from renewables, none of it from nuclear, and less than 25% of it from oil and gas.

Another obvious consequence of our abundant fresh water is that we can export a great deal of that water in the form of agricultural products — dairy, meat, fruit and vegetables, and wine.   Our ability to produce food is also helped, of course, by the temperate climate, which is typical of the whole country.    

That climate is also ideal for growing lumber, and we grow several varieties of exotic trees more quickly than the countries of which they are native.  Indeed, we have some of the largest plantation forests in the world.

And we have some gold and other minerals — in fact, we probably have a lot more minerals that we don’t even know about, because much of the country has not yet been properly assessed for mineral potential.

One of the “resources” which has become increasingly important in recent years is New Zealand’s natural beauty.  We don’t have the long history of China — indeed human settlement probably goes back no more than a thousand years, making us the most recently settled significant land mass on the planet.  And we don’t have great cities like Beijing and Shanghai.  But we do have stunningly beautiful mountains and fiords, spectacular geothermal activity, great lakes and rivers — and golf courses! 

So our resource endowment makes us one of the most fortunate countries in the world.

In addition, we are fortunate to have inherited from the United Kingdom a stable political system and the rule of law.  Our political system is still largely based on the British one, though about 15 years ago we adopted the German system of proportional representation.

Australia is sometimes referred to as the lucky country.  We are at least as lucky!



New Zealand’s relationship with China

New Zealanders have been dimly aware of China from at least the middle of the 19th century when some Chinese men arrived to take part in the gold rush of the 1860s with the encouragement of the Dunedin Chamber of Commerce.  By 1869, there were over 2,000 Chinese men working in or around the gold-fields in the southern part of New Zealand.  All came from the Guangdong area.

By 1881, there were just over 5,000 Chinese people in New Zealand, all but nine of them men.

But I’m ashamed to admit that in the late 19th and early 20th centuries, New Zealand discriminated against Chinese immigrants.  In 1881, a poll tax of 10 pounds was introduced and levied on any Chinese immigrant, and in 1896 this tax was raised to 100 pounds.  Permanent residency was denied to Chinese immigrants until 1926, while no Chinese people were eligible for the taxpayer-funded pension scheme until 1936.

Some of the early Chinese immigrants succeeded despite this discrimination.  One who has been honoured in the New Zealand Business Hall of Fame was Chong Chew, who arrived in New Zealand near the very beginning of Chinese migration to New Zealand, in 1867.  He started a very successful business exporting a variety of fungus to China, and in 1885 opened a butter factory.

But it was only after the Second World War that attitudes began to change significantly, though then of course the change of government here in China meant that few if any migrants came directly from China to New Zealand at that point.  We did receive a small flow of Chinese immigrants over the next few decades, but they were from other parts of Asia — Singapore, Hong Kong, Indonesia, Malaysia, Taiwan, and so on.

The big flow of Chinese migrants began in the late 1980s following a change in New Zealand immigration policy.  Today, people of Chinese ethnicity make up nearly 4% of New Zealand’s total population, and are the largest ethnic group after European New Zealanders, Maori (New Zealand’s indigenous people) and Polynesian.  There are Chinese people in every walk of life in New Zealand — doctors, lawyers, engineers, business executives, farmers, retailers, and politicians.  The first Chinese person elected to the New Zealand Parliament was Pansy Wong in 1996, and there are Chinese people in both major political parties today.  The mayor of one of our largest cities until recently was Chinese, and the mayor of one of our smaller cities has been Chinese for a number of years, and is unusual in speaking Mandarin, English and Maori.  In several recent years, China has been the source of more immigrants to New Zealand than any other country except the United Kingdom.

And in 2002 the New Zealand Government formally apologised to Chinese New Zealanders for the injustice they suffered as a result of the poll tax and other discriminatory measures early in our history.

There has been a similarly dramatic change in our political and trade relationship with China.  As with many other developed countries, we did not recognise the government here in Beijing as the government of China until 1972, 40 years ago this year.

In 1997, we were the first western country to conclude a bilateral agreement with China on its accession to the World Trade Organisation.

In 2004, we were the first developed economy to recognise China’s status as a market economy.

In the same year, we were the first developed country to enter into negotiations with China to establish a Free Trade Agreement, and in 2008 we were the first OECD country to actually sign a comprehensive Free Trade Agreement with China.  We are still the only developed country with a comprehensive Free Trade Agreement with China.

Accompanying these negotiations there’s been a succession of high level visits by political leaders from both countries.

And in parallel with these developments we’ve seen a truly astonishing growth in our two-way trade with China.  When the Free Trade Agreement came into force on 1 October 2008, it was expected to lift New Zealand’s exports to China by between NZ$225 million and NZ$350 million per year — roughly by between 1.1 billion yuan and 1.8 billion yuan.  In the event, exports increased in the first year by NZ$1 billion, or about 5 billion yuan.

Twenty years ago, New Zealand’s trade with China was very small.  Today, China is our largest single source of imports, the second largest destination for our exports, and our second largest trading partner over all.   Last year, exports from New Zealand to China increased by 22%, while over the last four years exports to China have trebled.  In fact, over the last two years New Zealand’s exports to China have grown faster than our exports to any other major nation in our history.   And these data don’t include exports to Hong Kong, many of which are thought to end up in China as well.

Australia is New Zealand’s largest export market, and of course China is Australia’s largest export market.    So between China’s effect on New Zealand through our direct trading relationship, and China’s effect on New Zealand through its trading relationship with Australia, there can be little doubt that China has played a key role in New Zealand’s economic growth during the international turmoil of the Global Financial Crisis.

At this stage, exports of dairy products are by far our biggest single export to China, but wood, wool, seafood and meat are also important.  In addition, there is a range of smaller exports which are growing rapidly, including aluminium, wine and fruit.

On the import side, we buy a very wide range of products from China, including electrical machinery and equipment, textiles, clothing, footwear, and toys.  Those imports have played an important role in keeping inflation low in New Zealand by giving New Zealanders access to a range of inexpensive goods.  (A couple of years ago, a well-known New Zealand writer wrote a book entitled “Where do underpants come from?” after he was astonished to find a pack of five pairs of men’s underpants on sale in a major New Zealand retailer for just NZ$8.99 — less than 50 yuan.  The answer to his question, of course, was China.)

There has also been a huge expansion of trade in services.  Until 1998, a New Zealand quota system permitted only 100 Chinese students per year to study in New Zealand.  That restriction was removed at roughly the same time that China also allowed greater freedom for Chinese students to study overseas.  Today, there are more than 20,000 Chinese students studying in New Zealand (not including, of course, the Chinese students who have New Zealand residency), and China is the largest source of foreign students in our schools and universities.  And I know from personal experience that Chinese students tend to do extremely well in New Zealand, as indeed they do all over the world.

In addition, there are some 2,000 Chinese students enrolled in China-based New Zealand educational programmes.

There has been similarly rapid growth in tourism.   In 1999, New Zealand was granted Approved Destination Status by China, and since that time the number of Chinese visitors has soared.  Over the last 12 months, spending by Chinese visitors to New Zealand was exceeded only by spending by visitors from Australia and the United Kingdom, and it is very likely that spending by Chinese visitors will exceed that by British visitors very shortly.

So in recent years, China has had an enormous influence on the New Zealand economy, and indeed on New Zealand more generally.  Although very few New Zealanders (except those of Chinese ethnicity) can speak any Chinese language, celebrating some of the important dates in the Chinese calendar is becoming routine for a great many New Zealanders.


Chinese investment in New Zealand and New Zealand investment in China

A curious exception to this rapidly growing relationship is the very low level of investment by China in New Zealand, and by New Zealand in China. 

Despite China’s being our second largest trading partner, Chinese investment in New Zealand was only NZ$1.8 billion (about 10 billion yuan) at the end of 2011, spread across investment in forestry, manufacturing, agriculture and government bonds.  Among Chinese investments is a 20% stake by Haier in Fisher & Paykel Appliances, New Zealand’s largest manufacturer of domestic appliances, and a 51% stake by Bright Dairies in Synlait Milk.  Chinese investment in New Zealand seems likely to increase somewhat in the near future, given the recent approval of Shanghai Pengxin’s acquisition of 16 dairy farms in New Zealand and the apparent intention of Jiang Zhaohai, the chairman of Shanghai Pengxin, to buy further assets in New Zealand.  But the figure of NZ$1.8 billion made China only the 11th largest investor in New Zealand as of last year.  (By comparison, Australia’s investment in New Zealand as of last year stood at NZ$52 billion.)

In the other direction, New Zealand had invested just NZ$790 million (about 4 billion yuan) in China as of last year, making China the 13th largest destination for New Zealand investment.  Almost certainly New Zealand’s largest investment in China is by Fonterra, New Zealand’s dominant dairy producer.  Fonterra  already operates three large dairy farms in China, and is looking to expand this by spending close to 5 billion yuan over the next six years with the aim of producing half a billion litres of milk in China by 2015 and one billion litres by 2018.  Other investments include those by Rakon (in high-tech), Icebreaker (in high quality clothing), Richina (in leather processing and property), and GlobalHort (in kiwifruit growing).

I suspect that one of the reasons there hasn’t been much Chinese investment in New Zealand to date is that Chinese business leaders sense a degree of public hostility in New Zealand towards foreign investment in general and Chinese investment in particular.  That was certainly evident during the process by which Shanghai Pengxin got approval to buy their 16 dairy farms.  And given that Chinese investment in New Zealand is likely to be biased towards food production — and therefore potentially land ownership — this public hostility may well continue.  Land ownership is a particularly sensitive issue in many countries, and of course public concern on this is made more acute by the fact that New Zealanders can’t own land in China.  (New Zealanders seem unaware that over the last five years sales of land to Chinese investors have been less than 1% of total sales to overseas investors.)

But the New Zealand Government has made it clear that it welcomes investment from China — as recently as last month, the Deputy Prime Minister, Bill English, gave a major speech to the New Zealand Contemporary China Research Centre conference in which he made it very clear that New Zealand benefits greatly from foreign direct investment, including that from China.

From the point of view of a business in China contemplating investment in New Zealand, New Zealand has a lot of things going for it:

  • First, as I’ve mentioned, the country has an abundance of the natural resources which China has an interest in buying — including especially those based on food and fibre.
  • Second, New Zealand is politically stable.  While the approval of the Overseas Investment Office is required for any investment involving “sensitive land” (and that means almost all land outside urban areas), for investments involving a value of more than NZ$100 million (about 500 million yuan), and for investments in fishing quota, there are no restrictions at all on the remittance of profits, or the repatriation of capital.
  • Third, New Zealand ranks third in the world for ease of doing business according to the World Bank “Doing Business” report in 2011, and first in the world for protecting investors according to the same report.  Transparency International ranks us first equal for lack of corruption, while the IMD World Competitiveness Yearbook in 2010 ranked us first in the world for the absence of protectionism.  Registering a company takes just one day, while registering a property takes just two.
  • Fourth, New Zealand tax rates, though higher than in Hong Kong or Singapore, are moderate by the standards of many developed countries, with a company tax rate of 28%, a top personal tax rate of 33%, and no capital gains tax.
  • Fifth, New Zealand has a strong banking sector, with all the major banks rated at AA- or better by Standard and Poor’s.  The central bank, the Reserve Bank of New Zealand, has primary responsibility for maintaining the soundness of the financial system, and is independent in the operation of monetary policy.   For more than 20 years, inflation has been at a low and stable level.
  • Finally, New Zealand has an immigration system designed to facilitate investment, with preference given to those who are able and willing to commit to investment in New Zealand.

In short, New Zealand provides an attractive environment for investment, including investment from China.


Some personal observations

Let me conclude by making a few personal observations.  To me, the relationship between New Zealand and China is not only close but surprisingly so. 

China is now the second largest economy in the world, the most populous country in the world, and a country increasingly able to project power.

New Zealand by contrast is very small and has absolutely no pretensions to Great Power status.

Yes, New Zealand has some of the resources which China’s growth and prosperity will depend on, and that explains some of the close relationship.  But there seems to me to be more to it than that.

I suspect part of the reason may be because of the close relationship which Rewi Alley had with the leadership of the Communist Party for many years, both before and after 1949.  Rewi Alley was, of course, a New Zealander (indeed, he went to the same high school that I did!).  He lived and worked in China for some 60 years until his death in 1987.

When I made my first visit to China in 1986 to discuss cooperation between our two countries in the kiwifruit industry, shortly before his death, he was well known to those who hosted my visit.

When I visited China in June 1990 as Governor of the Reserve Bank of New Zealand, I met with Premier Li Peng, and he was very much aware of Rewi Alley’s contribution to China.

I visited China five more times during the 1990s when I was Governor of the Reserve Bank — partly because we had a Memorandum of Understanding under which the People’s Bank of China sent two mid-level staff to the Reserve Bank each year to see how a market-economy central bank operated — and each time I was struck by the awareness of Rewi Alley’s contribution to China.

Ironically, I suspect Rewi Alley is much better known among China’s leaders than among New Zealanders.

But for whatever the reason, I’m very glad that our two countries have such a positive relationship — I have no doubt that it can be of very great benefit to us both in the future.

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Copyright © 2020 Don Brash.