Hon Phil Goff
Minister of Trade

Friday 16 February 2007, 4.30pm
Speech Notes

Business Briefing: The New Zealand – China Connection

Bell Gully, Shortland Street, Auckland

This century has been labelled as “China’s Century”.

Of its 1.3 billion people, more than 100 million are affluent, another 350 million have increasing real disposable income.

China’s economy is currently worth US$2.3 trillion and continuing to grow at a rate of 10 percent per annum.

It is on track, within 20 years, to surpass the United States as the world’s largest economy. It is a huge market and getting bigger.

The impact of China’s growth on New Zealand’s economy is already obvious. Our two-way trade is valued at over NZ$6.1 billion.

It’s our fourth largest trading partner. Over the past decade, our merchandise exports to China have tripled to over $1.5 billion. It has grown faster than any other of our markets.

We earn over $1 billion from services exports, mainly through education and tourism but also in niche markets such as engineering and other services.

China’s emergence as a regional and global power is changing the nature of regional and global business, and politics.

Late last year I led New Zealand’s largest ever international trade mission, to Shanghai and Beijing. We flew into Shanghai on Air New Zealand’s inaugural flight, and the first direct air link between China and New Zealand.

Those for whom China was a new experience were staggered at the growth, size, prosperity, sophistication and opportunities, which metropolitan China presents.
They came away enthused.

While the market in China presents enormous opportunities, we cannot simply sit back and wait for these to fall into our laps.

To win the benefits which are on offer requires effort, skill, knowledge and understanding of the market, and determination.

And it requires increased activity from both government agencies and the private sector.

The Government does not export, the private sector does.

Our success in exporting relies on the quality, cost competitiveness and marketing of the goods and services our exporters produce and the innovation and creativity put into these products.

But the Government can facilitate these efforts, by building the wider relationship within which trading takes place. It can remove obstacles to trade by negotiating a free trade agreement and by working multilaterally through the WTO to remove tariffs and other barriers to New Zealand exporters. Through New Zealand Trade and Enterprise it advises and helps build the capability of New Zealand companies and sectors.

In China NZTE is targeting in particular those sectors where we see significant potential for New Zealand, such as food and beverage, wood, agritechnology, aviation and marine technology and education.

At both a country and a company level, An important component of successful trading initiatives is building relationships, what the Chinese call guanxi.

New Zealand is working at building a comprehensive relationship at a political, cultural and people to people level.

We have made good progress on that. The frequency of high-level visits between our two countries has been remarkable. We have access and profile in China beyond what a country of our size would normally achieve.

There are numerous sister city relationships.

Cultural diplomacy has grown with Natural History New Zealand, having worked with CCTV to produce five one-hour documentaries on New Zealand, which have been shown on China TV to an audience of hundreds of millions.

Our New Zealand Chinese community has established important business relationships between the two countries. The Kiwi Expatriates Abroad organization in China has grown rapidly and is ready to give advice to New Zealanders wanting to know more about the market.

In removing obstacles to trade, the current free trade negotiations are the centerpiece of our efforts.

The tenth round of its talks were held in January and further progress was made though much hard work still lies ahead. The goal on both sides is to complete the negotiations by April 2008.

We were the first developed country to enter into FTA negotiations with China.

Our level of ambition for a strong agreement started at a much higher point than China’s. However, Premier Wen Jia Bao’s comment during his visit to New Zealand last year that the agreement should be comprehensive, high quality, balanced and of mutual benefit has been a useful reference point in the negotiations. At the East Asia Summit in Cebu last month Premier Wen and Prime Minister Clark met again and reiterated their commitment to such an agreement.

New Zealand is seeking complete elimination of tariffs on all goods of trading interest, though for sensitive products these will likely be phased out over a number of years. Dairy remains an issue for China, though it ought not to be. New Zealand has neither the interest nor the capacity to damage China's dairy industry, which has doubled its production since its tariffs were halved after China's accession to the WTO. New Zealand is seeking a cooperative relationship with China's dairy industry with Fonterra making a $100 million investment in the Chinese dairy company San Lu.

On services, investment and government procurement, we would prefer so called Most Favoured Nation status which allows each side to benefit from any advances made by the other side in subsequent negotiations.

However, China has been unable to commit to that, and negotiations currently centre on areas of key interest to both sides rather than an across the board MFN.

The closer a negotiation gets to conclusion, the harder are the outstanding issues which remain to be resolved, but good will and a genuine desire on both sides for an outcome will, I believe, help us to reach an agreement.

Depending on the ambition reflected in that agreement, New Zealand exports are estimated to increase by between $260 and $400 million each year over 20 years above the level of growth, which would otherwise have occurred. Tariff savings to New Zealand exporters will be over $100 million.

Just as importantly, an outcome will achieve a higher and more positive profile for New Zealand that will strengthen our trading and overall relationship with China quite significantly.

A free trade agreement will open the door more widely for New Zealand exporters.

But realizing the full potential of the agreement depends on the capability and preparedness of New Zealand exporters to go through the door.

As part of Export Year 2007, a number of changes in business tax, compliance costs and regulation and assistance to business are under consideration.

We will be looking to strengthen the role of New Zealand Trade and Enterprise, especially in key Asian markets.

And our decision to quadruple the size of the New Zealand pavilion for Expo 2010 in Shanghai, the prime location we have secured in the Expo and the anticipated 14 million visitors that will go through our pavilion will create a unique marketing opportunity for us.

The opportunities are there and the potential rewards are great.

But to achieve them, we need quality products and services and we need to understand and create a niche for ourselves in the market.

For exporters, however, success also depends on developing capability in China, understanding the business culture and regulatory environment, learning the language or having a reliable partner who does, and developing relationships with government agencies and with Chinese companies.

Today, the Prime Minister will be launching the Confucius Institute, jointly established by the Office of Chinese Language Council International and the University of Auckland. It will serve as a world class centre for promoting Chinese language and culture, and will add real value for businesses and individuals looking to broaden their expertise and understanding of China. I welcome the Institute and also thank Bell Gully for its contribution in organizing this symposium today.

ENDS

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