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Cablegate: Vice Premier Li Keqiang Visit Underscores New Zealand's

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R 062242Z DEC 09
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC 0205
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
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C O N F I D E N T I A L SECTION 01 OF 07 WELLINGTON 000313

SIPDIS
STATE FOR EAP/ANP, EAP/CM
STATE FOR OES DAS MIOTKE, OES/EGC, OES/ENV, AND OES/PCI
STATE FOR S/SECC-STERN, S/P-GREEN, EEB, AND ECA
STATE FOR INR-B
STATE ALSO FOR AGRICULTURE
NSC FOR LOI

E.O. 12958: DECL: N/A
TAGS: OVIP PREL PGOV ECON SENV CH EAID ETRD EINV EAGR AU
NZ
SUBJECT: Vice Premier Li Keqiang Visit Underscores New Zealand's
Bilateral Relationship with China

CLASSIFIED BY: Robert Clarke, CDA, State; REASON: 1.4(B), (D)

1. (C) Summary: During a November 27 meeting with ChargC),
Political and Economic Chief and Econoff, New Zealand Ministry of
Foreign Affairs China Desk Director Grahame Morton gave a read-out
of Chinese Vice Premier Li Keqiang's November 1-3 visit to New
Zealand. Morton said Li's initial visit to the region had been put
on hold after it became entangled in tensions between China and
Australia over the alleged Rio Tinto espionage issue. The main
focus of the visit was economic, with discussions about currency,
trading and investment. Morton also reported that Li was "forward
leaning" on New Zealand's Global Alliance proposal that aims to
reduce agriculture related greenhouse gases through joint
cooperation on research. During the visit, China and New Zealand
signed four agreements on education, temporary workers, dairy
product certification, and offal standards. Regarding Tibet
issues, New Zealand's Prime Minister Key confirmed he will not meet
with the Dalai Lama during his December 4-7 visit to Auckland, but
New Zealand officials did press Li on Tibet and encouraged dialogue
between the two sides. End summary.

Visit Comes as a Surprise to New Zealand

--------------------------------------------- ---------

2. (C) Li's visit was originally scheduled for September but was
postponed because it was scheduled in coordination with a trip to
Australia, which, according to Morton, was delayed as China and
Australia hammered out their differences over the alleged Rio Tinto
espionage case. New Zealand assumed the entire trip was called off
because the Dalai Lama is set to visit New Zealand in December, but
they were "surprised" when they were given only a week's notice for
the very "unusual" visit. Morton said that close to all of China's
top Politburo members have visited New Zealand -- usually in
conjunction with a visit to Australia, but this was Li's first
visit to the country. He came with a large delegation of 43,
including 6 ministers or vice ministers, and a press contingent.
He arrived at his first stop in Christchurch in a Boeing 747 and
prepositioned a Boeing 737 to make the flight to Wellington.
(Note: Wellington International Airport is not equipped to handle
747's. End note.) Given the short notice, New Zealand had the
option of saying "no", according to Morton, but didn't because "Li
is one of those in line for the top position." Morton said they
were lucky they could muster the right New Zealand ministers to
meet Li on such short notice, but the press coverage was poor
because many key journalists were travelling with Prime Minister
Key at the time.

3. (C) Morton said that one of New Zealand's objectives was to
"show the seriousness with which they viewed Li's visit to their
country," and the GNZ pulled out all the stops to make it a quality
visit. Li was officially hosted by Deputy Prime Minister Bill
English, who also serves as Minister of Finance. English chaired a
roundtable for Li that was attended by seven other key New Zealand
ministers, including Foreign Minister McCully, Attorney-General
Chris Finlayson, and the Minister for Defense and Research, Science
and Technology, Dr. Wayne Mapp, among others. Prime Minister John
Key was also able to return from his trip to Asia in time to have a
meeting and host Li for a dinner. While in Christchurch, Li
visited the University of Canterbury, Christchurch, where he
attended the founding ceremony of the Confucius Institute and
delivered a speech. He also met the Mayor of Christchurch Bob
Parker. Morton added that Li and the rest of the delegation left
very pleased with the caliber of the visit.

WELLINGTON 00000313 002 OF 007


Main Focus on Trade and Economics

--------------------------------------------- --

4. (C) Morton said the main focus of discussions with China were
economic in nature, and Li's foremost message during the trip was
that China's stimulus package had been sufficient to combat the
slide in its economy following the 2008 global financial crisis.
Deputy PM English underscored how important China is to New
Zealand's economy and raised the issue of international currency.
English relayed to Li that 65 percent of New Zealand's
international trade is denominated in U.S. dollars, and any move by
China to devalue its currency against the U.S. dollar has a
profoundly negative impact on New Zealand exports. Li replied that
China's currency needs to remain stable "to shore up demand,"
according to Morton. In the end, the two sides agreed to continue
the dialogue on the currency issue. Morton noted that China is New
Zealand's third largest trading partner, following close on the
heels of the United States, which is New Zealand's second largest
trading partner. Morton expected that China could soon overtake
the United States to become New Zealand's second largest partner.
Bilateral trade growth has been brisk following the signing of the
April 2008 free trade agreement (FTA) said Morton. China's
Ambassador to New Zealand claims China is already New Zealand's
second largest trading partner; however, Morton attributed the
discrepancy to how the two countries factor in trade with Hong
Kong. Morton noted that New Zealand's trade to Mainland China will
also be boosted by the FTA concluded on November 11 between New
Zealand and Hong Kong. (Note: Hong Kong is New Zealand's eleventh
largest export market and a significant source of investment. End
note.)

5. (C) According to Morton, New Zealand's exports to China have
jumped following the signing of the FTA. One of the biggest
winners is the New Zealand dairy industry, which has "benefited
greatly" because of safety concerns in China following the 2008
tainted milk scandal. He added that PM Key's visit to China in
April 2009 helped smooth over tensions between NZ milk giant
Fonterra and Chinese officials. New Zealand now has several
projects in China to help companies build better food safety
chains, with a particular focus on the dairy industry. Morton said
the objective is to help Chinese companies build lines that are
more suitable for export. Currently New Zealand does not allow
Chinese dairy products to enter the country for
sanitary/phytosanitary (SPS) reasons. We do not want to "just say
no", but we eventually want to be able to bring them up to
standards "so we can say yes to the Chinese on dairy." Morton said
New Zealand is also working with China to boost Chinese agriculture
production. Fonterra, for example, has invested in Chinese dairy
farms and other agriculture producers and introduced the latest
technology and farming techniques. Although New Zealand's overall
investment in Chinese agriculture is not huge, it has done
reasonably well according to Morton. On investment, Morton said
that in proportion to the increase in trade between the two
countries, the increase in investment has been quite low. "We are
open to investment in both directions," but we are not the focus of
large Chinese investment similar to Australia, said Morton. And,
New Zealand does not have the same sensitivities to certain assets,
with the exception of land, as Australia. Morton believed,
however, that as relations strengthened between the two countries
and as New Zealand companies become more accustomed to doing
business in China, they would boost investment there.

WELLINGTON 00000313 003 OF 007


Li "Forward Leaning" on New Zealand's Global Alliance Proposal on
Greenhouse Gas.

--------------------------------------------- ----------------------
--------------------------------------------- -

6. (C) In addition to economic issues, Li discussed climate change
and the run-up to the summit in Copenhagen in the roundtable with
New Zealand ministers. According to Morton, Li had a more "forward
leaning" stance on New Zealand's Global Alliance proposition.
(Note: New Zealand has been pushing for a Global Alliance to
research how to cut world-wide emissions from agriculture. The
country sees itself in a unique position as the only developed
country with close to 50 percent of its greenhouse gases stemming
from agriculture. New Zealand officials repeatedly emphasize their
desire to play a key role in helping the world address the twin
challenges of ensuring food security while reducing carbon
emissions. End note.) Morton said New Zealand was "greatly
appreciative" of Li's support for and interest in the Global
Alliance. Morton attributed part of Li's interest to the fact that
for the first time this year China began gathering statistics on
agriculture emissions, and China is now the largest emitter of
agriculture greenhouse gases in the world. Morton believes Li sees
New Zealand as a country that can bring "value added" to reducing
agriculture emissions inside China, noting that Li also underscored
his interest in the Global Alliance when he met with the PM Key.

New Zealand and China Sign Four Agreements

--------------------------------------------- ----------------

7. (C) New Zealand took the opportunity of Li's visit to sign four
agreements that had been under consideration for some time,
according to Morton. The first was a memorandum of understanding
on cooperation in education and training, with a focus on high
level research. Morton noted that there are currently 20,000
Chinese students studying in New Zealand. This number was down
from the peak in the mid-1990's when there were close to 50,000
Chinese students studying in the country. Many of the Chinese
students at that time were studying in short-term English courses.
Now, most of the Chinese students are in tertiary education and
diverse fields of study. Morton noted that New Zealand is "more
comfortable" with the current number of students. Even with the
lower numbers, China still remains New Zealand's most significant
source of foreign students. The second agreement addressed the
issue of Chinese entering New Zealand for temporary employment, a
provision that was made in the FTA that New Zealand signed with
China. Morton said the agreement was something that the Chinese
insisted upon because it spelled out the guidance on how Chinese
workers would be recruited. He said the Chinese were concerned
that "middlemen recruiters" in China would take advantage of the
program, and China did not want the program to become a liability
for the country.

8. (C) The third agreement was a provision that would facilitate
New Zealand's dairy products into China. New Zealand wants China
to recognize its SPS testing measures and certification and is
pushing for an eventual mutual recognition of each others'
e-certification. The agreement was a step in that direction
whereby both parties committed to observing each others' practices.
The final agreement involved hygiene standards of New Zealand's
offal exports to China. Morton said China has not been happy with

WELLINGTON 00000313 004 OF 007


New Zealand standards because they did not meet Chinese market
requirements. However, New Zealand has pushed back because they do
not want China "to confuse international safety standards with its
own market requirements." The agreement sets out what the
standards would be.

Dalai Lama's December Visit to New Zealand Discussed

--------------------------------------------- ----------------------
------

9. (C) Morton said that PM Key had earlier conversed with Premier
Wen Jiaboa concerning the Dalai Lama's December 4-7 visit to
Auckland, saying that neither he nor any of his ministers would
meet with the Dalai Lama. Morton said the Chinese "obviously
registered" this. Morton added that the PM and made this decision
without any consultation, but others in the Government are still
obliged to respect it. However, Key has not said that other
members of parliament cannot meet the Dalai Lama. Morton also
noted that before Key became Prime Minister, he met the Dalai Lama
on other occasions. However, "the quid pro quo" is that New
Zealand continues to raise Tibet as an issue and encourages
dialogue between the two sides, said Morton.

Bio Notes on Li Keqiang

--------------------------------

10. (C) Morton, who attended events throughout Li's visit, made
several comments regarding Li's style and character. Morton said
that from his experience, Li was "quite engaging" and had a
different style than many Chinese leaders. He likened Li to
Western style politicians in that Li did not "retreat to rote
statistics" but answered questions directly and with a certain
frankness. Li did not speak English in formal settings but was
"quite comfortable" speaking English in one-on-one side
conversations. His English was not at a "high level, but it was
sufficient to make himself understood." Morton said that it was
apparent that Li had "command of his delegation," which included
Chinese Ambassador to New Zealand Zhang Limin. However, Li was not
overbearing and "commanding", but he sometimes made jokes about
himself and was comfortable asking other people in his delegation
to respond to questions and add points to the conversation. At one
point, Li even asked the Chinese Minister of Agriculture Sun
Zhengcai to make a presentation. Morton also said that Li showed a
"populist" streak. Much to New Zealand authorities' surprise, Li
stopped the motorcade on several occasions unannounced and got out
to shake hands with onlookers.

Background on New Zealand/China Relations

--------------------------------------------- --------------

11. (SBU) New Zealand and China celebrated 35 years of diplomatic
relations on 22 December 2007. The bilateral relationship has
grown to become one of New Zealand's most valuable and important.
China is New Zealand's third-largest trading partner, and a major
source of migrants, students and tourists, and New Zealand views
China as an important bilateral, regional and multilateral partner.

WELLINGTON 00000313 005 OF 007


The relationship between the two countries is characterized by
regular high-level contacts, and an expanding range of official
dialogues - both formal and informal. During Premier Wen Jiabao's
April 2006 visit to New Zealand, an agreement to hold annual
leaders' meetings was reached, and two of these have since taken
place - the first at the second East Asia Summit in Cebu,
Philippines at the beginning of 2007 and the second during Deputy
Prime Minister Dr. Cullen's September 2007 visit to China. This
was followed by the visit of Prime Minister Helen Clark to witness
signature of the Free Trade Agreement in April 2008. (Helen Clark
made four visits to China during her time in office.) Prime
Minister John Key visited China in April 2009 - his first bilateral
visit to Asia. A range of New Zealand ministers have made visits
to China over the past few years, including those with
responsibility for information and technology, food safety and
police, defense, health, education, finance, and research, science
and technology.

12. (SBU) From the Chinese side, President Hu Jintao made a State
visit to New Zealand in October 2003, and Vice Premier Zeng Peiyan
visited New Zealand in March 2007. Premier Wen Jiabao visited in
April 2006, and the Chairman of the National People's Congress Wu
Bangguo visited in May 2005. Bilateral communication between New
Zealand and Chinese officials has also expanded over the years.
Foreign policy, economic and trade talks are held regularly. There
are formal bilateral dialogues on SPS issues, agriculture, dairy
and forestry as well as regular contact on a wide range of other
issues. Developments in Tibet in March 2008 put the focus on human
rights issues for New Zealand, prompting several Government
statements of concern and a motion by the New Zealand Parliament.
New Zealand is careful to abide by its joint communiquC) of 1972 to
refrain from official dealings with Taiwan. While supporting a one
China policy, New Zealand still maintains economic and cultural
ties with Taiwan, an important trade and economic partner.

Trade Relations Growing Stronger

--------------------------------------------

13. (SBU) FTA negotiations were launched in November 2004 and
concluded in April 2008 after 15 rounds of discussions. The FTA
entered into force on 1 October 2008. New Zealand is the first
OECD country to conclude an FTA with China. Over time the FTA will
result in the elimination of tariffs on 96 percent of New Zealand
exports to China and is projected to lift New Zealand's export
revenue from trade with China by between NZD 225-350 million (USD
162-252 million) per year. The FTA built upon the bilateral
economic relationship established by New Zealand's Trade and
Economic Cooperation Framework, signed in May 2004 by China's
Minister of Commerce Bo Xilai and New Zealand's Minister for Trade
Negotiations Jim Sutton. In this Framework, New Zealand recognized
China as "having established a market economy system." The
NZ-China FTA is a comprehensive agreement covering trade in goods
and services as well as investment. A Most Favored Nation clause
further ensures that any provisions extended by either New Zealand
or China to third parties in future trade agreements will
automatically apply to each other. New Zealand and China also
entered into binding agreements on labor and environment, aimed at
encouraging dialogue and co-operation in these areas. More details
on the FTA and its outcomes can be found at www.chinafta.govt.nz.

14. (SBU) China is New Zealand's third-largest trading partner.
According to New Zealand statistics, two-way merchandise trade grew

WELLINGTON 00000313 006 OF 007


to NZD 9.7 billion (USD 7 billion) in the year to April 2009.
Exports to China, valued at NZD 3.08 billion (USD 2.2 billion),
increased by over 35 percent in the last year, while imports from
China increased by 12 percent. China is New Zealand's fourth
largest export market, after Australia, the US and Japan. China is
New Zealand's second largest source of imports, after Australia.
These statistics do not take account New Zealand exports to China
through Hong Kong (USD 527 million). Up to one third of exports to
Hong Kong are destined for the Mainland. New Zealand exports also
end up in China via Singapore and other Southeast Asian countries.
New Zealand's exports to China are dominated by agricultural
products. Dairy, wool and oils and fats are the largest
agricultural exports. New Zealand's exports to China have
diversified, however, with forestry (now second only to dairy),
seafood, machinery, aluminum, and high technology products
(especially telecommunications products) featuring in New Zealand's
non-agricultural exports to China. New Zealand's imports from
China include electrical machinery and equipment, textiles,
clothing and footwear, toys, and a wide range of light consumer
goods.

Chinese Visitors to New Zealand on the Rise

--------------------------------------------- -------------

15. (SBU) New Zealand's exports are also diversifying in the
services sector; education and tourism are New Zealand major
services exports to China. Besides the large number of Chinese
students that come to New Zealand visitor (business and tourist)
numbers from China have grown by a factor of six since New Zealand
was granted Approved Destination Status (ADS) by China in 1999.
China has now overtaken South Korea to become New Zealand's
fifth-largest source of visitors (112,000 in the past year).
Although there has been a recent down turn following the global
economic crisis, New Zealand estimates that Chinese visitor number
will reach 200,000 in the near future, which would make China its
third-largest visitor market. New Zealand estimates that Chinese
visitors make an economic contribution in excess of NZD 300 million
(USD 216 million) each year. China's investments in New Zealand
totaled close to NZD 808 million (USD 582 million by the end of
2008.

Bilateral Investment Increasing -- But Not as Quickly as Trade

--------------------------------------------- ----------------------
-------------

16. (SBU) Most Chinese investment in New Zealand has been in the
forestry sector. There is also significant investment in
manufacturing and commercial construction. Sectors such as
property, hotels and restaurants, meat processing, electronics,
fish farming and tanning have all attracted the interest of smaller
Chinese investors. New Zealand companies, including ANZ, Fonterra,
Richina Pacific, NDA Engineering, Hayes International and PAN PAC
have major holdings in China. There are also a number of other
companies closely associated with New Zealand with strategic
operations or investments in China: Beca Carter, Biovittoria, TL
Jones Microscan, and University of Waikato in Shanghai/East China,
Air New Zealand Engineering, Intuto, Natural History New Zealand,
Western Institute of Technology Taranaki, and Wools of New Zealand
in Beijing/North China. These companies see investment in China as
important to secure a long-term market for New Zealand products and
to assist in the penetration of the enormous consumer market

WELLINGTON 00000313 007 OF 007


developing in China. Another company, Ice Breaker, has been able
to use China as a global manufacturing and distribution base for
its New Zealand designed and marketed merino wool clothing. The
New Zealand China Trade Association is the lead business advocacy
group in New Zealand that focuses on commercial linkages between
the two countries.

New Zealand Official Aid Drawn Down

--------------------------------------------- --------

17. (SBU) Following a 2005 review its China program, the New
Zealand Agency for International Development (NZAID) determined
that China would no longer be classified a core bilateral aid
partner. This decision reflected both China's significant economic
development and NZAID's increased focus on New Zealand's Pacific
neighbors. However, smaller poverty alleviation activities,
amounting to NZD 500,000 (USD 360,000) per year, continue to be
carried out under the Development Project Fund in seven Western
provinces and autonomous regions (Tibet, Sichuan, Guizhou, Gansu,
Yunnan, Guangxi and Xinjiang). Many of these projects assist
ethnic minority communities or women. In addition, there is a
small grant program of NZD 80,000 per year (USD 57,600)
administered by the New Zealand Embassy in Beijing.
CLARKE

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