Helen Clark

Rt. Hon Helen Clark
NZ Security Intelligence Service

10/03/2005
INSIDE THE NEW CHINA: UPDATING CHALLENGES FOR NEW ZEALAND

Thank you for the invitation to attend this summit today looking at the challenges and opportunities for New Zealand in its relationship with China.

Let us be clear – this is no brand new relationship. When Chinese President Hu Jintao and I launched the negotiations for a Free Trade Agreement between New Zealand and China last November, we were signing on to a new phase - a new high point if you like - of a thriving and maturing trade and economic partnership.

The relationship goes right back to earlier centuries, when traders shipped seal skins from the South Island to Guangzhou, and when Chinese migrants came for the gold rush. There are people in this room who have traded with China for around fifty years – twenty years before diplomatic relations with China were established.

When Norman Kirk decided to establish diplomatic relations between New Zealand and China more than thirty years ago, he was convinced that China’s influence in the Asia-Pacific region was bound to grow and that our countries needed formal linkages.

Norman Kirk was equally convinced that New Zealand’s identity was shifting to embrace not only our European links but also our location in the Asia-Pacific region. That vision has become reality.

The China of 1972 was vastly different from the China of today. Then the West and China had spent many years at arms length. Today China is engaged across a vast range of regional and international forums, including APEC, the ASEAN Regional Forum, its summit partner relationship with ASEAN, and, since 2001, its membership of the WTO.

China has an increasing role in assisting developing nations, including those in our own region. It has recently made a major and generous contribution to relief and reconstruction following the disastrous tsunami, which includes US$83 million in financial assistance, writing off Sri Lanka’s debt to China, and hosting a post-tsunami reconstruction conference.

The China of today is much more outward looking in its foreign relations, and it is increasingly constructive and pragmatic in its dealings with overseas counterparts. It is a stronger and more dynamic regional and international player.

Today we are focusing on the role that China will play in our economic future. In general, New Zealand’s future prosperity will depend on the quality of its international linkages – we need to be fully involved in the international trade in goods and services, and in attracting investment, people, new ideas and technology. China is going to be central to developments in the world economy. That is why we have put great emphasis on our links with China, including an FTA.

Why do we want an FTA with China?

China’s current growth rates would put it on course to become the world’s second largest economy by the year 2020. Even now, there are around 100 million Chinese who can be classified as middle class. That is a considerable market for New Zealand to tap, and it will be much larger by 2020 if China achieves its aim of doubling its per capita GDP by then.

The number of Chinese tourists worldwide is also booming, and New Zealand is seeing increasing numbers come each year. Since New Zealand was granted Approved Destination Status by the Chinese government in July 1997, visitor arrivals from China have increased five-fold, from 16,000 in 1998 to 84,000 in 2004, at an average growth rate of 31 per cent per annum.

If we can maintain high quality standards in education, we can also expect New Zealand to continue to host healthy numbers of Chinese students at all levels – secondary, undergraduate and post-graduate.

And China’s growing middle class will also stimulate a greater demand for other goods and services which New Zealand can be part of supplying; for example, in the financial and professional areas, and in better housing and infrastructure.

Trading with China has always presented challenges. Early New Zealand investment ventures showed the difficulties of working in its highly competitive market, and it is likely to become even more competitive in the next ten to twenty years. We will need to work harder and smarter to maintain and grow trade and investment levels.

The growth in our trading relationship with China has been rapid in recent years. In four years, our exports to China have risen by on average $100 million a year, from $1.3 billion to $1.7 billion. Now it is our fourth largest market with two way trade at over $5 billion.

Since 1999 our exports of forestry products to China have quadrupled. It is now our fourth largest market for forestry exports.

Last year China was our third largest market for dairy exports, predominantly for whole milk and skim milk powder.

China is becoming an increasingly important market for our meat products, taking nine per cent of lamb exports on a volume basis. China has long been and remains our largest export market for wool.

China is, of course, also a major source of imports into New Zealand. Chinese products are widely available and New Zealand consumers have benefited from their competitive pricing. Indeed with the appreciation of the New Zealand dollar over the past two years, the price of Chinese goods in our market is estimated to have dropped by forty per cent.

China FTA in the context of the Seriously Asia Strategy

An FTA with China would build on an already important relationship for us. For China, an FTA with New Zealand’s open, developed, market economy, would also be important in consolidating international perceptions of China’s own status as a market economy. Concluding an FTA with New Zealand would allow China to say to the world that it can deal with open market economies.

In the narrow sense, an FTA with China presents an economic opportunity to be seized. We are in the first rank of FTA partners, but others are close behind.

But we also see an FTA with China as part of a broader process of engagement with China and the wider region. There is a process of regionalisation occurring throughout the Asia-Pacific, and New Zealand is looking at where and how it can be included in what is happening.

When the government began the work which led to the Seriously Asia strategy two years ago, we were conscious that New Zealand Incorporated needed to take new initiatives to become more effective in its dealings with the nations of Asia.

For me, Seriously Asia is about focusing New Zealand attention on the importance of strategic trends in Asia and the opportunities in the region for New Zealand.

Since launching Seriously Asia, much has happened. We have launched the FTA talks with China, the FTA with Thailand has been concluded, negotiations with ASEAN have been launched, and an FTA study has been done with Malaysia, and will be released shortly. The first prime ministerial visit from New Zealand to India in nineteen years has occurred, with an enthusiastic ICT delegation taking part. Many projects are underway within government and the Asia New Zealand Foundation to revitalise relationships with Asia. We look forward to a successful presence at the Aichi Expo in Japan this year. Our attendance at the ASEAN-New Zealand-Australia Summit in Vientiane last November was also a milestone in our relationship with the region.

Our commitment through the Seriously Asia process has given a context and a purpose to the initiatives we are taking to build our Asian relationships, and I believe that is widely appreciated by our Asian neighbours.

With respect to China, we are working hard to widen the linkages between our two countries. Our official links are prolific and diverse. There are now four or five Ministerial-level visits each way per year. We have regular annual consultations on foreign policy and defence issues, and many other ad hoc official contacts.

We have enjoyed 25 years of joint trade and economic consultations and a thirty-year old science and technology co-operation relationship that is now being freshened up.

Under our new cultural diplomacy programme, this very weekend three New Zealand writers - playwright Linda Chanwai-Earle, children and young people’s writer Margaret Mahy, and novelist Chad Taylor - are participating in the inaugural Shanghai Literary Festival. The programme is aiming to broaden the profile of New Zealand through arts, culture, and heritage in our major markets. For the first three years, its main focus is on North Asia.

With respect to China, we continue to have differences of perspective – on human rights, in particular - but our discussions in this sphere are open and frank. At a practical level, we are exchanging visits of police, judicial, and other officials to improve our dialogue in this area.

Building broader links and dialogue between New Zealand and China can only be positive as we work on building the economic relationship between our two countries.

Opportunities and risks

So what would an FTA with China mean for New Zealand?

The joint feasibility study completed last year confirmed that an FTA with China, which has relatively high levels of protection, would be a good thing for New Zealand.

It would also be good for China, where the major benefits would flow from efficiency gains in its domestic economy.

The study shows that many barriers currently constrain our bilateral trade, and that removal of them would lead to expanded trade in goods and services and increased investment flows.

It is estimated that New Zealand’s exports to China would grow by between $260 and $400 million a year more than the level which would be achieved without the removal of trade barriers.

China would also see some increase in its exports to New Zealand, but on a smaller scale because we have already unilaterally eliminated import-licensing quotas and reduced tariffs to relatively low levels.

The study recognises that while on balance the FTA is of benefit to us, there may be a downside for some. There will be concerns in some sectors in New Zealand and in China about the potential adjustment impacts of opening up.

The study concludes that these impacts would not be substantial overall and should be manageable, but it emphasises the need to take these concerns into account during the negotiations, just as we have in other FTA negotiations.

Removal of tariffs on our exports to China would provide significant benefits. China’s average tariff rate last year was 9.5 per cent and we pay average duties of more than 15 per cent on agricultural exports, including a 10 per cent tariff on milk powder, a 15 per cent tariff on sheep meat and a 20 per cent tariff on kiwifruit.

But China’s non-tariff barriers probably have an even more significant effect on our trade. Import licensing, customs evaluation, pre-shipment inspection, technical regulations, and sanitary and phyto-sanitary measures all cause problems for our exporters in accessing the Chinese market.

For example, we have had feedback from some exporters that on arrival in China, foreign flagged ships appear to face higher handling charges than Chinese flagged vessels, thus increasing costs. It has been suggested that sometimes our goods face compulsory inspection or retesting, when there is no obvious need for it. It appears that some exports require Chinese language labelling on products before the goods arrive in China, when it could be much cheaper to have the labels added on arrival by the Chinese importer. Issues like these all add to the cost of doing business in China.

In the services and investment field, China has opened up considerably since its WTO accession, but there, too, New Zealand service providers and investors face a range of bans, restrictions and minimum capital requirements, which investors or services exporters to New Zealand would not experience.

The FTA study looks in particular at tourism, at education (where China is our largest export market), and at professional services, and a wide range of other service sectors where liberalisation from China would be welcome.

New Zealand companies, whether goods producers, service providers, or investors, have also identified problems in the intellectual property area.

The study has been a useful start to the FTA process. By setting out clearly the challenges confronting us in the negotiation, it helped form the negotiating agenda. The FTA should address both tariffs and non-tariff barriers, and level the playing field.

The second round of our negotiations with China took place earlier this month in Beijing. We look forward to the next round here in New Zealand in May.

While good progress is being made, one can’t predict how long the negotiations will take. I do believe, however, that at the highest political levels China both wants an outcome and knows that New Zealand requires that outcome to be comprehensive, forward looking, and of a high standard.

FTA Implementation – the challenges and opportunities ahead

An FTA will not by itself dismantle all barriers or open all doors. That is a longer term exercise. We will have to work on developing further our relationships across the commercial, financial, and government spectrum in China.

We need to build relationships between leaders, ministers, businesses, officials, and academics, and people to people links. Our regulators need to know and talk to each other. Strengthening our links with China through sharing ideas, knowledge, and technology will be of mutual benefit to our economies.

This is what President Hu and I had in mind when we asked officials to develop a Trade and Economic Cooperation Framework during his visit here in October 2003.

This framework, agreed in May last year, sets out a co-operative agenda across many sectors, including agriculture, forestry, education, tourism, professional services, and science and technology, including biotechnology.

It’s up to us now – the government and the business community - to embrace this framework and the opportunity of the FTA negotiation to expand the economic and trade relationship with China.

We have already opened China’s mind to our vision for New Zealand. When President Hu visited we showed him the New Zealand of the future.

He saw, for example, some of the most advanced aspects of NZ agricultural research and practice in the Waikato, and we believe was impressed. China already knows we are world-class dairy, beef, and sheep meat producers. We also want it to know us as a dynamic and technologically sophisticated economy across the board.

It is critical now to prepare ourselves to take advantage of the opportunities the FTA could bring us.

Government and the private sector need to work on a shared vision of New Zealand’s place in the China market over the next five to ten years and beyond. Are there particular sectors we should target? Do we want to concentrate on specific provinces or specific products? Where would a whole of government effort yield the best returns? What mechanisms should we put in place to make progress on issues which might not be able to be dealt with in the FTA?

Government needs continual feedback from the business community - not only on specific issues to do with the FTA negotiations, but on the wider strategic issues too. That helps us develop policy settings which are helpful to business making the most of future opportunities in China.

Our trade promotion activities need to be closely aligned to government/private sector partnership objectives for China. We want to direct our efforts to get the most mileage, whether it is well-targeted trade missions to and promotions in China or export seminars in New Zealand.

China is a major economic partner for us, across a wide range of goods, services and investment sectors. The FTA negotiation will be challenging, and it will certainly be complex. But it will be the launch pad for a closer bilateral trade and economic relationship in the long-term. That’s something we have to prepare for now.

Business engagement now is crucial for ensuring that New Zealand can make the most of these opportunities. The government is opening the doors through negotiations. This paves the way for business and our wider economy and society to benefit.