Dann on China

March 25th, 2014 at 1:00 pm by David Farrar

writes in the NZ Herald:

We are fortunate to have a favoured status with the Chinese Government but we will need to be actively engaged as a nation to ensure we achieve the best results for New Zealand.

The currency convertibility deal was an important symbolic move. More significant for us was the agreement to target $30 billion worth of bilateral trade by 2020.

That target announced by John Key and President Xi Jinping in Beijing updates our previous objective of $20 billion by 2015. There is no reason to assume we won’t get there.

The Chinese don’t like to miss targets.

Indeed.

You could also argue that all they have done is get a pencil out and extend the growth curve along its existing path.

But growth has been spectacular since the free trade deal was signed in 2008. Another six years of equivalent growth will have an even bigger impact on New Zealand life.

In 2007 two-way trade with was worth $7.5 billion. Last year it was worth $18.2 billion.

So exports in 2020 may be $22 billion higher. Per household that is around $10,000 per household. And recall Greens and NZ First fought so hard to oppose the free trade deal with China.

We have both had huge growth in the past decade at the low end of the value chain. Where we’ve been relying on agricultural commodities, China has relied on cheap labour to export mass-produced consumer goods.

Now we want to sell more infant formula, wine and gourmet food. China wants to sell more of its own premium consumer products instead of just making them for the likes of Apple and Nike.

New Zealand won’t be a big market for China but will likely be a good test market.

The Japanese made the shift in the 1980s. Its products went rapidly from a running joke in the West to become the benchmark for high quality cars and electronics. The Koreans – led by Hyundai and Samsung – have achieved the same kind of shift in the past decade.

China is planning on making such a transition. New Zealanders should expect to see Chinese companies like telco Huawei and car maker Great Wall pour enormous sums into marketing and branding in the next decade.

Locally we can see the benefits of this shift at F&P Appliances, now owned by Chinese whiteware giant Haier.

Haier is using New Zealand skills to push up the value chain.

The Chinese firm is investing $2.5 million expanding its Dunedin R&D plant and has hired 80 new engineers. It is going to spend a further $5.5 million building a new R&D hub in Auckland and hopes to have F&P Appliances generating $4 billion of revenue in the next decade – up from $1 billion.

But I thought foreign investment was bad, according to Labour?

This is really good news for New Zealand but the cynics will have noticed the downside in the story.

We’ll almost certainly see Haier reducing its commitment to basic manufacturing over the next decade.

That’s an inevitable part of this economic story for New Zealand. It was already happening when F&P Appliances was locally owned. NZX-listed F&P Healthcare is following the same path.

We need to get ready for an acceleration of this shift. We can’t compete with low-wage economies such as Vietnam and the Philippines and we shouldn’t try.

The Green Party might call it a crisis but if we want to maintain a high standard of living and lift the median wage then we need to start viewing this as an opportunity.

It’s what the wine industry went through in the 1980s. They used to compete by being the cheapest wines you could buy as tariffs meant no foreign wines could be sold cheaply. Then the protection went and the result was the NZ wine industry focused on quality and exports boomed as many NZ wines become valued around the world.

Wine exports are over $1 billion a year and in the 1990s were under $100 million.

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26 Responses to “Dann on China”

  1. wreck1080 (3,912 comments) says:

    good for selling our veges and milk at the market.

    Not so good for anyone who tries to do anything a bit smarter…

    Superyacht builder hits doldrums
    An award-winning superyacht exporter has been forced to axe more than 70 jobs and is blaming the Government for failing to take action against the strong NZ dollar.

    Although, in saying that. The science & technology in farming is pretty awesome. I wish we could diversify more so that when farming hits the skids that we have other industries that get us by.

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  2. redqueen (562 comments) says:

    @wreck1080

    If F&P is expanding / building more R&D centres, that provides part of the cushion you’re asking for. The point is that we should be moving up the value chain, which is exactly what’s happening (exporting services, in this case R&D, isn’t a bad thing). The lefties are always wanting ‘smart growth’ and ‘green jobs’, well, working with China may increase them here (as we may be seen as a good destination for IT, R&D, etc.). This doesn’t mean we will stop making things and all move into service jobs, but it does mean value-added activities, based on market realities, will continue to improve. If the alternative is that we all just go and work in timber mills, then we’re going to be undercut easily (if not now, sooner or later).

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  3. NK (1,244 comments) says:

    3…2….1…..come in hj.

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  4. wreck1080 (3,912 comments) says:

    F&P is expanding and some other companies will be too.

    But agriculture still dominates and I bet that the the F&P’s/value added industries are shrinking as a proportion of the whole.

    I just hate gardening and by extension of that, farming. I like microprocessor design and robotics and stuff like that. I wish we could be more into that .

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  5. OTGO (549 comments) says:

    We have a bunch of clever people in NZ. Here are two fantastic examples:

    http://www.stuff.co.nz/national/education/9859457/Tree-felling-robot-nabs-design-award

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11120535

    Both inventions are capable of game changing their industries and making a lot of money for their inventors and NZ.

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  6. Ross12 (1,425 comments) says:

    wreck1080

    Don’t forget the $750 milion deal Pacific Aerospace has done with China recently.

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  7. kowtow (8,470 comments) says:

    ‘The Chinese don’t like to miss targets”

    No problem in the People’s Republic where figures are just pulled out of their arses to suit the message of the day.

    In respect of other targets…….they shoot them quite close up so there isn’t much chance of missing…….

    kowtow,kowtow.

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  8. greenjacket (465 comments) says:

    Wreck1080: “I just hate gardening and by extension of that, farming. I like microprocessor design and robotics and stuff like that. I wish we could be more into that .”
    .
    Except that NZ farming is so productive precisely because it has embraced microprocessing and robotics. By far the biggest spoending in R&D in NZ is from the agricultural sector in very high tech things like identifying preferred genetics in fruit or livestock, computer modelling for fertiliser applications, robotics in meat processing plants, advanced plastics for food packaging, etc.
    Some of NZ’s fastest growing hi tech exporters have done so on the back of the farming sector that Wreck1080 sneers at.

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  9. Nigel Kearney (1,013 comments) says:

    But I thought foreign investment was bad, according to Labour?

    I think the Labour/Green/Winston position is that foreign investment is fine as long as they just give us the money and expect nothing in return. If they want to own assets or take profits offshore then that’s outrageous and exploitative and we must put a stop to it. Whether anyone would still invest under those circumstances may be doubtful.

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  10. nasska (11,503 comments) says:

    It’s great news for the short & probably the medium term but its worth remembering that everything China does they do with the far future in mind. If our production of exportable goods & commodities increases in proportion to China’s intended imports all will be well.

    If as I suspect, more of what we presently export to Australia, the States & others is merely rerouted to China we are going to end up in the same position as we were when Britain joined the EEC & told us to peddle our wool & lamb chops elsewhere. That is no viable alternative markets & nearly bankrupt.

    If China ends up buying half of what we produce they can, at their whim, force us to become price takers & serfs in our own land.

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  11. tom hunter (4,838 comments) says:

    It should also be remembered that this was engineered by Helen Clark and Michael Cullen. Whatever else they did that pissed me off – and that was a lot – the fact is that this agreement should always be held up as a fantastic achievement by the two of them. It’s probably done more for working class people than all the other welfare crap that they implemented put together.

    And don’t forget that they had to fight like hell for this and had a ton of shit dumped on them even inside Labour – where more than a few people dwell who think exactly like Winston First and the Greens. Clarke and Cullen will probably never receive the accolades that they should within their own damned party.

    Moreover, with the exception of one or two of the old guard (Goff and co.) – and Cunliffe – the crowd that hated this is now at the forefront of Labour. Cunliffe should probably not be pandering to such xenophobia and economic ignorance as he knows better, but as on so many other issues he has to keep the troops fired up until the election.

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  12. Warren Murray (311 comments) says:

    labour want the same, Cunliffe used as an example the need to shift from exporting logs to processed timber products that are worth 10x as much.

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  13. seanmaitland (500 comments) says:

    @wreck1080 – “Not so good for anyone who tries to do anything a bit smarter…”

    is China the only country NZ businesses are allowed to trade with? These other businesses need to have products and services that are in demand – relying on exchange rates as a competitive advantage is a poor way of doing business, especially when an economy starts booming and the currency increases in value.

    Those yacht builders deserved to go down the tubes – what were they expecting, the government to ruin the economy and slash the OCR to 0.25% so that exporters get fx rate gains on their products?

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  14. Johnboy (16,554 comments) says:

    Tree-felling robots. What a good idea……Hang on we already have tree-felling robots. They’re called Maori.

    What did you say? The new tree-felling robots won’t be stoned on the job and cause huge expense for the rest of us via ACC!

    Bring on the new robots. Whoa, hang on……..what about unemployment? :)

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  15. Ben Dover (526 comments) says:

    it is really just another rubber stamped good times story from the NZ herald

    How does a Senior Journalist at the Herald miss

    reading the Chinese Newspapers?
    Do we need to hand these people a “White Cane”

    http://www.globaltimes.cn/

    Do yourselves a Favour
    I know it sounds crazy
    and if you want info on China read chinese newspapers?

    http://www.globaltimes.cn
    (Great name that)
    and check the military section every 2 weeks as well as business
    because it is actually a “military regime”

    Goodness we do get the bit how it is good to do business (with them) etc etc etc etc
    with these people

    it is just for the last decade they have increased their military spend by around 10% or more
    and this year 12+ %

    and then the day before he speaks with Key he instructs the PLA
    to become “More Combat ready”

    what don’t you get people get? Do you have selective vision

    Didn’t National remove Tax incentives for R&D soon after coming into office?

    >
    Huawei ?

    Australia and the USA will not even let them operate for security reasons?
    why are they are in NZ to spy on AUs? (East timor would not allow their spy base)
    But do check that?

    The only thing I am interested in is what
    Xi Jinping Says

    Rest Assured the “Chinese Communists” mean business but eventually it will not be the business you are hoping for
    the gear they are developing has a purpose – it has a use – and it will be used

    Historically it always has and it always will be

    http://www.globaltimes.cn/content/849242.shtml#.UzExcyh145s

    “being able to combat and win battles” as the focus, Xi said

    That is “last tuesday”

    Totally agree with the

    >
    The Chinese don’t like to miss targets.
    >

    They mean business and they will not.

    There is an old chinese classic you really must read

    “The Art of strategy”

    You have until 2030-2033 approx

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  16. Ben Dover (526 comments) says:

    Hang on we already have tree-felling robots. They’re called Maori.

    GET A LIFE YOU RACIST F WIT

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  17. Ben Dover (526 comments) says:

    Chinese failed attempt to spy on Australia from East timor

    http://www.smh.com.au/world/timor-rejected-chinese-spy-offer-20110509-1efv1.html

    The Chinese proposal to build and operate a surveillance radar facility on East Timor’s north coast was made in December 2007, but was viewed with suspicion by senior East Timorese officials who consulted with the US and Australia before rejecting the project.

    Read more: http://www.smh.com.au/world/timor-rejected-chinese-spy-offer-20110509-1efv1.html#ixzz2wxx5EiN8

    Although anxious to secure assistance to crack down on illegal fishing in East Timorese waters, Mr Guterres was suspicious of the Chinese offer to build and operate the radar facility free of charge.

    Read more: http://www.smh.com.au/world/timor-rejected-chinese-spy-offer-20110509-1efv1.html#ixzz2wxwoCB6E

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  18. hj (7,011 comments) says:

    First, there isn’t a single US corporation that doesn’t have an HR office committed to respecting the differences between cultures, to making sure that your culture is respected whether or not your standard of living is. And, second, multiculturalism and diversity more generally are even more effective as a legitimizing tool, because they suggest that the ultimate goal of social justice in a neoliberal economy is not that there should be less difference between the rich and the poor—indeed the rule in neoliberal economies is that the difference between the rich and the poor gets wider rather than shrinks—but that no culture should be treated invidiously and that it’s basically OK if economic differences widen as long as the increasingly successful elites come to look like the increasingly unsuccessful non-elites. So the model of social justice is not that the rich don’t make as much and the poor make more, the model of social justice is that the rich make whatever they make, but an appropriate percentage of them are minorities or women. That’s a long answer to your question, but it is a serious question and the essence of the answer is precisely that internationalization, the new mobility of both capital and labor, has produced a contemporary anti-racism that functions as a legitimization of capital rather than as resistance or even critique.

    https://www.jacobinmag.com/2011/01/let-them-eat-diversity/

    So it’s O.K if lot’s of Chinese come and buy houses.

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  19. Ben Dover (526 comments) says:

    There are sound reasons

    Huawei

    is banned from operating in Australia or the USA

    but NZ would rubber stamp it – and has

    <

    <
    The Chinese company blocked from working on Australia's National Broadband Network has set its sights on shaking off its image as a stalking horse for Chinese spies.

    Telecommunications giant Huawei was banned from tendering for the network as Australia followed the lead of a similar government ban in the United States due to espionage fears.

    The company, based in the southern Chinese city of Shenzhen, has refuted claims by the US House Intelligence Committee that the company could potentially build so-called "backdoors" into the likes of the NBN to allow for Chinese eavesdropping.

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  20. hj (7,011 comments) says:

    tom hunter (3,900 comments) says:
    March 25th, 2014 at 2:51 pm

    It should also be remembered that this was engineered by Helen Clark and Michael Cullen. Whatever else they did that pissed me off – and that was a lot – the fact is that this agreement should always be held up as a fantastic achievement by the two of them. It’s probably done more for working class people than all the other welfare crap that they implemented put together.
    …………………..
    Ill informed statement of the year.

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  21. Ben Dover (526 comments) says:

    China does not need a spy base in Timor now

    it has

    Huawei in NZ

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  22. hj (7,011 comments) says:

    Chinese investment

    A six-day showcase in Shanghai of more than $800 million worth of premier New Zealand property is generating “serious interest” from specially invited Chinese VIPs according to the organisers, Harcourts’ franchise Cooper & Co.
    The successful North Shore-based company’s international marketing initiative is focused on presenting a collection of more than 50 residential, lifestyle, rural and commercial property and development projects from around New Zealand to Chinese millionaires and billionaires interested in investing and/or immigrating here.
    Harcourts Cooper & Co Managing Director Martin Cooper says the feedback on both the portfolio and New Zealand as a place to invest or live has been very positive and he is confident sales will follow.
    //
    As he explains, the guest list of more than 1200 VIPs has been built up from various sources including successful Harcourts Albany Sales Consultant Matty Ma (who is originally from China), immigration consultancy Austar and Shanghai real estate development company Sunteam,
    “The database we have includes people who already have connections with New Zealand through business or for example through children studying here and also people who knew nothing beforehand about investing or living in New Zealand. All are looking for sound investment opportunities, with some also considering immigration.”
    Harcourts New Zealand CEO Hayden Duncan says with a limited pool of local buyers for high-end property and development projects in New Zealand targeting overseas buyers, with clients’ support, is a logical part of the marketing mix.

    http://www.voxy.co.nz/business/harcourts039-showcase-china-generating-quotserious-interestquot/5/60035

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  23. OneTrack (3,093 comments) says:

    “labour want the same, Cunliffe used as an example the need to shift from exporting logs to processed timber products that are worth 10x as much”

    But, since it’s Cunliffe, has he actually thought WHO is going to buy the tables we make instead of exporting logs to a buyer who wants logs. That buyer wont be buying tables. So we will need to find another buyer. Who is that buyer Mr Cunliffe? Oh, haven’t thought that far ahead? Again?

    I like that “worth 10x” as much. And how much will it cost the country to get that added value – 20x as much? By the time additional taxes Mr Cunliffe and his “partners” wish to impose, we might be looking at 30x. Has this been worked through? Of course not – there wasnt enough room on the beer coaster.

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  24. Ben Dover (526 comments) says:

    Does Global CAMG Media Melbourne now own the NZHerald?

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  25. Ben Dover (526 comments) says:

    http://www.globaltimes.cn/content/848745.shtml

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  26. Ben Dover (526 comments) says:

    http://www.globaltimes.cn/content/848745.shtml

    Chinese President Xi Jinping (front R), also general secretary of the Communist Party of China (CPC) Central Committee and chairman of the Central Military Commission, talks with a deputy to the 12th National People’s Congress (NPC) from the People’s Liberation Army (PLA) in Beijing, capital of China, March 11, 2014. Xi attended a plenary meeting of PLA deputies attending the second session of the 12th NPC and delivered an important speech on Tuesday. (Xinhua/Li Gang)

    Chinese President Xi Jinping on Tuesday urged the country’s armed forces to courageously assume their responsibility in safeguarding national sovereignty and interests.

    “We expect peace, but we shall never give up efforts to maintain our legitimate rights, nor shall we compromise our core interests, no matter when or in what circumstances,” Xi said while joining a plenary meeting of the People’s Liberation Army delegation at the ongoing legislative session.

    Xi, also chairman of the Central Military Commission, called on the armed forces personnel to be firm in faith and loyal in mission.

    To build a strong army, China should capitalize on strategic opportunities to deepen national defense and military reforms to resolve the institutional, structural and policy restrains, Xi said.

    “We should break our fixed mindset to foster a mode of thinking that is in line with our goal of building a strong army,” Xi stressed, calling for the creation of a cozy environment for pressing ahead with reforms.

    Emphasizing the state’s leading role in the process, Xi also called for the function of the market to jointly create a highly effective development pattern that features army-civilian integration.

    At the meeting, Xi urged Party committees and governments at all levels to lend support to the military building and reforms, and assist the army in accomplishing diversified missions to secure the building of a strong military.

    Chinese President Xi Jinping (front R), also general secretary of the Communist Party of China (CPC) Central Committee and chairman of the Central Military Commission, talks with a deputy to the 12th National People’s Congress (NPC) from the People’s Liberation Army (PLA) in Beijing, capital of China, March 11, 2014. Xi attended a plenary meeting of PLA deputies attending the second session of the 12th NPC and delivered an important speech on Tuesday. (Xinhua/Li Gang)

    Chinese President Xi Jinping on Tuesday urged the country’s armed forces to courageously assume their responsibility in safeguarding national sovereignty and interests.

    “We expect peace, but we shall never give up efforts to maintain our legitimate rights, nor shall we compromise our core interests, no matter when or in what circumstances,” Xi said while joining a plenary meeting of the People’s Liberation Army delegation at the ongoing legislative session.

    Xi, also chairman of the Central Military Commission, called on the armed forces personnel to be firm in faith and loyal in mission.

    To build a strong army, China should capitalize on strategic opportunities to deepen national defense and military reforms to resolve the institutional, structural and policy restrains, Xi said.

    “We should break our fixed mindset to foster a mode of thinking that is in line with our goal of building a strong army,” Xi stressed, calling for the creation of a cozy environment for pressing ahead with reforms.

    Emphasizing the state’s leading role in the process, Xi also called for the function of the market to jointly create a highly effective development pattern that features army-civilian integration.

    At the meeting, Xi urged Party committees and governments at all levels to lend support to the military building and reforms, and assist the army in accomplishing diversified missions to secure the building of a strong military.

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