Clarkys Comment - May

China Matters

Not only is China New Zealand’s largest market for exports, but within that market wood products are second only to dairy. But of greater interest is that China’s economy and middle-class wealth continues to grow strongly. Wood use tends to closely mirror economic growth and middle-class wealth.

The importance of building on our already strong political, trading and people-to-people relations is well understood by the NZ government and many in the business community. That is why I joined a 40-strong business delegation to China led by Prime Minister John Key in late April. Interestingly, I was the only forestry sector representative. Some observations about China of relevance to NZ and in particular the forestry sector are:

  • Investment in New Zealand plantations remains of strong interest to the Chinese. This is not just about securing logs to process in China. The investments must meet an investment hurdle rate and sales to local processors and/or investing in wood processing are part of that thinking.

  • China has been reviewing its building code for Light Frame Construction for some years now. It is only due to the vigilance of MPI staff based in Beijing that our industry was alerted to that a few months ago. Follow-up by myself and Indufor’s Bill Lu while in China in early April uncovered the urgency for inclusion of NZ pine. Fortunately, Scion has been able to provide technical data relating to Radiata pine at short notice to meet tight deadlines for inclusion with the Wood Processors' and Manufacturers' Association and Scion providing a review of the new assessment. The lesson here is that we really need a more robust means of keeping abreast of regulatory changes affecting our wood trade in key markets.

  • China banned all native forest logging in December 2015. Combined with increased use in furniture, mouldings, finger-jointed boards and edge-glued panels, this in part explains why the NZ pine demand has held up well despite the down-turn in construction.

  • China appears to be very committed to meeting the greenhouse gas emissions targets it set itself at the Paris Accord and is putting in place domestic action to meet them. As a major emitter such leadership on climate change will likely influence how other countries, including NZ, behave.

  • Speeches made during the mission confirmed that the wood sector is not in the main thoughts of NZ Ministers and officials. When listing trade with China, dairy, tourism, foreign students, kiwifruit, wine, film and ICT invariably get mentioned while wood rarely does. This is despite wood products being the second largest export by value! This simply reflects that our industry has not been consistently and positively engaged with Ministers and officials over the past decade. That must change. We are fortunate to now have Hon Todd McClay as Minister of Trade. Coming from Rotorua he is well aware of the significance of forestry to the NZ economy and I’m sure will do his best for our sector.

  • The primary purpose of the mission from the NZ perspective was to get the political commitment for an ambitious upgrade to our Free Trade Agreement with China. The previous six visits by PM John Key and personal relationships developed with President Xi Jinping and Premiere Li Keqiang are fundamental to achieving that. The negotiations between Trade Ministers and officials will follow but setting the ambitions from the top is critical.

  • We need to think of our relationship with China as much more than just trade. Cultural, sporting, research and technical cooperation and sister city links all matter. Our trade mission engagements were so much richer and respected by the Chinese for the inclusion of Maori song and social events.

  • A highlight for me was the discussion between PM John Key and Jack Ma, Alibaba founder and Chairman. Jack Ma is very familiar with NZ and clearly passionate about all that NZ has to offer the world and especially China. It was especially pleasing to see his passion for safe food, organics, tourism potential and the need to protect our environment to secure those opportunities into the long-term future. What Jack Ma says is worth listening to as he has the financial capacity and track record to really make a difference in things he sees as important.

  • China’s current investment in land and sea-linking infrastructure “One Belt - One Road” with Europe, SE Asia and the Middle East is very significant. Previously land-locked economies of Southern and Eastern Europe will very soon become land-linked. New Zealand and Australia should actively engage in being part of the maritime element of these ambitions.

NZ and Australia are not alone in seeking to develop strong ties to China. During the two weeks prior to our mission the Chinese leadership hosted five other Heads of State. It will take on-going political and business engagement not to be “crowded out”.  We cannot expect to effectively develop our NZ-China relationships by waving from NZ. The week before the NZ visit to China the Australian PM took a 1,000-strong delegation to China (the NZ delegation totalled about 50), proving conclusively that it takes only 50 Kiwis to achieve what it takes 1,000 Australians.