China Business: An innovative approach

The writing is on the wall: a mural at Seeed Studio in Shenzhen. Photo / Alexander Speirs

We need to stay in touch with changes in China writes Tim Groser.

China's rapid growth provides many opportunities for New Zealand and New Zealand businesses.

Our trade profile shows we've grasped these opportunities in a way we should be proud of. But to be truly successful in China, innovation is vital.

China is showing increasing interest in higher-value products and services. In May last year, President Xi Jinping tasked Shanghai with accelerating its science and innovation development in order to build the city into a global science hub. This will build on already high research and development spending (over $16.5 billion in 2013). Of course this push for innovation is not limited to Shanghai - outside the cities, the Government is encouraging greater efficiency in the agricultural sector, presenting many opportunities for New Zealand and China to work together.

We have much to offer in this area, from animal health and dairy farmer training programmes (agreed during President Xi's visit to New Zealand in November last year), to Fonterra's investment in China through large-scale dairy farms and its recent purchase of a near-20 per cent stake in the Chinese infant formula maker Beingmate.

But we mustn't limit our thinking to agriculture. New Zealanders are an innovative bunch across all sorts of sectors. The purchase of Fisher and Paykel Appliances by Chinese company Haier shows how valued Kiwi ingenuity is. And on my recent trip to China I had the pleasure of opening Zealong Tea's flagship store in Beijing.

Zealong Tea grows premium oolong tea on their Hamilton-based estate, then sells it to the world's leading tea producer, which shows what can be achieved by thinking outside the box.

I also opened the 25th Esquires coffee store in China. The brand in China is owned by New Zealand company Cooks Global Foods. The company is aiming to have 300 stores in China by 2020. The Esquires brand is strengthened by New Zealand's reputation for fresh, high-quality produce, and our well-known café culture. It also benefits directly from the NZ-China free trade agreement, which sees coffee beans roasted here entering China tariff free.

China's drive to innovate has seen it look to New Zealand's education system, thanks to our emphasis on encouraging creativity and fresh thinking. There are around 25,000 Chinese students studying in New Zealand schools, universities and institutions and a recent survey placed New Zealandin the top five preferred overseas study destinations for China's wealthy middle class.

Trade Minister Tim Groser says we need to be prepared for the fast-changing nature of China. Photo / Ross Setford

The Government has shown we understand the need to be innovative in our approach with China. This is demonstrated by the "four firsts": the first country to conclude negotiations with China on its accession to the World Trade Organisation, the first to recognise China as a market economy, the first developed country to enter into FTA negotiations, and the first country to conclude a comprehensive FTA with China. I know these achievements sound more impressive to bureaucrats than the public, but they are significant achievements in the international community and continue to help drive our relationship forward.

The free trade agreement signed in 2008 has transformed our relationship. Thanks to the improved access to each other's economies, two-way trade has doubled and New Zealand exports to China have more than quadrupled. But some time has passed since this agreement was signed and China has now entered into free trade agreements with a number of other countries.

The Prime Minister and President Xi agreed to look at upgrading the NZ-China free trade agreement during the President's visit to New Zealand in November last year. I visited China in March this year where I met China's Commerce Minister, Gao Hucheng, and we agreed to a process to consider upgrading the FTA. It is too early to say what the result might be, but it is another example of the strength of our innovative and pioneering relationship with China.

China is also becoming increasingly innovative in the international sphere, most significantly through its proposal to establish a new financial institution in the region, the Asian Infrastructure Investment Bank (AIIB). The bank aims to help address the significant infrastructure deficit in the region. China approached New Zealand early asking whether we would consider becoming a "prospective founding member". We agreed - the first Western developed economy to do so. This decision sits with our history of "firsts" with China and it is pleasing to note that many of our friends have since joined the negotiations to establish the bank.

We joined because the Asia region is deeply important to our future, and because current institutions are not able to meet the region's growing needs. This is a historic endeavour - the first significant addition to the Bretton Woods multilateral institutions formed in the aftermath of World War II.

New Zealand is now working with China and other prospective members to frame up the bank; addressing issues such as purpose, governance, financial arrangements, voting rights and investment safeguards. We have some way yet to go, but we share with China a desire to see a new bank emerge which is fit for purpose, run efficiently, governed well, and which materially contributes to the sustainable economic development of the region. If we can get it right, the bank will be a new driver of growth in the region that will benefit the New Zealand economy and all our exporters who trade in this vibrant and important part of the world.

Innovation is a fitting theme for this year's China Business Report.

It is a key attribute for businesses and the Government in their dealings with China. But most importantly it reflects the fast changing nature of China and the Asia-Pacific region more broadly, something we all need to be prepared for.