Business behind China deal - with reservations

Business is strongly behind a free trade agreement with China but concerns are emerging over the impact on New Zealand companies and jobs from growing competition from the Asian giant.

Just over 75 per cent of chief executives and chairmen surveyed by the Herald support the deal which the Government began negotiating late last year.

"I strongly support this ... huge capital inflows to China so NZ should follow the money," said a technology company chief executive.

"It has both benefits and threats. Cheaper and better-quality manufacturing aids my competitiveness, plus there are huge market opportunities in China. But their technology competitiveness is also improving. It is a huge market with a surging demand to be exploited."

A joint New Zealand-China governmental study predicts our exports to China between 2007 and 2027 will swell by between $260 million and $400 million a year, mostly for agricultural products.

The Herald survey shows some resistance by about 8 per cent of respondents with 11 per cent unsure about the agreement. Some cautioned New Zealand should proceed with care. "We are dealing with a dragon that focuses on an extractive relationship with the world," said an energy sector head.

The terms of the deal were also critical, added another. "When they float the yuan maybe ... now we would be pigs to the slaughter."

But one rural sector player said the reality was China was a "commodity game".

"Like it or not we rely on commodity markets to drive both the prices and quantities of most of what we export. We have to adjust to the implications of what China does well in terms of some of our other industries but the challenge is to make sure we are aware of them."

Added another: "Australia is dry and New Zealand should be a food bowl rather than a pine plantation."

While 82 per cent of respondents said their company or industry was not facing a competitive threat from cheaper Chinese prices, 16 per cent were. And 21 per cent were either outsourcing, or about to, a considerable portion of their business to China. Forty-three per cent were concerned at the competitive threat China and India pose; 53 per cent were sanguine.

Deloitte chairman Nick Main said the trend could not be turned back and was another illustration why this country must increase its skills base.

The company bosses accept it will be "business as usual" whether Labour's Helen Clark (who would like to put her pen to the deal), or National's Don Brash, forms the next Government. But they are nervous at the potential impact of the Greens on a Labour-led coalition.

Likewise, New Zealand First, whose leader Winston Peters been critical of the China focus, is a potential risk factor.

The "China syndrome" ranked marginally lower than concerns about the United States economy among international issues CEOs believe could negatively effect business confidence.

The soaring US current account deficit, which reached an all-time high of US$780 billion ($1100 billion) in the first quarter of 2005 (an increase of 15 per cent over the fourth quarter of 2004 ) rated equally with the weakness of the US dollar as the issue with the most negative impact.

A UN report maintains it is wrong to blame China's surging exports for its big trade imbalance with the US. Supachai Panitchpakdi, Unctad's new secretary-general, said China represented only roughly 8 per cent of the total global current account surplus in 2004.

But the reality is the issues are intertwined in CEOs' minds.

Upcoming talks at the World Trade Organisation in December are being closely watched. A breakthrough on agriculture liberalisation will spur economic growth.

Some CEOs who responded to the survey after Hurricane Katrina's assault on America's southern states, pointed to emerging weather extremes (not surveyed), a potential oil shock and galloping insurance levies as potential international hazards.

On the trade front there is concern that political capital is being squandered by doing deals ("tokenism") with lesser partners such as Thailand and Singapore, rather than concentrating efforts on key targets US, China and Japan. Sixty per cent do not believe enough is being done by either Trade Negotiations Minister Jim Sutton's officials, or business itself, to leverage agreements to provide a greater net economic benefit.

Emotions are also raised by the way the relationship with the US - a major trading partner - became a political football early in the election campaign. Labour's foreign policy stance and defence strategy was hindering the economy, according to nearly 70 per cent surveyed. Twenty-five per cent had a neutral outlook.

Among comments: "Labour's virtuous views on Kyoto and blind ignorance of the importance of engaging with the US has done little to promote development" and "There is no doubt that our anti-nuclear stance makes an already difficult FTA prospect with the US even more difficult." Some 85 per cent agreed National's intention to form great links with the US, UK and Australia would be more appropriate. But some took issue - "absolutely not ... based on 'colonial' legacy thinking rather than recognition of China's emerging power".

What is important, said Pumpkin Patch's Greg Muir, was that irrespective of which party gets to form the next Government, the US relationship must be made a priority.

"It's not until you've really spent some time digging your toes under the sand in the US that you really realise what an outstanding market it is. It's the enormity of it ... the disposable incomes and the variety.

"The fact is an FTA into the US would have given New Zealand a lot more opportunity. I just think it is a real shame we haven't progressed that fast from an export point of view."

Where the chief executives are ahead of the public is in their desire to see the next Government allow nuclear-propelled ships into New Zealand ports. Labour says no. National has squared its bets saying it would first seek approval by referendum. But 75 per cent of business heads surveyed support change.

They draw the line at allowing nuclear weapons in - 78 per cent oppose such a move.