David Mahon: We can't give in to fear of strangers

Crafar farm cows. Photo / Christine Cornege

If New Zealand allows itself to give in to the fear of the stranger on its economic threshold, that powerful stranger will look to many other opportunities for economic partnerships in Asia and South America.

China does not need a close economic relationship with New Zealand, for it can buy many of the commodities and procure the technology that New Zealand possesses elsewhere. But New Zealand needs China. For New Zealand to reject a closer relationship with China is as contrary to its economic interests today as rejecting closer economic ties to the British and American empires would have been a hundred years ago.

The internal political debate and wave of public reaction over Shanghai Pengxin Group's bid for the bankrupt Crafar farms show that a country which has prided itself on its racial tolerance and social flexibility is not as tolerant and flexible as it imagined itself to be.

It is crucial to New Zealand's international credibility that the Crafar deal and others like it are handled with the same non-discriminating pragmatism shown when assets were sold to Western nations over past decades.

The xenophobic public reaction to the Crafar transaction (in which farms held in receivership by an Australian bank are in fact being swapped for Chinese equity) has not yet been picked up substantially by Chinese media or bloggers. Yet it has been keenly noticed by the Chinese Government and the many private companies in China looking to secure, among many other things, reliable supplies of protein, produce, wood and wool, and access to technology to meet the demands of a rapidly growing middle class.

Over the last three decades, China has come to think of New Zealand as a uniquely non-aligned developed Western nation which has eschewed supporting the attempts by more powerful nations to judge Chinese society and marginalise Chinese economic power. This relationship with China, built on respect and a measure of political trust, risks being damaged because some New Zealanders fail to see that reasonable and largely beneficial business forays by Chinese companies into New Zealand differ little from other international business initiatives.

The inordinate conditions placed on Pengxin Group's bid to buy the Crafar farms and the delays due to political equivocation and public challenges have to date cost Pengxin unnecessarily and have managed to humiliate its chairman Jiang Zhaobai in his own country. Protestations in the New Zealand media that New Zealanders would not be allowed to acquire land in China in the same manner have no validity.

Whether a purchaser is a Chinese citizen or a foreign entity, title to land in China is only possible through leasehold and rental agreements. The issue here is one of equal treatment in each country under its existing property laws. The inequities of the New Zealand market are not lost on the Chinese Government. Fonterra continues to bid for substantial tracts of valuable land to build feed-lot dairy farms in northern China. Fonterra's initiatives, while being deeply in its own commercial interests, will help to allay Chinese concerns of the country's dependence on New Zealand for the majority of its milk powder, as New Zealand will be seen to be playing a positive role in the domestic Chinese dairy industry. Investment technology and know-how need to flow increasingly freely in both directions.

As the Crafar debate has come to a head, the New Zealand Government has taken a firm, although at times mixed, position on Chinese interest in New Zealand assets, but it needs to send clearer messages that New Zealand welcomes a deeper relationship with China, including direct investment into the New Zealand economy. Opposition parties need to resist the temptation to use such issues to spar with the elected government, and the elected government should be wary of the temptation to equivocate for public approval. Both must focus on their wider responsibility for the country's objective economic interests. In particular, those against the deal must now stop playing the race card.

What New Zealanders have learned about racial tolerance over the last two generations, as they tried to repair some of the historical injustices meted out to Maori, will have no lasting value if they now allow new seeds of racism toward Chinese people to germinate in the national psyche.

New Zealand companies need to broaden their understanding of China and see it not just as an anonymous buyer of commodities but a potential partner with a domestic market in which New Zealand technology, quality food products and services have huge potential. New Zealand's approach to China is currently fragmented. The most efficient and economical way to improve New Zealand's performance internationally would be to combine the Ministry of Foreign Affairs and Trade (Mfat) and New Zealand Trade and Enterprise, (NZTE) and challenge industrial sectors to, where possible, work collectively. Summaries of ad-hoc gains in trade and diplomacy do not constitute a China strategy.

The planned evisceration of Mfat revealed the extent to which some New Zealand Government officials misunderstood the importance of sustaining the quality of New Zealand's relationships with its key trading partners. Facing a mass exodus of skilled staff, the Government is now backing off from its proposed reforms. Still, much needs to be done to restore morale and rebuild trust.

Despite their smaller size and the fact they have fewer means than their Australian, European or American counterparts, the reach and effectiveness of New Zealand's diplomatic missions in China are envied by many other countries. Without Mfat's assistance, Fonterra's response to the 2008 melamine crisis - which prevented lasting damage to New Zealand's image and saved the lives of thousands of children - would not have been as successful as it was. Mfat's solid presence enabled New Zealand to lead the negotiation and ensure the completion of a free trade agreement with China, smoothly manage the evacuation of its citizens in 1989, and provide myriad services and acts of consular support to New Zealand citizens in difficulty in China over the decades. The New Zealand Government, while pursuing the laudable goal of cutting bureaucratic fat from its administration risked also slicing precious diplomatic muscle, leaving New Zealand with wounds that will take decades to heal.

New Zealand companies are at last beginning to come to China in greater numbers. NZTE has embarked on some positive reforms, and there is a rising degree of healthy discomfort among Government officials in Wellington that more needs to be done to seize the China opportunity. While the recent "China Strategy" paper was an acknowledgement of how important China is to New Zealand and a firm step toward taking a more unified approach to China, it was not a strategy. If the Government can work in unison with clear initiatives, realistic costing and measurable outcomes, it will earn the respect of the private sector and help form real public-private partnerships to take on the China and wider Asia challenge.

Complacency, welfare dependency and a deep sense of entitlement have for too long weakened New Zealand's entrepreneurial spirit.

Audacity and flexibility are required to deal with an economy such as China's.

The very strengths - based on struggle for survival and hope for the future - that drive ordinary Chinese citizens, businesspeople and government officials to develop their economy and their society have existed in varying intensity throughout New Zealand's history. They exist in New Zealand today. It is time for New Zealand to take its modest place in Asia, a position that is crucial to its future stability and prosperity.

David Mahon is managing director, Mahon China Investment Management