KEY POINTS:
Chinese billionaire Zong Qing Hou "firmly believes" the free trade agreement will increase New Zealand's profile among Chinese entrepreneurs.
Zong - boss of China's largest beverage maker Hangzhou Wahaha based in the thriving coastal province of Zhejiang - says a lot of opportunities will open up between New Zealand and China as a result of the FTA.
"Hangzhou is facing competitive pressures from the impact of rising wages and other costs on prices.
Zong is concerned about the inflationary impacts.
But he's more concerned that China will lose its competitive edge if it copies Western models. His philosophy is that people should improve their livelihoods "through hard work" not through Government handouts.
Entrepreneurs from Zhejiang Province ("people call us the Jews of the East") will also take a keen look at what New Zealand has to offer as a result of the agreement, he said at an interview in bustling Hangzhou, Zhejiang's capital.
"Zhejiang is famous for its processing industries - but we have a lack of natural resources."
He's well-connected enough with New Zealand (Wahaha is a major importer of our dairy products) to state with authority that it will be up to New Zealanders to work hard to get results. Zong indicates the FTA certainly won't be a one-way street - particularly when it comes to cross-border investments.
Rising dairy prices - which have seen the price Wahaha pays Fonterra for product escalate significantly - have led Zong to think about setting up a rival dairy manufacturing operation in New Zealand.
"I have to say the price for milk powder from New Zealand is rising too quickly. It's doubled in the last two years.
"With the FTA the tariff will be reduced and I hope the price will be dropped. I'm thinking about going to New Zealand to investigate their milk powder operation and evaluate it and find out the costs."
Under the FTA provisions New Zealand would have to treat seriously any application by Wahaha to build a green fields manufacturing plant in New Zealand.
But Fonterra suggests he'd be wasting his time.
"It is true that the cost of product, in this case whole milk powder has approximately doubled in the last year or so," says Fonterra managing director (China) Bob Major. "This is true both of global price movements for dairy products and of the selling price for our products in China."
Major freely acknowledges the price rises have driven Zong to look at other options including setting up factors in other countries including New Zealand. "But to our knowledge he hasn't pursued any of these options outside China.
"He would have found that the cost of milk in other dairy-producing countries has increased in the same way."
Zong thinks other influences are at play in the pricing equation: "Fonterra - for us - looks like a monopoly.
"Monopolies are not good things. I believe in open markets where people can compete freely and I believe only open and fair competition will help businesses develop."
Zong's aggressive stance is reminiscent of the strong opposition shown by Nui Gensheng, the entrepreneurial chairman of budding Chinese dairy giant Mengnui, to former New Zealand Trade Negotiations Minister Jim Sutton on a visit to Inner Mongolia in 2005.
Nui scoffed at Sutton deriding his suggestions that New Zealand could assist China by providing specialist services to help its dairy industry become internationally competitive. "What competition?" he questioned. "New Zealand legislated its competition away."
Nui had been down to New Zealand years earlier to study Kiwi dairy companies and import Kiwi cows to enable him to start Mengnui after he was dropped by the rival Yili Group.
Both Mengui and Wahaha have joint-venture operations with offshore parties. Wahaha's is with French food and dairy giant Danone which has a 51 per cent stake in 39 Danone-Wahaha joint ventures.
But the relationship broke down last year amidst lawsuits and allegations, which Zong believes originated from his French partner, that he had evaded tax of some 300 million yuan ($55.8 million). Tax authorities probed $US71 million ($92 million) paid to Zong by Danone as service fees, incentive shares in an overseas subsidiary and stock repurchases.
On its website, Wahaha stresses the company has been in the leading position of total assets, total productions, sales revenue, profit and profit and tax in China for several years, which ensures its first place in the beverage industry in China.
There are lessons in this debacle for New Zealand companies wanting to form joint-ventures in China. New Zealand Trade & Enterprise recommends a thorough risk analysis first and getting to know your partner well.
The FTA has clear investment protocols and recourse to international disputes settlement agencies - but it's best to avoid conflict in the first place.
Zong continues to maintain he was "set up". But Danone says it wants a peaceful solution to the problems.
Speculation is rife in China that Danone - looking for a face-saver - wants to find another company to take out its share of the joint ventures. It tried to get involved with Mengnui to produce and market yoghurt from Inner Mongolia but the Chinese Government turned down the plan.
Major says the relationship between Danone and Wahaha is not a simple deal, but a complex one that has been built up over many years with a number of specific arrangements within it. The relationship has largely unravelled, as has a number of the legal and governance arrangements, but some still remain.
"Fonterra has no interest in taking Danone's place.
"We have a long relationship with Wahaha based on product supply and new product development and are working to continue to build that."
