Michael Barnett: Smaller companies need to come into play with China

We need to build a strategy for the next phase of the FTA that targets broad-based SME participation, Michael Barnett says. Photo / Natalie Slade

There is no getting around the fact that trade success with China has contributed hugely to our booming economy.

Full marks to the Government and trade negotiators for getting the Free Trade Agreement in place to enable big export corporates like Fonterra to take full advantage, just as a growing middle class in China's 1.6 billion population emerged receptive to the quality food products and New Zealand's tourism offering.

China's first-cab-off-the-rank trade agreement with New Zealand helped us move beyond the Global Financial Crisis quicker than a number of other countries, and continues to contribute to our near top ranking on OECD growth indicators.

For New Zealand, our trade agreement and partnership with China is of singular importance. For China, we are a small player, but Premier Li Keqiang's visit this week signals that, nonetheless, we are a valued partner. His visit will help set the tone and direction for negotiations getting under way to upgrade our FTA.

Both countries will likely use the visit to reinforce our commitment to open markets and free trade. The contrast with the United States' decision to retreat from the Trans Pacific Partnership Agreement (TPP) that New Zealand (but not China) is part of will likely be made very obvious.

Equally, economic superpower China's leadership to build an alternative regional trade group will be messaged as helping to fill the vacuum left by the United States' TPP withdrawal, and of potential immense value to New Zealand.

Meanwhile the FTA upgrade negotiation is an opportunity for New Zealand to inject fresh thinking into the partnership. The negotiation shouldn't just be about expanding preference arrangements into new areas such as services, but include an honest review of differences.

I suggest we have let slip some of the early advantages we enjoyed in the FTA's early years, and created a risk of dependency reminiscent of decades ago when New Zealand was the United Kingdom's food basket.

Instead of allowing China to control which meat and infant milk formula processing plants can register to export product to China - as it is also about to do for honey products - our Ministry of Primary Industries should be setting the rules and standards, and accrediting plants.

The FTA upgrade is also an opportunity to generate value-add growth to the mutual benefit of both partners. Exporting our bulk water, meat, logs and dairy products to China in a raw form makes little use of our higher-skilled workforce potential, and the brand we have for producing high value, high quality.

I suggest we could be more engaged to show China the advantages of importing quality - high-value processed products - which China-New Zealand might jointly feed into the Silk Road project China is leading to link a select Asia-Pacific country grouping with Europe by new sea and overland routes.

Then, there is a key role our small and medium-sized enterprises could be encouraged to play in an upgraded FTA. We know China holds the key to New Zealand's growth, not just as a key market but through the regional leadership it has across Asia and globally. We also know SME businesses are the backbone of the New Zealand economy, but very few are active in China and other Asian countries.

This contrasts with the CER agreement with Australia. In its first 20 years from signing in 1984, the Government invested considerably in encouraging aspiring SMEs to include a transtasman initiative in their business plans, and supporting them with targeted assistance including market research, setting up meetings and identifying partners.

We need to build a strategy for the next phase of the FTA that targets broad-based SME participation.

The strategy has been enormously successful, securing Australia's position as New Zealand biggest trade partner and building a sizeable repeat order market for New Zealand businesses, many which began small but have grown into mid-sized companies with scale operations across Australasia.

The first eight years of the NZ-China FTA have been extraordinarily successful in growing New Zealand forex earnings from our bulk product exports. The FTA has been a good start, but we now need to invest to widen and deepen the agreement.

With opportunities for exporters in China now virtually limitless, and poised to expand into the services sector, e-commerce and other areas of the digital economy, there is an opportunity to encourage aspiring SMEs to jump onboard in a big way.

The bottom line is that New Zealand and China are close trade partners, despite the cultural and language barriers, different legal systems, size and distance.

But to seriously involve our SMEs, our traditional government-to-government style of negotiating FTAs needs to change gears to a government-and-business team approach that is seen to be working together.

We need to build a strategy for the next phase of the FTA that targets broad-based SME participation.

A measure of the upgraded FTA's success, then, would be that in 18 months a fair proportion of seats on the daily non-stop flights that operate between cities like Auckland and Shanghai are taken up by SME business people - not just tourists, corporate executives and officials as at present.

As a nation of traders, it is recognised that our Government has set an environment for business success with China. But to match what business communities of other countries are doing to build relationships at all levels in the new China, our business community also needs to be encouraged to step up.

Michael Barnett is Chief Executive of the Auckland Chamber of Commerce