As China turns its trillions towards New Zealand's food production-based economy, Owen Hembry writes that fears of a foreign takeover may be misplaced
Growing Chinese investment in New Zealand is fuelling fears of foreign takeover.
With the Asian superpower's currency expected to rise in value, its buying power will increase.
China already has trillions of dollars to invest overseas, and New Zealand's food production-based economy is an attractive target.
With a free trade agreement in place, links are strengthening.
China is New Zealand's second biggest export market - behind Australia - worth $3.76 billion for the year ending February.
Exporters and those with New Zealand assets to sell will be helped if China bows to pressure to increase the value of the yuan, which will be discussed by the G20 over the weekend.
Westpac chief economist Brendan O'Donovan says a higher exchange rate is important for trying to slow the economy and rebalance growth by raising the purchasing power of Chinese consumers.
"So it will come but they haven't told us exactly when. We're picking it's going to happen some time this quarter."
Meanwhile, Chinese investors have been making headlines and sparking what some are calling a xenophobic reaction.
Last May, Chinese appliance manufacturer Haier took a 20 per cent stake in Fisher & Paykel Appliances.
In October, Chinese agricultural company Agria bought 13 per cent of PGG Wrightson.
In both cases, this staved off fears of collapse for the local companies.
Hong Kong stock exchange-listed Natural Dairy (NZ) Holdings in March said it was trying to raise $1.5 billion to fund an acquisition spree, including dairy farms and plans for processing facilities.
Natural Dairy and its 20 per cent-owned local company UBNZ Assets Holdings has applied to the Overseas Investment Office for permission to buy more than 20 farms including properties that once belonged to the failed Crafar dairy farm empire.
The company said its interest in the dairy industry was met with a xenophobic response from some farming interests, although Federated Farmers president Don Nicolson has said fear that foreign ownership meant benefits were lost overseas was misplaced.
Market commentator Arthur Lim says the Chinese are sitting on trillions of dollars in foreign reserves and companies and the Government are looking to invest beyond options such as US Government treasuries.
Property is always on the Chinese shopping list, but there has also been investment in the agricultural production base, Lim says.
"The Crafar farm situation is the tip in terms of the potential interest that they've got in dairy farms and farming in general."
Lim has advised investors from Asia looking to buy dairy farms but the local reaction changed their minds.
"They went to a farm auction in the Waikato and they were made to feel very, very, very unwelcome and said 'no, better things to do in life'," he says.
The Chinese are not typically share market players, Lim says.
"In New Zealand if we look at our share market they've already bought into [PGG] Wrightson, which gives them representation to what New Zealand is about, agriculture, but there's not a heck of a lot more to buy."
The investment by Haier in Fisher & Paykel Appliances was more of a technology tie-up, with the Chinese wishing to upgrade Haier to a premium brand, he says.
Australia has done better than New Zealand in interacting with Asia, he says.
"I think we're very slow and companies especially are not prepared to make the investments in time, money and effort, establishing them on the ground up and then reaping very substantial benefits many years down the track."
Chinese investors cannot ship the soil back to China, Lim says.
"It stays in the country here, it has to buy services and employ New Zealanders to be able to run the farms and the connectivity back to China. The ability to source from New Zealand and sell into their home market - that has got to be a really good thing."
New Zealanders have bought farms in the United States, NZ Farming Systems Uruguay has bought in Uruguay and Fonterra has invested in China.
"What are we saying here?" Lim asks.
"It's OK for New Zealand companies and New Zealanders to buy overseas but not good for them to buy into New Zealand?"
New Zealand is borrowing a horrendous amount of money from overseas, he says.
"In owing so much money to overseas interests the one way that realistically we pay those overseas interests back is you've got to sell them some assets."
The outcry about the selling of assets does not focus enough on why it is happening, "which is we are not saving enough in New Zealand ourselves".
Westpac's Brendan O'Donovan says Chinese investment would be good for New Zealand.
In 2008, New Zealand signed a free trade agreement with China and the payback was swift - a roughly 59 per cent rise in exports worth about $1 billion the year after it came into force.
New Zealand exporters need representation on the ground in China or strategic alignment with Chinese firms, he says. "The exact same logic applies to Chinese companies doing business with New Zealand."
There are regulations and watchdogs to ensure appropriate behaviour for companies, whether New Zealand or foreign-owned, O'Donovan says.
"There's been plenty of New Zealand-owned companies ... where there's been rat-bags and rogues."
If assets are deemed strategically important with local ownership needing protection then they should be registered, he says.
"We should not be in the position like we were a few years ago when politics was played with the Auckland International Airport deal," he says. "It's extraordinarily damaging to our reputation and our ability to attract foreign companies if we do that in an ad-hoc manner."
Plans by Dubai Aerospace in 2007 to buy a controlling stake in the airport were dropped in the face of government and council concern and in 2008 a bid by the Canada Pension Plan Investment Board for 40 per cent was rejected by a ministerial veto under the Overseas Investment Act.
The bulk of overseas investment comes from countries including the United States, UK, Australia, Japan and Germany, with an insignificant level from China, he says.
"Increasingly we'll see China wanting to have direct investments in New Zealand just as New Zealand will want to have direct investment into China - people seem to be fearful of that," O'Donovan says.
"At this stage it's xenophobia driving those fears rather than the reality."
Henry Chung, senior lecturer in marketing at Massey University, says China invests to secure its supplies, with investments in oil sand in Canada, coal and minerals in Australia and copper mining in Chile.
"This is to support the booming manufacturing industry in China."
Increased Chinese investment is unavoidable because outward investment is a necessary step of a growing economy, he says.
Another fast-developing economy, India, could follow China into Australia and New Zealand.
"I'm pretty sure that India is actually closely watching what the Chinese companies are doing in New Zealand because they are facing similar issues back home in India," Chung says.
Three key methods of entering an overseas market are to become an exporter, set up a joint venture with a local partner or establish a wholly-owned operation.
While countries in Europe and North America have often moved incrementally through the market entry stages, Chinese investors can jump straight to establishing wholly-owned operations, Chung says.
China has the capital, has learned from multinational companies operating in China and wants a higher level of control to design products specifically for the Chinese market.
"I believe if we do it controlled, manage these type of investments properly, we still can benefit a lot and the main benefit is creating jobs."
Overseas investors could agree to collaborate with local partners under regulatory approval, with research and development, manufacturing or specified amounts of raw materials purchased in New Zealand.
"The Chinese companies say to Australian firms if you don't offer us the material we're looking for we can easily go to the other countries," he says.
"Rather than decline straight away perhaps we can think about whether this is actually a good opportunity, whether this actually provides a win-win situation for both parties."
