Rush to woo emerging giant

FRAN O'SULLIVAN examines the factors affecting how tiny New Zealand can form a decent working relationship with China.

Prime Minister Helen Clark admits she is still grappling with the significance of China's rapid rise and a "changing world order".

"The reality of the world we live in is that by the time I peg out China will be by far the world's greatest economy because it is coming on so fast. And with great economies goes great power."

New Zealand is now trying to come to grips with that power. Three weeks after President Hu Jintao's visit, officials are laying the groundwork for negotiations towards a closer trade relationship. The chance to capture a bilateral deal with the world's fastest-growing nation is a prime opportunity. But New Zealand is not alone in trying to reach a new accommodation with China.

Path-breaking trade talks due to begin in Wellington next week have had to be postponed as Chinese Vice Minister of Commerce Ma Xuihon deals with the demands of an existing superpower - the United States.

Ten days ago Ma directed her officials to fill US order books for Boeing jets, Cadillacs and Buicks and sacks of soybeans to make a hole in China's whopping trade surplus. But the buying spree has made barely a dent in the US trade deficit and US manufacturers are still whinging over the loss of American jobs to low-cost Chinese competitors.

Such moans are unlikely to be heard from New Zealand. "Competing with China is not where we want to be," says Clark. "It's widely appreciated the future for New Zealand is high up the value chain."

When Hu and Clark took to the podium at Auckland's Sheraton Hotel to announce the launch of talks on a trade and economic framework it had all the hallmarks of a well-considered move. Hu laid out the elements with military precision. "Both China and New Zealand love peace and are dedicated to developing each other and their peoples. The economies are highly complementary."

The Prime Minister, who is renowned for her caution, was similarly effusive, saying a deal would be done "as soon as possible".

Despite the appearance of long preparation, Herald inquiries have since found the proposal had not got as far as Clark's Cabinet before the pair made their announcement.

The late rush was sparked by advance news that Australia would unveil a completed trade and economic framework with China during Hu's prior visit to Canberra - much further along than the Government expected.

Ministry of Foreign Affairs and Trade deputy secretary Richard Grant was despatched to Beijing to front up to the formidable Ma. "The speed with which we put it together was faster than we might have been comfortable with, but it was driven by the fact we had this opportunity with the president here," said a senior official.

Chinese ambassador Chen Mingming confirmed that "the matter was first raised by Mr Richard Grant when he visited Beijing in the first week of October. It is pretty unusual. It is not like what happened with China-Australia consultations which had been under discussions for more than a year."

MFAT officials are using the time before negotiations start - probably in mid-January - to scope what a trade and economic framework might cover, write the requisite Cabinet papers and get a negotiating mandate.

But why should this former Communist basket-case turned capitalist expansionist put a small country like New Zealand high on its trade negotiating list?

There seems to be no single clear answer.

Visiting top-ranking Chinese politicians have repeatedly stressed New Zealand's work in promoting peace and stability within the Pacific. China has declared itself "ready to see New Zealand play an important role" in the region. The Clark Government's independent foreign policy and emphasis on multilateral institutions such as the United Nations and the World Trade Organisation are admired.

But one factor stands out - Clark's decision not to follow Australia into the war on Iraq, which China had resisted from its seat on the United Nations Security Council. Clark reveals she used her extensive private time with Hu on his three-day State visit to emphasise the extent to which the two Australasian economies are integrated and the damage New Zealand would suffer if left out. "He certainly took that on board."

New Zealand was among the first Western nations to recognise the People's Republic and strongly advocated China's accession to the WTO. There is, of course, still a large gulf between each nation's value set.

The President has pointed to "shared values"of mutual respect, equality, mutual benefits and a common prosperity. Critics see it differently. China's Achilles heel is its poor human rights record, its adherence to one-party rule, the suppression of Tibet and its fractious relationship with Taiwan.

Foreign Affairs Minister Phil Goff was deputed to point this out in a "vigorous" discussion with Hu during the formal inter-government talks.

Clark maintains the relationship is as warm as it can be. "But it will always fall short of what the relationship can be with Western countries because of the value differences. That's not to say it can't be a very, very friendly and constructive relationship."

The Government's decision to forge stronger links with China also coincides with a time when multilateralism is once again under threat - this time at the WTO.

The framework deal that Australian Prime Minister John Howard struck with Hu has undermined conditions that China signed up to as part of its WTO accession agreement. These relate to anti-dumping safeguards and protections for textile and clothing manufacturers.

In effect, Australia has given China a two-year suspension from application of its WTO entry terms while it studies the feasibility of a future free trade agreement. On top of that, China has demanded - and got - agreement from Australia that it will recognise its status as a "market economy" before signing an FTA.

Clark acknowledges Australia "was without doubt" the first country to break ranks. "It's all politics." Hu would not be drawn on whether New Zealand would have to follow suit to secure closer relations. But China's ebullient Foreign Minister Li Zhaoxing does not mince words. "I believe the market status should be recognised," he emphasised. "China is a member of the WTO. We are loyal to our commitment to the WTO and we have been abiding by the rules of the WTO.

"We hope that the rest of the membership of the WTO will recognise that China is developing a market economy ... There are so many business enterprises in this country who have had very good business transactions with China. They can approach with their own eyes and see the volumes that are happening in China."

Ambassador Chen says recognition of China's market economy status "provides a premise for these discussions. We do not think this should be an issue between China and New Zealand."

The US, on the other side from China in a potential trade war, sees it differently. It wants China to adhere rigorously to its WTO commitments. On Wednesday the Bush Administration increased trade tensions with China by announcing it will limit clothing imports to protect struggling US companies.

Grant Aldonas, US Commerce Department under-secretary, says "it reflects the severe distortion in trade because of the heavy state investment in China's economy".

Before the US announcement, visiting State Department spokesperson-at-large Phil Reeker told the Herald: "As long as it's a level playing field we are ready to compete fairly."

But there is now increased pressure for New Zealand from this American stance. One thing Clark does not want is to see a polarisation of New Zealand's relationship with the US and China. She notes New Zealand's diplomacy must be aimed at "not having to choose".

Since the Hu visit, relationships are rapidly thickening at political, business and cultural levels. The impact of September 11 has led some high-ranking politicians to choose Auckland rather than Los Angeles as their en route stopover. Last week, Zhang Dejiang - Communist Party general-secretary for the prosperous Guangdong province - flew into Auckland on an unannounced stopover on his way to South America for trade talks.

Zhang was here for less than a day, but MFAT quickly laid on a motorcade for the politburo member to take in the sights. Auckland City Mayor John Banks obliged. Auckland has a "sister city" relationship with Guangdong's capital, Guangzhou, and Banks wanted to stress the value of the volatile Chinese education industry to his city, put at $780 million for greater Auckland.

What the world community and New Zealand has to come to grips with is exactly how to engage and interact with China. Clark says: "I think because of New Zealand's circumstances with Maori and Pakeha, we're not unused to trying to bridge quite substantial cultural divides ... It is far from straightforward and it can be absolutely agonising. But we have some insight into how it operates.

"I think the critical issue around multilateralism is how we all adapt to China being the greatest power on earth."