Trading with China

China looms ever larger as a trading partner with New Zealand.

In the two years since the historic Free Trade Agreement was signed with Beijing, it has gone from New Zealand's fourth-largest to second-largest trading partner, in part helping to shield this country from some of the worst recessionary effects of the global financial meltdown.

Forecasts predict it will soon occupy the number one spot.

Exports and trade with other parts of Asia and Australia account for a high proportion of the total New Zealand trade, having long since reversed the traditional reliance on the United Kingdom and Europe.

As economists and exporters continue to point out, China is the looming world superpower, has one of the fastest growing economies, the largest population, a fast-expanding middle class and vast untapped markets for New Zealand exports.

In this context, Prime Minister John Key's goal of doubling trade from $10 billion to $20 billion, announced on his visit to Beijing, is on firmer ground than at first might have been thought.

But trade negotiations are delicate at the best of times and go hand-in-hand with investment discussions.

Particularly with respect to the latter, Mr Key could be said to have had something of a tiger by the tail: false steps may have led - and still could - to economic and political setbacks for himself and his party, not to mention the country: the trick was, and remains, to ride the tiger, rather than get eaten by it.

As part of that plan, Mr Key has made it clear that he would, over time, be seeking to address the trade imbalance that sees New Zealand import more from China than it exports.

But if his recent visit has consolidated links in film production, scientific research and agriculture, it has also brought back into the spotlight the troubling issue of the acquisition of large tracts of productive dairy land by overseas, including Chinese, interests.

These have arisen of late with the bid by a Chinese-backed company, Natural Dairy (NZ) Holdings Ltd, to purchase the Crafar farms, and with the attempt by Middle East concerns to invest in a package of Southland farms.

While no-one is saying as much publicly, the late entry of a bid by the politically independent state-owned enterprise Landcorp for the Crafar farms is indicative of where the Government stands on the issue.

This impression was consolidated at the weekend with Mr Key, interviewed on TV, saying that he could not see how New Zealand farmland being owned in China added value to the arrangement; and that New Zealand needed to be cognisant of its strategic assets, just as China would be.

Whether China sees the proposition in the same light remains to be seen.

For the moment, at least, it seems as if this economic behemoth is content to feel its way through and around such sensitivities: the widely held view is that China sees a non-aligned New Zealand as a proving ground for trade relations and economic partnerships with other, larger, western economies.

Some of those larger OECD countries have already felt the clutch of China's acquisitiveness.

For example, Chinese investment in Australia has increased 100-fold over the past five years while exports from Australia to China only doubled.

Commentators suggest that China is buying Australian companies as a bulwark against rising costs in its factories in part created by rising demand for the "lucky country's" mineral resources.

Some economists point to the danger of this happening in New Zealand - which is where that tiger could ultimately bite.

But Mr Key, for the moment, appears to have parried this concern - with talk, instead, of contributions towards infrastructure development, whether in roads and bridges, broadband roll-out or perhaps even with capital contributions towards dairy factories.

The FTA signed between Wellington and Beijing under the last Labour-led administration took relationships between the two countries to a new level.

National and Mr Key, sensibly, appear determined to build productively on that platform.

This requires finesse, subtlety and the ability to negotiate around occasional obstacles.

China is indisputably New Zealand's most critical trade "partnership" and how it is managed now will have significant implications for our future prosperity.

So far, the Prime Minister has shown a safe pair of hands.