Within my children’s lifetime, if not my own, China will become the world’s biggest economy. Its emergence from chaos and backwardness to become a global economic superpower is one of the most compelling and important stories of our time.

The prospect of New Zealand scoring a preferential trade deal that puts it in the slipstream of this emergent behemoth has always struck me as enormously significant. A good deal, executed well and followed up with intelligent business strategy could give New Zealand a rare economic advantage – something sorely needed by a small, distant country whose fortunes relative to the rest of the developed world have slumped in the last half-century.

But many companies have headed off to China in search of riches, only to return home with their tails between their legs: think no further than Affco and Lion, which both suffered big losses. Experts like Malcolm Cone, director of Otago University’s Asia Institute, have stressed the importance of adequate preparation for this formidable market, with its unique culture and authoritarian government. But, a recent NZTE survey of business people in Shanghai and Tokyo suggests that New Zealanders still don’t cut it in Asian markets, and often fail to appreciate that it can take years to succeed. A clear message from the survey was that New Zealand business people are regarded as nice, but naïve – pleasant, honest people, but not strong business partners.

Signals coming out of Wellington in the lead-up to the signing of the China-New Zealand Free Trade Agreement in April suggested that the diplomats and negotiators had achieved a good deal for New Zealand. The bigger question was whether business had the attitudes and skills needed to tap into the opportunities the FTA would offer.

My two week visit to China was intended to cast light on this question. In the process, I aimed to bring insights that might assist New Zealand businesses considering a China strategy, and help the Listener’s readers understand more about the New Zealand-China business relationship.

I arrived in Beijing in time to attend the multiple press conferences and briefings on the FTA, observe the official signing at the Great Hall of the People on April 7 (during which the New Zealand flag was flown in Tiananmen Square), and attend an excellent seminar on the challenges facing China’s economy.

The official banquet held to celebrate the signing of the FTA and an informal dinner hosted by KEA were good opportunities to mingle with members of the large New Zealand business delegation, who were overwhelmingly positive about the quality of the deal and the opportunities it offered.

I also conducted several interviews while in Beijing, two of which – with David Mahon and John O’Loghlen – were particularly valuable in setting the scene for what I was to see and learn over the following fortnight.

(The signing of the China-New Zealand FTA)

 
By April 9 the FTA-related festivities were over, and I headed out of the capital to the first of the interviews that I had set up prior to leaving New Zealand. First stop was Qingdao, where I met with Jon Shearer, whose vast experience in the Chinese market working for many different international companies provided me with some wonderful colour – not least of which were his great stories of learning to cope with the Chinese business culture of endless banquets and over-indulgence on Mou Tai.

Next was Qingdao Teknatool (QT), the Chinese manufacturing subsidiary of an Auckland company. Like a number of companies that I spoke to, Teknatool had gradually come to the realisation that setting up in China was essential to the company’s future: its new factory in Jiaozhou, not far from Qingdao, had reduced the company’s manufacturing costs, dramatically shortened its supply chain, and put its technology in the vicinity of other companies that might have applications for it. The FTA would be helpful, but not essential, to the business.

Some things were clearly going right for the QT venture. The manager, Ubo Yu, appreciated the respectful attitude shown by the New Zealanders to him and his staff. But – in an interesting endorsement of the NZTE survey – he thought them rather too cautious. The message was that the Chinese are considerably more ambitious for growth than the Kiwis.

During this and subsequent meetings with the Chinese representatives and partners of New Zealand companies, I was struck by the enormous generosity of my interviewees. On arrival at QT I was greeted by the entire management team who were waiting in the factory courtyard to meet and shake hands with me, and the meeting room table was spread with a beautiful array of fruits and cakes. I was given a full factory tour and was free to take as many photos as I liked (although my request to see the workers’ dormitory was politely declined).

From Qindgao I flew to Guilin, in Guangxi province, where I interviewed Garth Smith and Lan Fusheng about their work in developing the luo han guo industry, which has progressed well since Susan Pepperell’s visit in 2005. The company’s processing factory, where the luo han guo fruit will be processed into the calorie-free natural sweetener PureLo, will be completed in time for the autumn harvest, and all of this year’s product has been pre-sold. The key focus for the company is on scaling up to meet expected demand for PureLo.

The close team-work between Garth and Fusheng, and the deep empathy Garth has for China are absolutely central to this venture. It is hard to see how a New Zealand company could have developed such a business without the close bond between these two men who, in turn, have won the support of regional and national government agencies. It is still early days, but the luo han guo project seems to have the makings of a successful NZ-China venture that others could learn from: it has tapped into a unique local resource, built a strong cross-cultural partnership based on respect and trust, has the potential to bring significant benefits to both Chinese and New Zealand stakeholders, and is in tune with China’s need for sustainable rural industries.

(Garth Smith and Lan Fusheng inspect luo han guo seedlings)

From Guilin I flew to Fuzhou where Energy Mad, a four-year-old company that makes energy efficient light bulbs, has its product manufactured and where its China manager, Ken Holdsworth, is based. I was very keen to see this operation because it sounded like a textbook case of a company that had come up with unique technology targeted at a growing market, and was using China’s low-cost mass-manufacturing capability to go global. In all likelihood, the company would never have got off the ground if it had tried to do everything from New Zealand. I was disappointed, however, to find that the product was being manufactured at a low-tech plant that was heavily reliant on repetitive manual labour, and with virtually no attention to basic health and safety.

Again, though, I was graciously welcomed, given an extensive factory tour (although I was routed away from one room, where I was told the workers handle lead), was free to take photos, and conducted a lengthy interview with the manager of the manufacturing company. Afterwards, the manager hosted me to a generous banquet, where the conversation turned often to the Olympics, and the anger raging among Chinese people at Western media criticism of China’s policies in Tibet.

Next stop was Shanghai, where I had set up a busy three days of interviews. A session with the Shanghai Dairy Association gave me an insight into the fast-growing and ambitious domestic dairy industry, with which Fonterra’s China operation must compete. After a brief meeting with trade commissioner Andrew White, I then headed out to the Suzhou Industrial Park to visit Dynamic Control’s new manufacturing plant. Like Teknatool, Dynamic had come to the conclusion that shifting its mass manufacturing to China made irrefutable sense. There have been frustrations since establishing the plant last year, but the decision to hire an experienced local, Roger Zhu, seems to have greatly minimised these. Communication between Roger and Dynamic’s Christchurch management appeared to be very good, and the bright, modern factory could just as well be in the middle of East Tamaki or Birmingham Drive.

Over the next two days I interviewed New Zealander Andrew Grant of McKinsey, visited Hamilton-based NDA’s manufacturing operation on the outskirts of Shanghai, caught up with young New Zealand marketers Ben Shipley and Aaron Marsich, and ate pizza at an “unauthorised” Hell Pizza outlet which the New Zealand franchise owners – whose intellectual property is being infringed – are trying to shut down.

As a counterpoint to the low-tech manufacturing I had seen in Fuzhou, it was fascinating to visit Shanghai Challenge Textiles, which has manufactured Icebreaker product for four years. It was obvious from my interview with Challenge’s chairman and sales manager that Icebreaker had succeeded in building a strong and trusting relationship with this company, which was working well for both parties. The relationship gives Icebreaker access to Challenge’s enormous scale and advanced manufacturing technology to service a global market for its products; and Challenge benefits from having a reliable and growing client that supports its efforts to minimise the factory’s environmental impact.

My last stop before flying out to Hong Kong was an interview with Fonterra’s Bob Major. Although Fonterra is often cited as one of the biggest beneficiaries of the FTA’s tariff reduction programme, Major sees the benefits as mostly symbolic – a signal of goodwill between two nations that will ease some of the difficulties of doing business in China. That’s not to diminish the FTA’s significance: as Bob explained to me, when the Chinese government makes a pronouncement – that milk is healthy, for instance, or that New Zealand is a good friend to China – people listen. “The Chinese have a view of government which is far more positive than New Zealanders have. They see government as having directed an improvement in their living conditions.”  

Finally, in Hong Kong, I met with Rob Morrison, a New Zealander who heads CLSA Asia-Pacific markets and who has developed a strong interest in the business risks associated with global warming and other environmental issues. CLSA produces an extraordinary wealth of research reports, including some compelling work on China’s environmental issues. The interview with Rob, plus the tomes of research he sent me away with, enabled me to put together a story giving readers a glimpse of the flip side of China’s miraculous economic growth.

Throughout my visit to China, some of the best insights were obtained over lunchtime and dinner banquets with my hosts. One message that I picked up clearly from these informal discussions is that, while those who go to China to run New Zealand ventures are almost always motivated by the challenge of living in a different culture, they are sometimes badly let down by their superiors back home. If the bosses at head office are ignorant of Chinese culture and fail to understand the daily frustrations encountered by their staff on the ground, the pressure can become intolerable, posing an additional risk to the venture.

Time and again, the message came through that China continues to be an exceptionally hard place to do business, and often a hard place to live. The banking system was described to me by one Kiwi expat as “feudal”; the need to nurture “guanxi” relationships with officials and business associates is relentless; the scale and intensely competitive nature of the economy mean that it can be a struggle for typically-small New Zealand companies to be noticed; the bureaucracy is opaque and almost impossible to navigate without local knowledge. One senior New Zealand executive with extensive responsibilities in China told me that a Chinese colleague had once put it to him that: “In the West, you have rules; in China, we have ways.”

 (A "hutong" – a traditional Beijing alley)

 
Several expats also spoke to me of the enormous frustration of dealing with workers who won’t admit to mistakes or failure because of the fear of “losing face”. 

Another repeat theme was the disjunction between New Zealand and Chinese business mores. At NDA, for instance, the chairman told me that the company refuses to sell to Chinese companies because they don’t always seem to understand the need to pay for services rendered. Energy Mad’s Fuzhou-based executive commented that, in China, it’s perfectly acceptable to “take advantage” by, for instance, telling a customer that an item costs 33 RMB to manufacture, when in fact it only costs 30 RMB. Rob Morrison, whose firm CLSA was the first foreign company to be granted a joint venture investment banking license in China, said it took two years to negotiate the original JV deal, followed by another two years of “headaches” as the partner wanted to “run off and do all these things that we didn’t want to do”. All up, it was five years before the venture could be called a success.

On the other hand, a strong message from long-time China residents such as Garth Smith was that, if a trusted associate gives you his word in China, then it will be kept. And the luo han guo project – a joint venture between New Zealand-based BioVittoria and Lan Fusheng’s tissue culture company – suggests that successful partnerships are possible.

Can Kiwi businesses foot it in China? Obviously, many of the companies I spoke to had considerable experience in China and had proved that the answer is "yes" – provided there is sufficient investment of time, executive energy, open-mindedness, and patience.

As one corporate executive put it to me, the biggest obstacle to New Zealand business success in China is ignorance. Despite the fact that China is undergoing one of the most extraordinary social transitions in history, despite the fact that the Beijing Olympics are looming, despite New Zealand signing a world-first FTA with China, Kiwis still have relatively little ambient knowledge of China. I hope that through my articles in the Listener I have been able, in a small way, to lift New Zealanders’ store of understanding about China, and I am immensely grateful to Asia New Zealand for enabling me to do so.

Rebecca Macfie is a journalist for The Listener and travelled to Beijing with the support of Asia:NZ to report on the recent signing of the China-New Zealand Free Trade Agreement. Photos by Rebecca Macfie.