China: how do we ensure we get what is best for New Zealand?

This op ed by Asia:NZ Chairman Hon Philip Burdon was first published in the Dominion Post on 20 July 2010.

China is the economic phenomenon of the 21st century. It has rightfully captured the curiosity and admiration of the world as offering unique business opportunities and nowhere more so than New Zealand.

It is, however, very important that New Zealand business be under no illusion about the challenges as well as the opportunities of markets in China.

Tim Clissold’s 2004 book Mr China should be mandatory reading for any New Zealand business looking towards our second largest export market as a quick route to riches.

Mr China is the salutary story of a Wall Street banker who accumulated $US400 million from American investors to create joint ventures with Chinese business partners at a time when China’s market economy began to blossom in the early 1990s.

The story doesn’t end well as the funds are squandered, embezzled and frittered away in a series of doomed projects taking place in an unsympathetic legal environment which the American investors failed to understand well.

New Zealand investors have also had their share of Mr China moments, for example, when the directors of Millennium & Copthorne discovered that a newly purchased hotel on the Chinese resort island of Hainan had been sold by their Chinese property investor partner without their knowledge.

As Brian Gaynor mentioned in the New Zealand Herald, the Millennium & Copthorne directors had inadvertently given legal authority to their Chinese partner, allowing him to sell the hotel and pocket $NZ26 million in the process. 

The issue of giving away legal authority to a Chinese partner was one of the central characteristics of the deals that went awry in Tim Clissold’s cautionary true story.

New Zealanders will also need no reminding of the damage to lives and reputation incurred by the San Lu milk powder scandal.

The point to be made is that doing business in China requires a deep understanding of the business, political, legal and social environments. While the potential and opportunities are boundless and growing month by month, so are the corresponding risks of getting it wrong.

A recent American visitor to New Zealand, Professor David Shambaugh, a respected China watcher from George Washington University, told audiences that he detected a naivety among New Zealand’s decision makers in their dealings with China. There was an emphasis on trade issues but that needed to be balanced with a thorough and holistic understanding of China as a whole.

His comments are echoed by David Mahon, a New Zealander who has been working in China since the 1980s. In an interview with TVNZ’s political editor Guyon Espiner, Mr Mahon said apart from a handful of large companies, New Zealand firms are not well equipped for doing business in China.

“They're afraid of China, they're too slow in terms of coming into China, and New Zealand companies seem to do something that is unusual in the developed world, they don't take advice when they enter markets.”

It seems almost universally agreed that China is important to this country’s  future, not just in terms of trade but also in dealing with the ripples of Chinese investment capital that will inevitably lap against our shores.

As our economic dependence on this Asian giant is projected to grow until it becomes our largest trading partner, how do we ensure that we get what is best for New Zealand?

Take it as a given that ignoring China is not an option. The rest of the world won’t be able to ignore China and neither is it practical to try and adopt that strategy. But we do need to increase this country’s capacity to ensure that more of our deals with China succeed rather than explode messily like the two earlier examples.

To do that we need to develop this country’s intellectual and educational capacity to understand how things are done in China and how China engages with the rest of the world. While trade is an important aspect of our relationship, and certainly the government would say it is central to the relationship, it has to be supported by policy architecture that promotes knowledge and experience of how to make that relationship work to the advantage of New Zealand businesses.

As the Prime Minister advocated on his recent trip to Shanghai, learning the language is an important part of the equation. It is one component of an important theme - to inject a curiosity about China, and Asia by and large, in our young people that begins in school and prepares them for a future in a workplace that will be even more deeply influenced by China’s rise.

But right now there needs to be an increased preparedness among New Zealand businesses to be patient, to do their homework and to make and maintain the right kinds of relationships to ensure success in China. As Mr Mahon said, there is an “uneven” application of the legal system in China “so people tend to do business with those they know.  And that's where the relationship side of business in China becomes so important”.

This makes it all the more imperative for New Zealanders to have a more complete understanding of the pitfalls of working in one of the world’s biggest frontier markets. Naivety and ignorance are part of a recipe for failure.

Photos:

1) Hon Philip Burdon being interviewed by Radio New Zealand National.

2) Hon Philip Burdon (far right) with Asia:NZ executive director Dr Richard Grant (second from left) meet Asia:NZ young leaders in Beijing in 2010.

3) Hon Philip Burdon and Mme Li Xiaoping exchange letters of agreement establishing the Sino-NZ Youth Exchange Programme in 2010.