Key gets grilled in China

Newshub Political Reporter Lloyd Burr was travelling with the Prime Minister and when he sat down with him in Xi’an, started by asking how worried he is about China’s economy hitting a Great Wall…

John Key: We can see issues in the Chinese economy, particularly around some of the loans they’ve got, some of the regional banks and some of the lending overall, but we tend to be on the slightly more optimistic side. I mean, the Chinese leadership have been telling us they expect to grow at about 6.5 percent. They grew at 6.7 percent for the first quarter. And we certainly still continue to see, as I say, demand on the consumer side for what we’re selling, so, look, let’s wait and see, but in the best assessment we’ve got, it’s still tracking along reasonably okay.

Lloyd Burr: That downturn must be worrying, especially since the high in 2014, and when President Xi came to visit in New Zealand, he said, I think his quote was, ‘There’s more Chinese demand than you can possibly supply,’ but that sort of hasn’t run true, has it?

Well, no, I think he’s actually right if you think about the fact they’ve probably got about two or three hundred million middle-income consumers. They have 1.4 billion people, and the big challenge for the Chinese administration is to take that billion-plus people out of very low levels of income and put them into middle-income consumers. That will happen. The question is just how long it takes to happen.

One thing that sort of caught my attention, especially with the signings yesterday, is that Fonterra and the like of these big companies are doing joint ventures with Chinese companies. So if we’re teaching Chinese farmers how to make milk just like we do, in an efficient way, isn’t that bad for our economy? It means that the Chinese people can make their own milk.

No, I don’t think so. Firstly, one of the big issues that always get raised with the Chinese leadership is that Chinese consumers don’t trust their own products. So as much as they’re improving and getting better, the Chinese consumers have a very long memory when it comes to things like the melamine crisis that was here and other issues that they’ve got in their food chain. So there probably isn’t a week that goes by when there isn’t a particular issue in one sector or another when it comes to food safety and security, some sort of scandal, some issue. So they put a very high premium on buying a New Zealand-sourced product. It’s one of the reasons why you’re seeing companies like Yili and Yashili actually moving operations to New Zealand, sourcing their milk from Fonterra and being able to have a New Zealand-branded product under their own label coming back into China. So I think there’s two different markets. There’s the sort of less affluent consumer. They’re probably going to buy Chinese milk, and that may well be milk that New Zealand helps in terms of the production of. Then there’s the middle-income base. They’re always going to gravitate towards the New Zealand product or, indeed, an international product because of the safety, I think.

It’s not just dairy that you’re pushing here, isn’t it? You put on your other hat, your tourism hat. China’s a huge source of tourism for New Zealand, and you want to increase it. How many do you want? How many Chinese tourists do you want in New Zealand?

What we want fundamentally is the value play rather than the volume play. I think the numbers are going to dramatically grow, but I think they’re going to grow because Chinese are travelling a lot more themselves.

Can you give us a number?

Well, there are a hundred million trips this year. The Chinese president said at a meeting I was at a year or so ago that they thought it would be 400 million within five years. If you just extrapolated the numbers, you’ve got to think that there’s every chance a million Chinese visitors will come to New Zealand within the next five years. The question for us is whether we have the capacity to accommodate them, and that will require us to build more infrastructure, particularly around hotels.

And that’s the tough bit now, isn’t it? Because a few weeks ago on The Nation, you talked about how there were no places for our Chinese visitors to stay, and is there going to be something in the Budget, I guess, for this so-called infrastructural crisis?

There will be in terms of around freedom camping, so there’s an infrastructure deficit for the backpacker end, where people are staying out there, not necessarily staying in a motel or holiday park, and that’s a real issue for local councils. On the broader issue of people staying in hotels, Government’s not intending to get involved in that, but we can actually make a difference in terms of actively encouraging that investment in New Zealand. We’re doing that.

Let’s quickly talk about Project Palace from the Trade and Enterprise New Zealand. They’re encouraging joint ventures, aren’t they, like the Hyatt that you turned the first sod of?

Yeah, the Fu Wah Group.

Yeah, how important is that? Is that something that you’re actively encouraging Chinese investors to come and invest in infrastructure like that?

We are. There’s a lot of, I think, misnomers about foreign investment. New Zealand has relied on foreign investment for a very long period of time. Without it, we have to accept we’re going to grow as a country at a lower rate. I think what a lot of New Zealanders would say is they quite welcome foreign investment, but they want to see it creating jobs and more capacity for our economy, not just gobbling up farmland.

Can we quickly just talk about extraditions?

Yeah.

In your decision with President Xi Jingping, you talked about the number of fugitives – Chinese fugitives – around as many 60 in New Zealand. Are they dangerous?

No, I don’t think they’re dangerous. I think they’re people that have come to New Zealand. They’ve gone all around the world, by the way, and the Chinese have put out a list, I think, of the top 100 names of which there are one or two, I think, that are in New Zealand. And they’re people that the Chinese government would maintain have got their money through ill-gotten gains, so in some way doing something wrong with state-owned assets or whatever it might be. From New Zealand’s point of view, we don’t want to harbour people if that’s true, if they’ve undertaken criminal activity to get their resources. So we’re happy to look at extradition, and, in fact, we don’t need an extradition treaty to do that. We can do that on an individual basis. They would have to meet the conditions that they’ve met with the Korean individual that we’re looking to extradite, and that is they can’t be subjected to the death penalty if they’re sent back here. But I think what the Chinese government really is trying to do is send a message to its people that you can’t just steal money from the Chinese authorities and the SOEs and then hide out in a country like New Zealand.

So that money that they’ve stolen from the Chinese government, have they invested it in New Zealand? Are they buying up property or investing in businesses and things like that? Because you must know if you’ve got the names of those fugitives.

Well, I think one of the points to make is that that’s the allegation from the Chinese authorities. If they can put up an individual case about an individual person, then we can look at the merits of that argument. And if the merits of that argument can withstand the process they have to go through, and at the moment that’s through the Minister of Justice and potentially the courts, then of course we’re happy to look at extradition. So they are ultimately claims that are made. Whether they’re right or not, the onus is really on the Chinese government to prove the validity of those claims.

An extradition deal – how far away would that be if that all does get moving?

It’s years, not months, away, but it is something we are receptive to if we can fit within the conditions we think are realistic.

– Newshub

 


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  • hookerphil

    I enjoyed reading both the questions and the answers, what a good interview. John Key is certainly on top of all his subjects, very positive for New Zealand in all areas.

    • andrewo

      Exactly what I thought: A man on top of his job.

      Would you get that from any other NZ political party?

      • rexabus

        little or metiria, I think not

  • Dog Breath

    Was reading this and wondered what if Angry was there instead of JK. What would the outcome be what would the answers be. Some how I simply do not see it, much more important things for AL to do like abuse well respected business people and the father of one of his MP’s. It astonds me that people still think Labour and AL is the answer to a question that no body knows.

  • Andrewj
  • Andrewj
  • Andrewj

    Doug Noland on China

    It’s an incredible confluence. Building on it’s historic $1.0 TN during Q1, China could surpass $3.0 TN of 2016 system Credit growth. For perspective, Chinese Credit growth will likely expand at least 50% more than in the U.S. this year. Such unprecedented Credit growth in the face of a stock market collapse, sinking corporate profits and rapidly intensifying Credit deterioration is simply astounding. It’s definitely a testament to the brute power of “whatever it takes” Chinese state-directed finance and investment. Combining Chinese communist leadership with “whatever it takes” global central bankers (with no constraints on their “money” printing operations) creates a backdrop for financial folly unrivaled in history.

    Returning back to China: The “marginal source of global Credit and liquidity” is short-term supportive of global risk markets. Yet its Credit system is self-destructing – and doing so rather conspicuously. If any other country employed a similar policy mix the world would be sprinting from that currency.

    Thus far, Chinese officials have been determined to carefully manage China’s pegged currency regime. Yet current Credit and market dynamics are inconsistent with a stable currency. I would furthermore argue that breakneck Credit growth in the face of rapidly deteriorating underlying fundamentals is a proven recipe for a crisis of confidence. Global markets are in the midst of a destabilizing adjustment to China’s resurgent booms in Credit and speculation. This ensures real havoc when global markets are confronted with a Chinese Credit and/or currency dislocation.

    http://creditbubblebulletin.blogspot.co.nz/2016/04/weekly-commentary-more-on-china.html

    • contractor

      Yes, all bubbles burst and the bigger the bubble the bigger and longer the crash. China has not yet had a crash; they have only deferred the impact of the GFC by propping up their excessive building and industrial capacity through ballooning debt.
      The risks of a crash or at best stagnation like the Japanese economy are high. The Chinese govt’s goal of domestic consumer substitution for export capacity excesses is not likely to be enough.
      With a crash many of the 200-300 million affluent would quickly rein in their consumption and tighten their spending, in the Chinese way.
      Nonetheless we cannot ignore them as a strong market nor the benefits of foreign direct investment provided it is acceptable. Because we are such a small economy and they so large any crumbs coming our way amount to a lot and that is what Key is intent on.

  • goodwitheu

    I’d love to be a fly on the wall when the person of interest’s file lands on the MOJ’s desk… hey not one to discriminate who gives me money but the sheer butt kissing that NZ gives that loopy corrupt country…. China Law Blog offers some pretty juicy articles for tragics to absorb on just how mental that place really is in both the governmental and private spheres.

  • “So if we’re teaching Chinese farmers how
    to make milk just like we do, in an efficient way, isn’t that bad for
    our economy? It means that the Chinese people can make their own milk.

    {Key} No, I don’t think so. Firstly, one of the big issues that always get raised…blah blah…”

    What a load of rubbish. Key is talking through his hat and knows it.

    This is typical of those that are always focused on the short term gain and never the long game.

    We’ve seen it time and time again when we sell off our agricultural expertise what happens next.

    Many of us have never forgotten the economic traitors that flogged off Braeburn and Kiwifruit cuttings.

    Flogging off our dairy expertise and setting up farms and technology in other countries is exactly the same thing.

    • Brian Dingwall

      I have to disagree strongly here Wallace sorry.

      Our agricultural systems will not transplant easily, if at all, to China without considerable modification….our perennial rye/clover swords will not persist in the northern dairying regions. We, and other countries, can help and are helping by selling plant and animal genetics, seeds, equipment, management systems, education, extension, effluent recycling, and so on. Better the knowhow and products come from NZ than from say Europe…because they will come. Nestle is very big in dairy farming in China.

      The Chinese systems are not surprisingly a northern hemishere type, contained animals, cut and carry or more frequently all feed trucked in, protein feeds like alfalfa hay imported from USA/Aust etc. Up to 5000 head on say 35 hectares (some considerably bigger than this), with all the attendant animal health and effluent management issues.

      By moving the industry west onto less expensive land, farms producing more of their own feed, recycling effluent, and emitting less to water, they will have a better industry, but not lower costs than NZ (though lower than now). There is big upside here for our agricultural consultants, agritech exporters, universities and polytechs. As well as any spill over effect from being perceived as a quality trade partner

      As for giving away our agricultural advantage, much of that comes from our temperate climate and young-ish soils (and our wonderful farmers) and can’t be moved. I recall taking two meat industry leaders to Uruguay many years ago, landing on farm in a light aircraft in the middle of the country, we were met by three Lincoln graduates. Don’t fret for what is long gone.

      I myself am involved in the early stages of developing a demonstration dairy farm (a Chinese dairy farm “with NZ characteristics”) that will allow some of our exporters to showcase and sell their products.

      Companies here have already “sold” turn-key NZ dairy farms to Brazil, Chile, USA, Ecuador, Georgia, and many other places to my knowledge. Its really not like the kiwifruit example.

      • You can disagree all you like and don’t be sorry, however the simple fact is when the Chinese are producing their own milk in quantities that will dwarf ours as a result of NZ expertise why would they buy ours?

        And its swards and I too am from agriculture.

        • Brian Dingwall

          Your agricultural background is not ‘xactly a secret here that’s why I offered a longish reply. Typo noted, ta.

          At their present rate of growth and lack of arable land, consumption increases in China will more than absorb all the production growth for the foreseeable future, irrespective of who sells the technology, gear, etc. They have been dairying there for some 4000 odd years,….it is only at the margin we can help. We sell fencing systems, weigh-scales, semen, milking platforms, grass seeds (NZ has a 50% market share of all the worlds white clover), education, even research, all for a good return (and not just in China). This horse has bolted.

          “If China is to produce milk in quantities that dwarf ours” actually they do this already (more than ten times our cows, and bigger) and I mean dwarf; they dont need our help, or our IP, we have lots of competitors.

          A bigger risk is that other countries, notaby Africa, Central Asia, and Latin America, increase production and quality. Not just milk but all agriculture.

          Ausubel has calculated that even with projected population and economic growth rates, agriculture is becoming more efficient at a rate that means the world can retire about 2% of arable land per annum (ie about 1 NZ worth each year). Can dig up a reference if you want it.

          Many disagree with me (I’m used to that) but we should be asking what is the best use of NZ’s land for when/if the world doesn’t value our milk and meat. And to preserve that value we need to tell a story around the New Zealandness, its the only attribute that cant be copied.

          • one for the road

            Good discussion above, I can add nothing except a question- one point comes to mind that others could use genetic modification to replicate our value. Ie. They could modify cows (say) genetically to be able to take less valuable inputs (food and conditions) to produ e the same oo better outputs (ie milk, meat, etc) – that would negate our point of difference somewhat , why wouldnt that scenario occur?

          • Brian Dingwall

            Good question.
            We have long known that ruminants are not the most efficient converters of feed into muscle and milk. Chickens and pigs are much more efficient.

            Much of a cow’s food passes straight through it, since the rumen is an OK but not great way to deal with otherwise indigestible cellulose. Researchers (including our own) have long sought ways to improve rumen efficiency (and reducing losses to methane).

            Conventional and more modern techniques to improve grasses, animals, and gut microbes are all being studied intensively (often in international collaborations). As are dietary supplements. Anything that appears to work is then tested rigorously for both effect and safety.

            This means the scenario you envisage could indeed obtain, except that IMO any benefits that emerge are unlikely to be captured for the advantage of any specific country. If new IP can be commercialised the owners will want to sell their stuff widely; if it can’t be protected then it will be available to use.

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