FIONA ROTHERHAM
Last updated 05:00 20/05/2012
MICHAEL BRADLEY/Fairfax NZ
SPECIAL TREATMENT: The high profile of mayors in China means
that Kiwi businessmen joining delegations with Auckland's Len Brown and
other mayors know they will see doors opened for them.
MAARTEN HOLL/Fairfax NZ
WELLINGTON MAYOR: Celia Wade-Brown.
The Chinese businessman already imports a swag of Kiwi crayfish into Guangzhou via Australia and wants to cut out the middleman. He's visiting Auckland next month to hold talks with local crayfish suppliers and also wants to import chicken nuggets through an existing processor or by building his own factory here.
Beyond that, he's interested in importing New Zealand wine which he said, while slugging back another glass, was better quality and lower priced than the French, Italian and Australian wines popular in his home province.
Lee also joked that as a single man he wouldn't mind meeting a wife in Auckland. But when told all Kiwi women were trouble, he laughed uproariously and said he would stick to crayfish.
Although Lee already knew about New Zealand, he may not have made the push to visit and invest here without having access to high-powered businesspeople and officials through the mayoral-led delegation from Auckland.
He was not the only one. There was significant interest at all five investment seminars staged in Guangzhou, Qingdao, Beijing, Ningbo, and Shanghai. That interest extended to deals on Kiwi products to investing in the region's private sector companies and public infrastructure projects being touted by the council such as the city rail loop and potential second harbour crossing. A number of Chinese businessmen are planning reciprocal visits.
The Government has a New Zealand Inc strategy for boosting two-way trade and investment with China but the Crafar farm controversy shows some Kiwis seem to favour more outward trade, less inward investment.
Auckland's next step will be debating in a month or so whether public private partnerships (PPPs) with potential Chinese investors should fund its new infrastructure or whether it should be done with more debt on the council balance sheet and/or infrastucture bonds.
"A decision will need to be made in the next 18 months to two years," Auckland mayor Len Brown says.
Given the huge power and influence provincial mayors have in China, it's obvious a mayoral-led delegation opens doors.
"In China and the whole of Asia political leaders outrank commercial leaders whereas here in New Zealand the opposite is true. You can't do business there if the politics are not sorted out," says Malcolm Johns, CEO of tour bus company InterCity and deputy chair of Tourism New Zealand.
But how do ratepayers measure whether the money spent on these trade delegations is worthwhile? After all, the Auckland Council has two more planned this year – to the Pacific Islands, and Korea and Taiwan. The $100,000 bill for the China delegation covered the mayor, councillor Richard Northey, two mayoral office staffers and two from the council's international relations team, and an interpreter. But it doesn't include the costs of the six staff from the council controlled organisations (CCOs) that also went, or the time and input from New Zealand Trade and Enterprise and Ministry of Foreign Affairs officials. Companies paid their own way.
Len Brown says there were some immediate, tangible benefits and a lot of longer-term relationship benefits that will take time to pay off. He points to a Chinese businessman who plans to visit here in July who wants to invest $10 million in New Zealand's clean energy and green tech companies.
"That was an immediate, clear, tangible, financial benefit that specifically came from this trip."
Delegates have all given positive feedback about the well-organised trip and the value of being part of a civic approach rather than just on their own.
Although there are big economic opportunities in China, building sustainable long-term relationships requires two key elements, Brown says. You have to be there as you can't expect the free trade agreement to manifest itself by sitting behind a desk in Auckland; and you have to stay there, with either staff in market or repeat visits to build on the connections made, he says.
Wade-Brown says 100 per cent of respondents to a company survey the council conducted after a trade delegation to sister cities in Japan, China and Hong Kong last year said it had been worthwhile. Given the fragility of the New Zealand economy and Wellington's in the face of central government spending cuts, people understand the need to work on this economic opportunity in China, she says.
Auckland city councillor Richard Northey says businesses have certainly got their eyes open to the potential although other ratepayers may not see it as value for money. "But there are people who don't use libraries and are not enthusiastic about the council being involved in them as well."
It comes back to whether you consider economic development a core council function.
Former local government minister Nick Smith initiated a legislative shakeup touted as getting councils' focus back on roading, rubbish and rates. Their mandate is being changed from considering the social, economic, environmental and cultural wellbeing of communities to providing good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business.
Changes to the Local Government Act on the first four legs of that reform – covering fiscal responsibility, governance and streamlining council reorganisation – will be introduced in a bill shortly.
However it would seem the role of councils in economic development has been largely left untouched. Auckland's economic development strategy includes ambitious growth targets and is focused on boosting international connections, visitor numbers and exports in several key sectors.
Unitec CEO Rick Ede, who went on the Auckland delegation, thinks it's irrefutable China is an important part of New Zealand's future and that council should be leading the way.
"It's absolutely appropriate council takes a proactive approach to the growth and development of business in Auckland. It needs to be strategic – not so much picking winners, as not picking losers."
Wellington City Council's economic development strategy also includes undertaking collaborative activities with international contacts such as sister cities, including five business delegations on and offshore by 2015.
Wade-Brown says providing you have the backing of your local community, councils should be at the heart of boosting economic development in their city. That's why she's leading another delegation of 31 Wellington companies next month to the inaugural China International Fair in Trade Services in Beijing.
The sister city is picking up the tab for the mayor's travel.
The seven-day, three-city trip includes visiting the site of the New Zealand Agricultural Park in Beijing, a proposed joint private sector and council initiative to create a 3.5 to 7 square kilometre New Zealand-style agricultural technology demonstration park that would provide preferential tax and investment policies for New Zealand companies.
An upholstery fabric produced out of New Zealand wool and the straw waste from rice crops in China that would otherwise be burnt is the unlikely result of last year's Wellington delegation.
Start-up The Formary made headlines in 2010 when Starbucks said it would upholster chairs at new stores with WoJo, a fabric the Wellington company wove with 70 per cent New Zealand wool and jute from recycled coffee sacks.
Managing director Bernadette Casey says the need for an alternative way of dealing with the rice straw waste was reinforced on last year's mayoral-led trade delegation that she attended.
But their research and development, funded by Beef and Lamb, would have been thwarted without the help of a high-ranking Chinese official she met on that trip. The company got permission to bring the straw waste into New Zealand but not to take it out of China. One phone call to the official and a 20kg sack of the waste arrived on her Wellington doorstep. They've now produced an upholstery fabric to pitch to Chinese investors in Beijing, and are developing a clothing fabric.
Casey says the company has had a lot of interest, including potential investors, out of China because what they're doing fits the government mandate towards clean tech but the mayoral delegation was crucial in getting them noticed by the right people.
FIVE TIPS ON DOING BUSINESS IN CHINA
Head of institutional banking for ANZ China Grant Knuckey has advice for Kiwi companies on setting up business there:
Get on the ground: You can't do business in China without making repeat visits to the market or having in-market representatives. Guanxi, or connections, are fundamentally important.
Focus: China is a fragmented market, as is Asia generally, and there is a surplus of opportunity. Companies that succeed in China pick a part of the market and what they're very good at and stick to it.
Invest heavily in relationship building: This is a multi-year process and you need to understand the level of investment required. You can walk into a New Zealand company you've never met, armed with a good idea, and get a deal but you can't do that in China. You have to have formed a relationship over a period of time before your good idea will get traction.
Be cautious of JVs: Many joint ventures between foreigners and Chinese companies have failed – as many as eight out of 10. Most are succeeding now as there is a growing level of cross-cultural awareness but they can be problematic due to cultural differences and unshared expectations.
Co-ordination with HQ: Foreign companies see the statistics on China's economic growth and think it will lead to instant success, so managing domestic stakeholders is important.
- © Fairfax NZ News http://www.stuff.co.nz/auckland/local-news/6952089/Trading-places-with-China
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