New Zealand and China: Different Worlds?

This is our Chair John McKinnon’s recent presentation to the China Capable Public Sector programme. An Op Ed based on this presentation, published on Stuff  on 26 April, can be accessed here.

This is the second time I have addressed the China Capable Public Service, the first being in June 2017, when I was still stationed in Beijing.  I doubt that many who heard me then are in the audience now.

As of December 2021 I am the chair of the New Zealand China Council.  A word about the Council before I plunge into my presentation.  The Council was established ten years ago, in 2012, as a forum to bring together the principal stakeholders in the New Zealand China relationship, and as a non-governmental voice on matters Chinese.  The full council meets twice a year.  In between times the China Council office (just 3 people) and I commission research, interact with other China related organisations, front the media, promote Chinese language learning, and in many ways seek to inject light rather than heat into the China debate, if I can so call it.  Our budget is about three quarters of a million, two-thirds from government agencies, one third from the private sector.

50 years ago….

Fifty years ago this year New Zealand and the People’s Republic of China established diplomatic relations. An old country was opening up to a new country, but I would say in the opposite sense to that which most might imagine.  The People’s Republic had been proclaimed on 1 October 1949 and in every possible respect sharply delineated itself from what had existed in China before.   New Zealand, in its European mode, had been a self-governing polity since the 1850s, one of the few countries in the world which has had a continuous political history since that time.

It is no accident that China describes itself as the ‘New China’ and this is still the name of China’s official news agency.   ‘No Communist Party, no new China’, a common slogan, is literally true.  It was the Communist Party of China led by Mao Zedong which proclaimed the People’s Republic in 1949 and has governed it ever since.

We all know why there was a 33 year gap between the establishment of the People’s Republic and the establishment of diplomatic relations between New Zealand and that new China.  What is less widely appreciated is that we were one of the last, not one of the first, ‘western’ countries to recognise the Beijing government.  The Nordics, Switzerland and others had done so in 1950, France in 1964, Canada and Italy in 1970, and even Japan earlier than us in 1972, albeit after the momentous Nixon/Kissinger opening to China in the previous year.   What was significant was that in December 1972 it was two US allies in the Pacific (us and Australia) taking this step, ahead of the United States itself, coincident with and in some respects a result of the change of government in both capitals from conservative (National) to Labour.

This was not an easy step to take for it entailed the jettisoning of the diplomatic relationship with the Republic of China on Taiwan.  That government itself claimed jurisdiction over the whole of China, and even had the government in Beijing not made it a sine qua non of recognition, it would have been impossible for New Zealand to maintain political relations with both entities.  But the arguments for switching recognition were compelling.  Embedded in that step was an acknowledgement that China was and would be a significant actor regionally and globally, and that it was no longer credible for New Zealand, as a self-proclaimed Asia-Pacific country, not to have direct links with it, with or without the prospects of a growing economic relationship.

In my view that logic still holds.

But there is no doubt that relations with China are more controversial and more contentious in this country – and elsewhere – than at any previous time in the past 50 years.

Why?

I cite three reasons – changes in New Zealand, changes in China itself, and changes in the ‘outside’ world’s attitudes to China.  These reasons are of course interrelated, but analytically, and for the purposes of this presentation, it is easier to consider them separately, and in sequence.

Changes in New Zealand

By ‘changes in New Zealand’ I mean changes in the Chinese profile in New Zealand, rather than more generally.

In the years immediately after recognition, our trade with China was insignificant, 0.96% of our overall exports in 1974, or NZ$1.7 million.  That figure increased steadily.  There was a blip in 1989with the suppression of the student uprising at Tiananmen in June 1989, but with Deng Xiaoping’s ‘southern tour’ in 1992, China’s upward trajectory resumed.  At the beginning of this century China was our fourth or fifth largest trading partner.  In the second decade of this century China became our first or second, nudging Australia.  Now it is far and away our largest trading partner: as at end December 2021 our total trade with China was $37.7 billion.  In the year to December 2021 China accounted for 32.6% of our exports, with second ranking Australia taking 11.5%.  We were not alone in the world in having China as our largest trading partner, over 120 other countries in the world were so placed.  But we are one of the few countries which has a surplus in our trade with China.

Much of that reflects globally high commodity prices, but it also is a consequence of our free trade agreement with China, recently upgraded, and the growth of a Chinese middle class, however that is defined, with an appetite for what New Zealand produces – whether cheese toppings on pizzas, scenery, or English language education in a safe environment.

Alongside this growth in trade has come a growth in the Chinese economic profile in New Zealand.   Whether as investors, migrants, students or tourists, mainland Chinese are much more evident in New Zealand than they were even ten years ago, let alone in earlier periods.  This should not surprise us.  It would be odd to have a trading partner of the scale of China without a corresponding presence in New Zealand.  China has 1.4 billion people, its economy has been growing steadily since 1978, so that it is now even by conservative estimates about 20% of the world economy.[1]  China’s economy will continue to have its ups and downs, but it is hard to imagine a future in which it does not maintain that positioning in the world – and in our external economic profile.

The increase in that profile in New Zealand has of course been dented by COVID.  Tourist flows have almost disappeared and international student numbers are significantly down.  Investment has tailed off and there has been little if any migration since early 2020.    These trends may well reverse once we are though the pandemic, whenever that occurs, but in the meantime our interactions with Chinese people are severely constrained.

The flow of investment from China into New Zealand has increased in recent years, but Chinese investment in New Zealand makes up just 1.8% of the total foreign investment stock, well behind the stocks of investment from Australia, the United States and the United Kingdom.  Singapore and Hong Kong, both major Asian financial centres through which Chinese investors may also access New Zealand, make up 2% and 3.5% of the stock of foreign investment in New Zealand respectively.  And that’s not to speak of other jurisdictions favoured by overseas investors, such as the British Virgin Islands and the Cayman Islands.

Chinese (inclusively defined) constituted 5.3% of New Zealand’s population at the 2018 census, of whom nearly three quarters were born out of New Zealand (73.3%), many of course in mainland China.  Prior to COVID mainland China was New Zealand’s largest source of international students (32%) and second largest source of tourists (11%, after Australia) – peaking at 448,000 in 2018.

The New Zealand China Council commissioned a study two years ago on New Zealand-China trade.  Entitled “How Many Eggs, How Many Baskets” it was written to respond to concerns that New Zealand was over-exposed to trade with China and thus vulnerable to pressure, political or otherwise, from Beijing.  We will release an update of that study this month.  The headline conclusion is not that New Zealand as whole is ‘exposed’ but that certain businesses and sectors may be, if they send a large share of total exports of that product to China (so ‘high exposure’) and China has many other overseas sources for that product (so ‘low leverage’).   Perhaps the best known products in this category are lobsters and crabs, of which the bulk are destined for China.

Any well organised business will constantly be weighing opportunity against risk, and I have no doubt that all New Zealand businesses trading with China do so.  They will also be mindful that China has from time to time taken economic measures against countries whose governments have said or done something with which China does not agree.  That said, it is challenging for outsiders, who are not committing their own dollars, to say to a business, diversify and earn less money in market A as opposed to concentrating on high returns in possibly risky market B.

Political interference has been another source of concern in New Zealand and elsewhere, specifically that agencies of the Chinese government, or individuals closely connected to the same, are acting in ways which are not in accord with New Zealand’s laws and practices.   New Zealanders are very alert to this, and that alertness is what underpins the law, practices and values that allow New Zealand to respond to political interference if necessary, and to deal constructively with both allegations and facts of interference, whatever country they come from.

Changes in China

The China of 2022 is not the China I first visited in 1976.  It does not even bear much resemblance to the China I worked in between 2001 and 2004.  China has changed, and continues to change.  The most obvious change is that China in 1976 was a poor country, China now, while it still has many poor people, has many extremely wealthy individuals, and a large mass of what I have said is loosely defined as ‘middle class’.  These people, and by any count there are several hundred million of them, were internationalised, open to information from all over the world, well educated, avid consumers of the new and the avant-garde.  I say ‘were’ because COVID has dented the travelling habits of these people as it has dented those of many of us throughout the world.

As well as these general changes, I identify three specific ways in which China has changed in recent years – the role of the party, China’s integration with the world economy, and its increasing power.

China claims proudly, and probably correctly, to have lifted 700 million people out of abject poverty.  That is an achievement to be applauded but it has come with the consequence that income inequality in China is now at levels inconceivable in an earlier era in China, and high even by global standards.  The Chinese government is well aware of the risk that such inequality poses, quite apart from it sitting oddly with the principles of a Marxist government.  So some of the recent policy steps taken by political authorities are aimed at damping that inequality – but without wrecking the energy and entrepreneurship that in some instances lies behind it.    The anti-corruption campaign is part of this, but also has a separate motivation.  But what is in common is that both corruption and income inequality are seen as antithetical to the principles of the Chinese Communist Party (CCP), and thus as a threat to support for that continuing rule.  The fate of the Guomindang (KMT), the previous governing party of all China, is never far from the minds of China’s current rulers.

In a recent speech Xi Jinping described China has successively having stood up (in 1949), become rich (from 1978) and now powerful – 站起来，富起来， 强起来.  For China in the 21^st century, as for Japan in the 19^th, from whom the phrase was taken, the point of becoming rich was to ensure strength, a guarantee that outside powers could no longer dictate outcomes.  The phrase “wealthy country, strong military” ( 富国强兵) is commonly heard.  For China’s leaders, whatever outsiders thought, there was never any question that an enriched China would simply become another amongst a number of western countries.  China’s sense of exceptionalism has a long history and it is no less strong now than it was several hundred years ago.

It is a feature of single party states, which China avowedly is[2], that there is limited to no tolerance of dissent.  This is one of the features of contemporary China which New Zealanders most dislike and to which they often take exception.  Whether it is minority nationalities, such as Uighurs, democratic advocates, as in Hong Kong, Christian or other believers, the Chinese government appears to have only two approaches – enlist in support, or suppress.  The CCP is well organised and with a nation-wide structure.  It encompasses all significant social, economic and political forces in the country.  It is a powerful instrument of government, and as General Secretary, Xi Jinping, at the head of that organisation, is clearly determined to make it work for him and for China.

Many outside observers assess that the role of the party has been enhanced and extended under Xi’s leadership.  Implicitly there is a contrast with the ‘direction of travel’ under previous leaders such as Jiang Zemin and Hu Jintao (the post Tiananmen leaders), when it was deemed that the role of the party was narrowed to key areas such as information and cadre selection.  This assessment may reflect a distorted view of those two individuals, and even of their patron, Deng Xiaoping.  All were loyal members and leaders of the CCP, albeit they may have had different approaches to how it should best operate in a China which was open to the world.  But it is probably fair to say that the party, and adherence to its precepts, principles and leaders, is more ubiquitous today, and that those precepts and principles are more strictly enforced than they were in times past.  The party celebrated its 100^th anniversary last year.  With a membership of 95 million – that is more than the total population of any European country less Russia – it is a formidable structure, and it is impressive with such large numbers that few if any signs of divergent views within the party are evident.

The next big anniversary for China is the 100^th anniversary of the foundation of the People’s Republic, in 2049.  Forecasts are designed to make the forecaster look stupid, but I doubt that there will be any significant change in the organisation of the People’s Republic before that date.  Let me draw an analogy from language.  In the late 19^th and early 20^th century it was the conviction of all observers of China, and of many Chinese, that China would have to jettison its cumbersome script and romanise the language if it was to have any prospects of succeeding in the modern world.  China came close to that, but didn’t.  Now, as literacy in China has gone up by leaps and bounds, it not only is unthinkable, but digital technology has virtually eliminated the advantage that alphabetic scripts were thought to have over ideographic scripts.

In 1978 China turned its back on its past and embraced economic integration with the rest of the world.  There is concern now that China has turned its back on this and is once again becoming an inward-looking closed economy.  I don’t think this is so.  I cited earlier the fact that over 120 countries have China as their number one trading partner.  China has significant trade and economic relations even with those who in a political sense are its harshest critics – such as Japan, Australia, the United States.  What is correct is that China is currently focussed on dual circulation and the domestic economy.  For many decades China has aimed to boost domestic consumption, not so much as to diminish let alone eliminate imports, but so as to tap into new sources of growth.  In the era of COVID this also makes sense, but China’s interaction with the rest of the world, and its proportional stake in the global economy, are realities which will not go away.  In a parallel universe, China might see itself as the centre of the global economy, rather than simply a participant in it.  But the Chinese are realists.

Chinese treatment of foreign businesses and enterprises has come in for much comment.  There are undoubtedly many firms whose Chinese activities have been damaged.  Against that are those who have succeeded.  Is the playing field tilted against foreign firms?   I recently co-chaired a roundtable in which New Zealand and Chinese experts discussed the prospects of China becoming a partner in the CPTPP, to which it has made a formal application, as has Chinese Taipei.  All participants recognised that some chapters of that agreement will provide a real challenge to China given the way its economy is organised, that on state-owned enterprise being perhaps the most difficult.  But that is no reason not to encourage China in its endeavours to make its domestic arrangements conform with the requirements of the CPTPP.

All the above would probably not rate headlines or attention outside China were it not for the third change – China as an expanding assertive power.  As I have already said, for China’s leaders becoming rich may have been worthwhile, but it was not just an end in itself.  China never wishes to relive what it still repeatedly calls the ‘century of humiliation’, that period from the 1840s to 1949 during which China, in its eyes, was passive and its future was determined by others.  China is building up its military and its presence is being seen around the world, including areas such as the Indian Ocean, the Horn of Africa, Latin America and the like from which it has been absent.    The South Pacific and Antarctica are part of that world too.  In that sense China is a rising power, but it is a rising power not in a 19^th century world but in the 21^st century, and its objectives and ambitions are shaped by that.  China’s sensitivities are most acute in those areas which have long been defined by China itself as part of its national territory – Hong Kong and Macao, Xinjiang and Tibet, Taiwan and the China seas, east and south – but no more than others does it limit its interest and concerns to the periphery.

Is China a threat?  As with all simple questions the answer is more complex.  China exhibits what some might say is an excessive sensitivity to comment on what it regards as its internal affairs whether that is the treatment of Uighurs in Xinjiang, or of Hong Kong.  China’s Belt and Road initiative has attracted criticism amongst other things because of the belief that it forces partner countries into unsustainable indebtedness.   China’s activities in the South China Sea are seen as breaching its own commitment not to militarise a contested region.  All of this may be true, and yet still not warrant seeing China, as some seem to, as an existential enemy, in which everything it does is bad, and nothing it does is good.

For New Zealand to adopt that stand would be to ignore the status of China as a major economic and commercial partner, and its influential voice in global and regional affairs, be it on climate change, multilateral trade, or a host of other issues.

But New Zealand’s position is more difficult now because of the third change.

Changes in the rest of the world

• In 2018, when Canada at US request detained a Huawei executive, Meng Wanzhou, China detained two Canadian citizens, Michael Kovrig and Michael Spavor, and released them only when Meng herself was repatriated to China.
• A new national security law in Hong Kong was seen by many as a breach of the commitments that China made with the United Kingdom (in an agreement which both countries registered at the United Nations) that Hong Kong would perpetuate its political and legal system until 50 years after the ‘handover’, ie until 2047.
• China placed tariffs of 80% on barley and 200% on wine from Australia. Said by China to be a reaction to dumping and subsidisation, these tariffs were levied soon after Australia proposed an independent investigation of the origins of COVID-19.
• When Lithuania permitted Taiwan to open an office in Vilnius denominated ‘Taiwanese’, China objected, and took measures to limit the importation of goods from Lithuania to China.
• When the Republic of Korea (South Korea) permitted the deployment of the US Theater (now Terminal) High Altitude Area Defense (THAAD), an anti-ballistic missile defense system, China reacted by encouraging a consumer boycott of the activities of Lotte, a Korean conglomerate. Despite controversy in South Korea on THAAD, according to polling company Hankook Research and the newsmagazine SisaIN, China replaced Japan as the country regarded most unfavourably by South Koreans, and the United States was favoured over China by six to one.
• China disputes sovereignty over islands in the East China Sea with Japan and in the South China Sea with a number of ASEAN countries.

The actions taken have been controversial in many of the countries concerned.  China of course sees all its actions as justified and justifiable.  But there is no doubt that they have had a dampening effect on China’s reputation in many countries, and many of these countries are close political and economic partners of this country.  China’s approach to its own citizens often offends the sensibilities of New Zealanders.  Further, New Zealand’s support for the international rule of law and the global institutions which embody it, are challenged when China for instance refuses to accept the verdict of the Arbitral Tribunal constituted under UNCLOS.

Closer to home, China’s increased profile in the South Pacific and Antarctica touches on regions which are close to New Zealand.  This raises concerns that Pacific countries are looking elsewhere for their security needs.  Yet it is also the case that such issues are often fiercely debated in the countries in question.

Overhanging all of this is the current state of relations between China and the United States, two countries both of immense importance to New Zealand.  I wrote about this very circumstance in November 2013, and re-reading that essay, much of it in my view still stands.  But I would probably be less optimistic now than I was then that these two countries can find their way through the morass of mutual suspicion and anxiety which currently seems to prevail.    Kevin Rudd, a former prime minister of Australia and a China watcher himself, has just published a book entitled The Avoidable War.  By that he means war between the United States and China.  He does not want us, casting back to a book about the origins of World War I, to sleepwalk into war.  He suggests three approaches to reduce this awful possibility:

• A hot line or the equivalent between Washington and Beijing to ensure that there can be no accidental ignition of conflict.
• A recognition that the two countries are competing with one another, and in many parts of the world.
• A recognition that despite this, there are areas of common interest, such as climate change, on which cooperation is possible and maybe necessary.

Conclusion

All these changes make your tasks, as public policy advisers, much more challenging than it used to be.  China can be looked at through multiple lenses – commercial, human rights, geopolitical cultural, and many, many more.  No one lens is sufficient on its own, they have to be blended so as we can take a rounded view of a country which will not become less important to New Zealand in the years in which you are part of the public service.

[1] By purchasing power parity (PPP) it is already the largest, outranking the United States (No 2) and the combined European Union (No 3).  At nominal GDP it is No 3, after those two.

[2] There are eight parties which are represented in the Chinese People’s Political Consultative Conference (CPPCC), but they accept the leading role of the CCP, a role which is indeed written into China’s state constitution (always in the preamble, now in the body of the constitution itself).