REMARKS TO LAUNCH OF THE REPORT “UNDERSTANDING CHINESE INVESTMENT IN NEW ZEALAND”

REMARKS TO LAUNCH OF THE REPORT

“UNDERSTANDING CHINESE INVESTMENT IN NEW ZEALAND”

AUCKLAND, 15 AUGUST 2019

STEPHEN JACOBI

EXECUTIVE DIRECTOR

I’m pleased to add my welcome to all of you today and to thank ATEED – especially Malcolm Lawry, Elizabeth Gollan and Suzanne McKinnon – for helping us launch this new report.

You should all have received a copy of the report by email yesterday and it is now available also on our website.

I’d like to begin by thanking ANZ, Minter Ellison Rudd Watts and PwC – all proud members of the NZ China Council – for their help in making this report possible.

I’d like to congratulate my predecessor Pat English, who couldn’t be here today, and Carol Cheng, who is with us, for their work in preparing the analysis on which this report is based.

I’d also like to acknowledge those companies and organisations who feature in the case studies for sharing their stories with us – I think that this is one of the best aspects of the report, bringing to life those financial decisions which have led to real people having new jobs and livelihoods, bringing growth and economic development to both regions and cities up and down the country as well as access to new technologies and markets.

So, I welcome today Richard Aitken from Fu Wah Group, Natalie Dang from Super Organic, Terry Lee from Milk New Zealand, Tom Nickels from Waste Management and Frank Xu from the NZ Chinese Building Industry Association.

In commissioning this report the Council was very conscious of the changed circumstances in the investment relationship since we last published on this issue five years ago.

The report is both an update of our earlier work and an attempt to present the facts about Chinese investment to inform New Zealanders, especially those interested in the relationship.

We know from work we published last year about public perceptions of the relationship that a majority of New Zealanders support foreign investment in New Zealand provided it is strictly controlled, as indeed it is now.

When it comes to the source of foreign investment in New Zealand there is however a degree of confusion, with most believing incorrectly that China is New Zealand’s largest investor and that Hotels, Commercial Property and Residential Housing are the top areas in which China invests in New Zealand.

So it was to correct these misunderstandings and to clarify the picture about Chinese investment that we thought it was timely to produce this report.

Foreign investment can sometimes be controversial, especially in some sectors, but if we are going to have a robust public debate about the costs and benefits of investment then it is important to do so from a reliable fact base.

We were aware also that in the five years since the last report both countries have made significant changes to their investment regimes.

In China steps have been taken to open up new areas for investment into China, but also to restrict outward investment in some areas.

In New Zealand the ongoing review of the Overseas Investment Act, and the role of the Overseas Investment Office, is designed to make the system more transparent and predictable for foreign investors and the New Zealand public alike.

These changes are bound to have implications for investment between the two countries and need to be understood by the investment community.

Our report covers a fairly wide field.

It looks at the environment in both countries and comments on recent developments.

The continuing need for foreign capital in New Zealand is highlighted as is China’s strong but slowing outward investment profile, along with policy and regulatory change in both countries.

The big picture of China’s investment in New Zealand is illustrated in statistical terms with the caveat that official investment statistics may not completely capture the full picture given that many Chinese investments are routed through third or “immediate” sources.

We look at the performance of some recent investments from China through the case studies – seven of them – located both in main centres and the regions, some very large as is the case with Beijing Capital’s investment in Waste Management, some of quite a different scale such as Beijing Sanyuan Foods’ purchase of a disused cheese factory in Kerepehi in the Waikato which now makes some great ice cream.

The focus of our report is Chinese investment in New Zealand but as in 2014 we have also included discussion of New Zealand’s investment in China – this is also on quite a different scale, but with some notable exceptions, particularly in relation to investments in brand and distribution.

A number of key themes arise from the report.

There is a disjunct between perceptions and reality about the scale and direction of Chinese investment.

The case studies make clear that the benefits from foreign investment go beyond capital direction and take in job creation, economic growth, innovation and access to markets and distribution.

Policy changes have the potential to impact on the relationship.

We have some choices before us about how to develop the relationship in the future.

Let me address the first major conclusion – China including Hong Kong is New Zealand’s second largest investor, providing just over 7.6% of total foreign direct investment in 2017 but a long way behind Australia which provides over 55%.

Statistics for 2018, which have recently been released, show investment from China including Hong Kong has risen to 9.8% of total global investment.

China’s investment profile has certainly increased in recent years but when you consider that China is the world’s second largest economy and New Zealand’s largest trading partner, the investment relationship appears to be underweight.

It may not be surprising therefore that most New Zealanders think China is our largest investor, but that is certainly not the case.

There is a perception too that investment from China is focused in a narrow range of sectors.

That is also not the reality: in fact, there is quite a diversified range of Chinese investment, with a strong interest certainly in agri-food but in a range of other areas including infrastructure, utilities, commercial buildings and hotels.

What’s more investment from China is spread evenly between the main centres and in the regions – according to our analysis, 52% of investment is centred in Auckland/Waikato with the balance across the country.

Otago/Southland for example has the second highest equal concentration of investment.

I mentioned earlier that the report highlights New Zealand’s continuing need for capital from overseas.

The report also notes that New Zealand’s success in attracting that capital is not as effective as it could be.

The OECD has in the past taken aim at the Overseas Investment Act and the current Government is taking steps to reform the Act with a view to enacting legislation later this year.

A number of you in this room will have made submissions to the review process and it is important that you continue to keep a close eye on these developments.

There is global competition to attract the investment dollar and New Zealand needs to be aware of this.

Perceptions of New Zealand as a country that welcomes foreign investment are important, as is the clarity of the environment and how well we perform relative to other comparable jurisdictions.

The report has at least one rather sobering statistic which is that while China’s outward investment has been very strong in recent years, and peaked in 2016, ODI dropped in 2017 for the first time in decades.

As it is New Zealand takes only a tiny percentage of Chinese ODI – 0.5% in 2016, or the 35^th largest.

It remains to be seen also whether policy change in China may yet affect investment flow to New Zealand including in such areas as hotels which is now a restricted activity. 

The question arises then as to how New Zealand can continue to position itself to attract foreign investment from China and elsewhere while ensuring that this investment continues to deliver benefits for both sides.

This aspect is not covered explicitly in our report – it is conversations like today that will hopefully help shape the environment.

A number of conclusions do suggest themselves arising from the report.

Better public understanding and support for foreign investment is important.

A more welcoming and predictable environment would also assist.

Better packaging of investment opportunities and continuing promotion to foreign investors such as that undertaken by NZTE, MFAT, MBIE and of course ATEED, will be key.

Finding ways to ensure that the investment relationship is more closely aligned to the growth in trade and people to people links also has something to do with building greater China-ready capabilities in New Zealand including more Chinese language skills and better cultural understanding.

The NZ China Council hopes that this report will help inform the debate and galvanise actions that can be taken and we look forward to working to continue to build the relationship in ways that can lead to improved outcomes and value generation for our communities.