China Business China’s NZ storSectioynF,Wednesday May 4, 2016

Howdowepositionourselves to makethe mostofChinese investment? Fran O’Sullivan writes

hen one of China’s most Chinese investors are across a powerful businessmen range of sectors: agribusiness, hotels, tells the “New Zealand farms, household appliances, dairy, W Story” better than Kiwis waste management, health products, —isittime to take notice? tourism and meat. Just afortnight ago, Jack Ma did Wilson says the question is how just that when he played host to the does New Zealand position itself to Prime Minister and avisiting New grab the opportunity right through- Zealand business delegation over out all of the touch-points —“whether lunch in Beijing. it’s from tourism right through to food, Ma was charismatic. Eloquent. Per- that’s the opportunity. ceptive. Particularly, when this self- “We’ve got to think about alot styled “citizen of the earth” set about more, look through their lens. That’s positioning New Zealand and why online is so critical to us and our thanking the delegation “for your growth, and hence the partnership benefit to the whole planet”. with (Chinese infant formula player) There was more. Twenty of Ma’s Beingmate,” he added. former colleagues at China’s Asenior official later observed that e-commerce giant loved New Zea- underpinningthe Ma message was land so much they have retired here. the huge drive by Chinese consumers With $100 million of wealth in the for “goodness”; quality products and room at the China Entrepreneur Club- services that they can trust. hosted event it was good advertising. “However Jack was going beyond Ma chairs the club which includes just products and services and talking fellow billionaires like Guo about the need to protect the planet Guangchang, China’s answer to War- as awhole and he saw New Zealand ren Buffett, and, property tycoon as akey part of this equation.” Wang Jianlin, who also owns 20 per Wilson also pointed to ashared cent of Spanish soccer team Atletico natural affinity. Madrid. ”A lot of people are very interested The event providedaninteresting in New Zealand and so we’re seeing window into how wealthy Chinese more flights, we’re seeing more tour- see New Zealand. ism and that has an impact on our And an insight into what drives so Alibaba founder Jack Ma addresses the China Entrepreneur Club event. infrastructure more generally. many to come here. “Of course you’ve also got, from a “Your population is 4.5 million and immense. “But crikey, it’s certainly As acitizen of the earth I value and consumer-related sectors. relativity perspective, the amount of we’ve got 1.4 billion people so the going to put some challenges on New There is pressure on New Zea- capital that’s interested in investment market is huge,” the Alibaba founder Zealand. wouldlike to thank New land’s infrastructure. in New Zealand, in awhole range of said. “I think our cities are already “We’re four million people and the Zealandfor yourbenefit to More hotels need to be built to disciplines, everything from property demanding aquality that will scare interest is quite extraordinary, and on the whole planet…the earth accommodate the tourists. And — right through to really interesting you guys. one level that’s very, very good,” he whatever the politicians say —more technology projects —ICT, education “So that is something that we says. is fortunate to havea houses. —the impact of that is interesting. would love to do. Not only buy from “But on another level it certainly country like New Zealand, Major trend shifts are also swiftly ”What struck me, sitting there and New Zealand but we should learn does create some real stresses and impacting on the way business is listening to the people around me at from New Zealand how to protect the strains and probably some quite un- we mustembracethis. You done in China. It now has the world’s the table yet again reinforced that environment and then continue to do usual outcomes that are going to take should notonly buy from most sophisticated e-commerce mar- genuine interest in New Zealand. that.” some thinking about —but more ket and is building amassive internal “And it’s because,Ithink there is Fonterra chairmanJohn Wilson importantly from time to time are New Zealand but should port in Xian as part of the “One Belt, anaturalness and confidence about later told the Herald that Ma provided going to have some impacts.” learn from New Zealand. It One Road” initiative to open physical the relationship that’s naturally alesson about the importance of Those impacts are being felt at the trade routes to Europe and through- maturing. looking “outside back into New Zea- high end of the New Zealand residen- has greatpeople,education, out Asia and the Pacific. “But with it will come some land, rather than what we tend to do tial property market; through snow- environment, technology. Chinese investment now makes challenges and some stresses and which is to ‘look inside out’.” balling tourism numbers and the up only $6 billion of NZ’s total foreign some strains, of course.” Wilson agrees the opportunities keen interest now being shown by Alibaba founder Jack Ma direct investment, but it is growing ● Fonterra strategy bears fruit from the China relationship are Chinese investors in targeting high- fast. —F15 Let aboard advise the OIO What about the SilkRoute FTA?

An advisory board, involving regime needs to be more efficient New Zealand can take the initiative Zealand-China FTA as the nucleus business people, should be and no more complex than in facilitating asuper free trade for the One Belt, One Road initiative appointed to the Overseas necessary. At present it is seen by agreement between countries and rather than begin the road in Investment Office to help speed up those in the investment and legal connected with the old overland Xian, let’s begin it at Wellington. the consenting process for foreign community as being too slow, Silk Route and the sea link between Wellington Airport to be precise. investment, says aleading complicated and uncertain. She China and Europe. “It would stretch from New commercial lawyer. says some manufacturing sites no Former leading New Zealand Zealand through Asean and the Cathy Quinn,chair of Minter New Zealander would reasonably trade negotiator Charles Finny Pacific to China and then on to to Ellison Rudds Watt, says where regard as “sensitive land” fall within says China’s President Xi Jinping is Europe —either by sea or land. “‘sensitive land” is involved it is not the regime due to adrain or creek. promoting an idea called “One Belt, China (Zhongguo —the middle uncommon for applications to take Quinn suggests the board One Road along the silk route and kingdom) would be at its centre. six to 12 months to be approved. should set key performance Cathy Quinn sea link. Finny, who launched the “A series of key infrastructure Charles Finny “Our Australian counterparts indicators for the OIO. Changes to —F20 negotiations for the New Zealand- projects would be developed and —F5 typically expect approval of their the regime could also require the China free trade agreement at the aframework FTA linking China/ Foreign Investment Review Board office and Ministers to volunteer to 2004 APEC meeting, says it New Zealand, our bilateral and within 40 days.” deal with applications within a appears China will play aleadership regional FTAs, and new FTAs Quinn fears New Zealand will timeframe. “I would use the power role in developing infrastructure — involving anumber of countries can lose out to other countries which under the (OIO) Regulations to road, rail and port —along the be established.” Finny says New are seen as easier to do business prescribe other factors that routes and the Asia Infrastructure Zealand could make astrong with and more welcoming of Ministers may take into account in Development Bank will fund some statement of support for this foreign investment. determining whether to approve an of the developments. initiative and offer practical help for She says New Zealand’s OIO investment.” Here’s his idea. “We use the New the design of the agreement. F2 nzherald.co.nz The New Zealand Herald | Wednesday, May 4, 2016 China Business ■ New Zealand is on notice ■ China has aneed for regional economic harmony Maintainingour integrity Inside on regional foreignpolicy

NewZealandhas beencited for participating in South ChinaSea naval exercisesbut Friends in town DavidMahon believesour countryshouldn’t lose anyeconomic favourwith China Auckland will host the next city-to-city trade and investment talks.—F6

uring Prime Minister John “China is building bases on Key’s visit to Beijing last reefs and rocks in the month, an editorial was South China Sea”. This D publishedbythe state- lighthouse at Zhubi Reef owned news agency, Xinhua, criticis- on the Nansha Islands was ing New Zealand for participating in completed earlier this the Bersama Shield naval exercises in month. Picture /Xinhua,AP the South China Sea. The participants —United States, United Kingdom, Australia, Singa- pore, Malaysia and New Zealand — Key has Football diplomacy claimed that the purpose of the ex- ercises was to improve their readi- Huawei renews sponsorship of ness to protect shipping lanes in the Xi’s trust Phoenix soccer club.—F9 region. The United States was primarily asserting its power in the region. The Despite some political tension, Xinhua editorial noted that countries Prime Minister John Key’s recent such as New Zealand that depended mission to China was asuccess. on trade with China should match Expectations that the New Zealand- their rhetoric of non-interference in China Free Trade Agreement will China’s territorial disputes with their be upgraded soon are probably actions, or face possible economic optimistic, but the delegation ramifications. signed significant deals, such as the China is building bases on reefs agreement between online retailer and rocks in the South China Sea to Alibaba and New Zealand Trade reinforce its territorial claims, which and Enterprise. Flying ahead extend as far south as Borneo, grazing New Zealand has benefited from the coasts of all the countries to the adecade of preferential trade Air NZ’s Stephen Jones is upbeat east and west. access to China, but with the about the unparalleled growth of These countries protest that China exception of Fonterra, Zespri and Chinese tourism. —F13 is compromising their territorial in- Les Mills, few companies have tegrity, while China claims that it is established asignificant simply redefining territory taken commercial presence in the from it in the colonial era and ac- domestic Chinese market. knowledging territorial waters com- Chinese authorities see New mensurate with its land mass. Zealand companies as often being China’s actions have created re- reluctant to engage much beyond gional political tensions and shipping goods to Chinese ports. prompted increasingly strong reac- John Key does appear to have tions from Washington. Beijing’s in- President Xi Jinping’s trust and sistence that other countries do not respect, and New Zealand’s take sides in its disputes with its South increased government East Asian neighbours or support engagement with China has what it perceives as United States brought good results. Meat and greet hegemony has forced those outside —David Mahon the region, such as New Zealand and Lowered restrictions could open up Australia, to weigh vital economic high-end market, reports Jamie Gray interests with the strategic demands torial waters, the economic conse- integrity in the region through its —F16 of their traditional ally, the United quences could be dire. independence of foreign policy and States. Beijing can easily implement relative non-alignment. As an advisor on the issue to subtle and non-tariff punitive If China focused on expanding its Chinese Government noted: economic measures against economic presence in the region, it “We respect loyalty to old friends, countries that participate in the would probablyachieve its objective but New Zealand should understand United States’ China containment of securingadegree of influence, that China cannot ignore Washing- strategy. security and national pride more ton’s wish to counter China’s growing Astrategist from aChinese think effectively and without alarming its influence in the region. We may have tank commented: neighbours. taken adifferent approach had the ”It was disappointing that New Having taken such abold stance United States not supported Japan’s Zealand said one thing regarding the with its base-building, China now can- reversal of its pacifist constitutional South China Sea issue but did an- not back down, but having made its Open Sesame principles and subsequent rearma- other. China does not perceive New strategic point, it is unlikely that China ment. Manoeuvres in the South China Zealand to be acaptive to US foreign will expand its South China Sea bases Alibaba and the rise of e-commerce Sea and continued American military policy like Australia, but this would much more in the coming years. opportunities. —F19 presence in Japan and on the Korean change should New Zealand become China’s need for regional economic Peninsula are all aimed at containing amore active participant in American harmony cannot be underestimated. China. military exercises.” The Qing Emperors believed the “America would not tolerate the New Zealand has had along and West could not afford to fight China presence of aforeign power New Zealand does not trusting relationship with China, earn- as the West had become too depend- conducting constant manoeuvres ing considerable respect over the last ent upon Chinese tea and, bafflingly, and surveillance off the coast of face an imminent risk 20 years as aresult of its relatively rhubarb. The Opium Wars proved Hawaii, so it should not expect us to from its perceived role in independent foreign policies. China tragically wrong. Today the accept American naval patrols so New Zealand believed that China roles have reversed in that few single China Business 2016 close to our coastline. The Cold War China’s containment, but had adhered to the terms of the Hong countries, other than the United is over. We need anew compromise it is on notice. Kong handover in 1997, and so was States, are important to the Chinese that reflects the times.” one of the first nations to recognise economy. China has the wealth and Executive Editor: Fran O’Sullivan There is little sign that the United David Mahon the new Hong Kong Government. global networks to reduce imports Writers: Liam Dann (Business States and China will find acomprom- This incurred the ire of Britain and from countries like New Zealand and Editor at Large), Christopher ise soon, but the strategic tensions the United States, as did New Zea- Australia and to buy elsewhere, and Adams, Bill Bennett, Jamie Gray, between them are tempered some- land’s decision not to join the in- the administrative means to James Penn, Graham Skellern. what by the extent each economy vasion of Iraq in 2003. marginalise the aspirationsofforeign Sub-editor: Isobel Marriner depends upon the other. Acting on principle and without companies in its borders in response Graphics: Isobel Marriner The situation is unlikely to result seeking commercial benefit in both to anti-Chinese alliances. New Zea- Research: James Penn in military confrontation, but China cases, New Zealand stood firm. land does not face an imminent risk Advertising: Neil Cording, Nathan and the United States’ vying for posi- New Zealand should stand equally from its perceived role in China’s Laing, Nancy Dudley tion in Asia is squanderingagreat firm if Chinese actions contradicted containment, but it is on notice. nzherald.co.nz deal of political and military capital. its principles. ● David Mahon heads Mahon China Look for Capital Markets 2016 — Should countries with larger It is amatter not of New Zealand which has been based on the mainland our next Herald Business Report, navies such as Australia join the ingratiating itself with China out of since 1985 as an investment manager which will be published on United States in patrolling the fringes fear of losing economic favour, but and corporate advisor for foreign Thursday, May 19. of China’s northern and eastern terri- aneed for New Zealand to maintain companies. The New Zealand Herald | Wednesday, May 4, 2016 nzherald.co.nz F3

China Business ■ Cuttingdairy trade barrierskey to FTA upgrade ■ Ecommercetrade issues to be considered Timefor an upgradeofChina FTA

hough trade will always be We have now had almost an important part of why we There’s more to Free Trade Agreements than simply reducing tariffs continue to build astrong eight years’ experience T relationship with China, our —they must also break down technical barriers, says Todd McClay of aChina FTA —soitis “strategic partnership” has grown in ways our negotiatorscould not have time to upgrade it. predicted. ...Our consideration In Beijing last month, the countries’ two leaders mandated ministers to must be broad to cover further consider opportunities to up- grade our China New Zealand Free new issues such as Trade Agreement (FTA), which was e-commerce as well as signed eight years ago. We will soon meet at the Apec Todd additional services Trade Ministers meeting in Peru to McClay sectors, but also improve consider this challenge. It is impera- (right) and tive we look towards the future. What Chinese the quality of the current opportunities are there to take our Commerce commitments in the FTA relationship to anew level, and how Minister can the significance of the many Gao such as reducing the “firsts” that China and New Zealand Hucheng at impact of the safeguards share help us to be more ambitious recent in trade and co-operation? bilateral on our dairy exports Though our FTA negotiating talks. agenda often grabs public attention, Picture / Ministry of just as important is the work that we Commerce, between FTAs, including markets do to implement these trade deals China where New Zealand has more than once concluded. FTAs only deliver one FTA (such as Malaysia, Singapore economic benefit if our businesses it resulted in immediate duty-free you can’t get your goods to market buy and sell more with China. and Thailand), so that business can take advantage of the opportunities access for around 48 per cent of our because of bureaucratic processes or Providing clear and practical in- choose the best result for them. they provide. As Minister of Trade, exports to our sixth largest export avoidable delays in processing formation to exporters remains im- We have now had almost eight ensuring that New Zealanders maxi- destination. Over time this will in- approvals, then the opportunity pre- portant. Navigating what opportun- years’ experience of aChina FTA — mise the benefits from these agree- crease to almost 98 per cent. In the sented by an FTA is lost. ities might be available can be con- so it is time to upgrade it. ments is apriority. world of trade negotiations it is hard The Government is committed to fusing, given that we now have 10 Our consideration must be broad More than half of our goods to beat an outcome like that. working to address Non-Tariff Bar- FTAs with some markets covered by to cover new issues such as exports now go to FTA partner FTAs are no longer just about tariff riers where they are unjustified, multiple agreements. e-commerce as well as additional markets. Once the Trans-Pacific Part- liberalisation, however. Increasingly whether they apply to goods, services It’s for this reason that we have services sectors, but also improve the nership comes into force, this figure they include provisions on co-opera- or investment. Some can be justified, developed agreat online tool for our quality of the current commitments will rise to 72 per cent. An FTA with tion, the environment, labour and and we need to rememberthat our goods exporters. The Tariff Finder in the FTA such as reducing the the European Union will increase this investment and on ways to help our economy depends on that in order (https://tariff-finder.fta.govt.nz/)not impact of the safeguardsonour dairy to around 83 per cent. That puts us small and medium sized businesses to protect ourselves from pests and only shows the FTA preferential tariff, exports. This will ensure our busi- in avery good position —wehave benefit from trade. diseases or to ensure we can protect it also sets out the requirements for nesses remain competitive with scored big wins in knocking over Importantly, they must be about public health and the environment. accessing these, such as the relevant exporters from other countries. tariffs at the border. reducing technical barriers that might But more work must be done on Non- rules of origin and documentation ● Todd McClay is the NZ Minister of Take Korea, for example: When the unfairly restrict trade. After all, it Tariff Barriers to ensure that our requirements. The Tariff Finder also Trade and Minister for State-Owned FTA came into affect late last year, doesn’t matter what atariff rate is, if businesses have every opportunityto allows acomparison to be made Enterprises

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China Business ■ 300,000 Chineseofficials punished for corruption in 2015 ■ CPC’s 88mmembers banned fromjoining golf clubs Are we too eager to please?

einnodoubt —agrowing spending substantial money and middle-class in China’s 1.6 We need astrong platform from Government and a time. But what can happen is that the billion-strong populationisa New Zealand business gets into liti- B huge opportunity for New commonsense attitudetowardbusiness enterprises gation over alleged shortfalls, and Zealand businesses. New Zealand owners have no choice But there are some guidelines for withChina,advises Michael Barnett but to walk away. achieving success that Kiwis still New Zealand is not alone in seeing need to take on board —from the top its supply chain ownership shifting echelons of government through to into Chinese hands. the small business enterprise trading In 2010 the Brazilian mining giant aproduct or service that China is Vale planned to build about 60 keen to purchase. vessels for the iron ore trade but only First, the role of our Government 18 were delivered. Vale suffered a is critical for setting agood platform blow when Beijing banned the ships for businesses to be successful. from docking at Chinese ports, saying Aconcern Ihave is that govern- they were unsafe. ment and government agencies need Last July the ban was lifted but by to step up their engagement with New then Vale had sold or leased the Zealand’s business community, vessels to Chinese owners, including especially small-medium enterprises. the Chinese shipping giant Cosco Second, the importance of cultural Group. differences and trading experience The point: New Zealand businesses needs to be acknowledged and taken and governmentagencies need to be into account. strongly aligned to our shared New Zealand businesses tend to be “national” interest. trusting and biddable. By that Imean That may seem contrary to the that New Zealanders tend to bend tradition of Kiwi businesses and over backwards to be accommodat- agencies not seeing themselves as ing to their Chinese counterparts part of the same team. which sometimes may not —inhind- Don’t take me the wrong way sight —bethe best business-practice either. Iamnot saying that we should thing to do. not do business with China because We are ayoung trading nation. of these events. Iamsaying, take note China is anation with many thou- of the market and do your homework sands of years of trading experience. with your eyes wide open. Of course, neither the botulism There has been ahuge growth in scare nor the 1080 event helped the trade with China and more stunning New Zealand brand or reputation. success is likely. But the recent bad But Prime Minister John Key did experience of some reinforces the the right thing. He went into the China Our own MPI should set the standards and accreditation rules for all potential exporters, says Michael Barnett. importance of new exporters, especi- market to help secure the New Zea- ally SMEs, firstly, taking professional land trading reputation and commit- build on. But having said that, it ket, MPI should set clear rules and advice from business organisations ment to the 2008 Free Trade Agree- remains my strong belief that our standards and be issuing the accredi- like the Chamber of Commerce and ment (FTA). And he has followed up Our government government agencies need to step up tation. Our meat trade faces asimilar others with recognised services for recently with afurther successful and be more forceful in setting rules situation. exporters. visit that was supported by 40 New agencies need to step up and standards for New Zealand busi- The result is that some exporters Secondly, it is critical that an agree- Zealand businesses. and be more forceful in nesses wanting to operate in China. are being outmanoeuvred by others ment is established with aChinese It is my belief that New Zealand For example, before the recent with aprivilegedposition set by counterpartthat clearly sets out a businesses serious about trading with setting rules and dairy scares New Zealand-owned China, when it should be our own MPI letter of credit and paymentterms. China have started to understand that standards for New packing houses controlled the supply which sets the standards and accredi- Finally, doing business in China — the success of their brands and pro- chain of which businesses had met tation rules for all potential exporters. as elsewhere —should not be based ducts depends less on the responses Zealand businesses the standards required for exporting Isuggest that we don’t want to see simply on trust and or ahandshake. of our local media and much more to China. But over the past two years, the same thing happen for other Do your homework,use inter- on the ‘word of mouth’ messaging wanting to operate in the Ministry of Primary Industry promising products like honey and nationally recognised partnerships carried through China’s social media. China. (MPI) has allowed China to pick which water. and distributor agreements and have Messaging in China from the Prime packing houses to accredit for Small exporters are the most vul- abusiness plan that sits alongside and Minister’s visits has been acritical importing from New Zealand. nerable. They are being advised to guides your passion. element for setting astrong reputa- Instead of allowing China to con- take on Chinese partners, usually ● Michael Barnett is chief executive of tional platform for Kiwi traders to trol which firms export to their mar- after alot of market exploration and the Auckland Chamber of Commerce Watch outfor thetigersand theflies

Fran O’Sullivan And there are other rules that they investigations under the Foreign Cor- and Graham Skellern should be aware of when setting up rupt Practices Act in connection with shop in China. Particularly, as DLA their business activities in China. Most Kiwi business people would not Piper Beijing partner Jack Choi Choi has particular guidance for have blinked an eyelid when China observes, anti-bribery and anti- HR professionals with responsibility revealed that aNew Zealand citizen corruption compliance issues in over Chinese operations. was ranked at number five on its Top China are showing no signs of cooling ● Ensure appropriate employee con- 100 extradition list. down. sultation procedures have been The Prime Minister let that titbit fly Choi has authored apaper — Top carried out before implementing after meeting with President Xi Shanghai tips for HR in building an enhanced changes to code of ethics or anti- Jinping at the Diaoyutai State Guest- Maling compliance system in China —aspart corruption policies. house in Beijing last month. chairman Shen of aChina Insights series. ● Include acomprehensive list of There are afew other Chinese Wei Ping He says multinational corpora- misconduct, and update it based on nationals living in New Zealand that avoided tions are sparing no efforts in experience of past cases or cases that China also wants to extradite. questions on establishing and implementing an have been published in the media. And it is likely that will occur once corruption enhanced compliance system in ● Make compliance with code of the NZ Government has sorted out probes against China as the number of companies ethics and anti-corruption policies a the legal niceties so they first get a former Bright charged for corrupt activities in China key element of bonus and promotion fair hearing in our justice system to Group continues to rise, and the probe into policies. ensure prima facie corruption cases personnel, corrupt activities continues to spread ● Strengthen company policies, job do exist against them before any into various industries and sectors. descriptions and communications to orders are made. in front of the Overseas Investment Synlait. He was photographed with He notes that since the beginning emphasise manager responsibility These are the headline issues. But Office. visiting NZ Cabinet Ministers when of 2015, the Chinese Communist over ateam’s compliance situation. there other areas that ought to con- In an interview with the Herald, they visited Bright’s Shanghai offices. Party’s Central Commission for Dis- ● Be mindful of labour law restric- cern prudent NZ business-people as Shen sidestepped questions on cor- But he left in mid-2015 for personal cipline Inspection conducted two tions on disciplinary action imposed they form new relationships in China. ruption probes against former Bright reasons on suspicion of serious dis- rounds of extensive inspections fo- on employees, particularly with re- First-up, there is no guarantee that Group personnel, which have seen a ciplinary violations. cusing on large state owned enter- spect to summary dismissal, and ad- simply because apotential partner is former chairman jailed for 18 years Xi had vowed to go after powerful prises, many of them are among the vise business of relevant risks appro- awell-known Chinese State-Owned and the executive who led the acqui- “tigers” as well as lowly “flies” in his world’s top 500 companies. priately. Enterprise that it won’t become sition of the Synlait Milk stake resign efforts to crackdown on official graft. Enforcement actions and investi- Choi also says that anumber of embroiled in controversy. for “personal reasons”. Banquets are these days often per- gations span different industries, in- companies have started to introduce This was brought home last year The personable Guo Benheng had functory affairs and officials have cluding finance and banking, auto- policies requiring employees to dis- when Shanghai Maling chairman led Bright Dairy &Food’s $82 million been banned from using public funds mobile, aviation, military, health, en- close their relationship with govern- Shen Wei Ping visited Auckland to investment in Synlait Milk after the to buy memberships of golf clubs. ergy, telecommunications, trans- ment officials and stating that any spruik his company’s joint-venture GFC scared off New Zealand in- These are factors that NZ business portation, and construction. At least violation of the disclosure obligation proposal with Silver Fern Farms vestors. Guo’s “profits, profits, profits” people should also have front of mind 29 US listed companies have been would be punishable by summary which is currently waiting approval focus had become renowned at when entertaining Chinese guests. involved in ongoing US Federal dismissal. The New Zealand Herald | Wednesday, May 4, 2016 nzherald.co.nz F5

China Business ■ China’s M&As reach US$101bninfirst quarter2016 ■ Around 80% of Weibo users are 17-33 years old Asilk route from Wellington

TheChinaNew Zealand FTAcould be thenucleusfor the One Belt,One Road initiative,writes CharlesFinny

was privileged to be part of the Our value to China is not business delegation accom- panying the Prime Minister on the size of our economy, I his recent visit to China. the size of our armed As someone who has devoted much of his career to advancing this forces or our weight in relationship it was fantastic to see the international genuine warmth in the interaction between the Prime Minister and Minis- organisations. Our value ters Nathan Guy and Todd McClay with their Chinese counterparts. It was is in helping China at a also gratifying to see how broad and strategic level. We are deep the relationship has become. In 1992 (which is really not that long seen as an independent ago) when Ifirst arrived to serve at minded innovative the Embassy in Beijing the commercial relationship was essentially all about country that China is one product —wool. willing to learn from and We had protesters barricading the Embassy because immigration policy to work with to prepare had allowed asituation where Chinese for initiatives with larger students were out of pocket, and many in the Ministry of Foreign Affairs and players. Trade were questioning the amount New Zealand was investing in China (surely the future lay in Japan!). The prevailing view seemed to be precise. It would stretch from New that Chinese didn’t like eating lamb or Zealand through Asean and the Pacific dairy products so there was little need China and then on to to Europe — to put effort into the market. either by sea or land. In 2016 China is now our biggest While it might begin in New Zea- goods trade market and avery import- land, China (Zhongguo —the middle ant services market. kingdom) would be at its centre. The delegation was dominated by Aseries of key infrastructure pro- meat and dairy interests. There was jects would be developed and aframe- no one (apart from me —just) repre- work linking the China/New Zealand senting wool interests. FTA ,our bilateral and regional FTAs, Pretty much every other sector of and some new FTAs involving several the economy was represented. heart why am Iworried about it? Charles Finny countries including Sri Lanka, Kenya, China is our major education mar- Iworry because Ican’t see where (above) and the the Gulf Co-operation Council, Iran, ket. Tourism is booming and the film the next “first” is in the bilateral agenda. New Zealand Tajikistan, Uzbekistan, Turkmenistan, and television relationship is going These “firsts” are important as they delegation in Azerbaijan, Georgia, Turkey, and from strength to strength. give New Zealand aprominence in Xian, the start of eventually the European Union. This is the result of years of invest- Chinese eyes that would otherwise not the new “silk How do we operationalise this idea? ment by the Government in both be there. road” where Agood start would be to make a people and travel, cutting-edge dip- Our value to China is not the size multi-modal strong statement of support for this lomacy, hard work and investment in of our economy, the size of our armed transportation is initiative from New Zealand and an relationship building by the private forces or our weight in international explained. offer of practical support for the de- sector, and an excellent legal organisations. Our value is in helping velopment of the design. underpinning of the relationship by China at astrategic level. We are seen What might this look like? the China-New Zealand free trade as an independent minded innovative ● We share the above strategy. agreement (FTA) and other trade and country China is willing to learn from ● We offer to appoint aspecial envoy economic agreements. and to work with to prepare for or ambassador for the One Belt One These agreements have been made initiatives with larger players. Road Initiative possible by New Zealand showing Some of us joke that China likes ● We offer to re-orient our agriculture international leadership in ways the working with New Zealand in this way co-operation with aview to exploiting Chinese Government has seen as be- because if they make amistake it the opportunities for joint trade and ing incredibly important. doesn’t really matter. investment along the One Belt One New Zealand helped broker the On this recent visit to China one Road. Chinese entry into APEC along with issue stood out as offering potential for ● We offer the possibility of co- Hong Kong and Taiwan. We were the anew initiative between New Zealand operation on some infrastructure de- first country to complete the bilateral and China. The idea came to me as velopment projects by the likes of components of Chinese World Trade we stood in Xian at the new inland port Beca, Fulton Hogan and Hawkins, and Organisation accession. We were the that is being created at the start of the offer China the chance to tender to first in the OECD to recognise China “silk road”. build acouple of key infrastructure as amarket economy. We were the President Xi Jinping has, for the past projects in New Zealand. first to launch and complete aFTA couple of years, been promoting an ● We offer to make the development with China. And we were the first to idea called “One Belt, One Road”. The of this concept as acentral element complete the trifecta of FTAs with concept is based upon the overland of the wider NZ-China FTA Upgrade. China, Hong Kong and Taiwan. Most (“silk route”) and sea link between Ican’t see any downside and you recently we became the first in the China and Europe, and appears to never know —China might like the OECD to support the creation of the involve China playing aleadership The trouble is that detail on the So here is my concept. idea enormously. Asian Infrastructure Investment Bank role in developing infrastructure — initiative is all abit vague and without We use the China New Zealand FTA and to negotiate atelevision co- road, rail, port —along the routes. And more detail the idea is not really as the nucleus for the One Belt, One ● Charles Finny is apartner at production agreement to complement the Asia Infrastructure Development resonating globally. This is where New Road initiative and rather than begin government releations consultancy the film agreement already in place. Bank will be involved in funding some Zealand could help. We are really good the road in Xian, let’s begin it at Saunders Unsworth and is aformer So with the relationship in such good of this development. at trade strategy. Wellington. Wellington Airport to be trade negotiator with MFAT

particularly for China’s less developed One Belt, One Road regions such as Yunnan, Gansu, Guizhou. ● Aform of economic stimulus in poorer ● Xi Jinping’s idea, raised in 2013, to connecting major sea ports along the Belt Chinese provinces –necessary in light of jointly build the Silk Road Economic Belt and the Road. slowing economic growth. (essentially all countries on the original ● Primarily creating better transport ● Provides for increased exports from Silk Road plus South and Southeast Asia) infrastructure, both land and sea, industries in which China has significant and the 21st Century Maritime Silk Road. between the regions involved. over-capacity —for example steel, ● The Maritime Silk Road component ● In May 2015, European Commission cement, aluminium. links China’s ports with the African coast, President Jean-Claude Juncker made ● Outlet for Chinese companies who through the Suez Canal into the comments which seemed to indicate invested heavily in capacity during the Mediterranean. potential for the EU to integrate its construction boom but are now suffering ● Involves building infrastructure, Investment Plan for Europe with One Belt, from the country’s flagging growth increasing cultural exchanges, and One Road. prospects. broadening trade. FUNDING ● Geopolitical goals –neighbouring ● Eurasian Land Bridge —arail transport ● Asian Infrastructure Investment nations more incentivised to pursue co- route for moving freight and passengers Bank ● Headquartered in Shanghai ● Distinguished from the banks as it operation with China due to their ability from Pacific seaports in the Russian Far ● The bank includes many countries ● Initial capital of US$50 billion, invests in businesses rather than lending to fill their infrastructure gap. East and China to seaports in Europe. also on the Silk Road Economic Belt intention to increase to USS$100b for infrastructure projects. ● Furthers the goal of ● Economic corridors throughout ● Registered capital US$100b Silk Road Infrastructure Fund ● $40 billion funding internationalisation of the renminbi. China-Mongolia-Russia, China-Central ● New Development Bank ● Designed to increase investment MOTIVATIONS Useful Q&A summary: http://csis.org/ Asia-West Asia, and China-Indochina. ● Made up of the BRICS (Brazil, Russia, specifically in One Belt, One Road ● Increased connectivity in the region publication/building-chinas-one-belt- ● Secure efficient transport routes India, China, South Africa) countries may increase economic growth, one-road F6 nzherald.co.nz The New Zealand Herald | Wednesday, May 4, 2016

China Business ■ Development opportunitiesand innovation showcased ■ 55 speakers,400 delegates alreadyregistered Auckland hosts city-to-city

“The city is going through atrans- Delegates fromGuangzhou, Los Angeles formation and we are selling (de- velopment) opportunities in Auck- and Aucklandare meeting under the land to investors who can be part of the transition over the 10 to 15 years. TripartiteEconomic Alliancetoexplore The summit is also an opportunityfor Auckland to showcase its innovation and progress business partnerships. and prowess.” Brett O’Riley, chief executive of Graham Skellern previews the two-day Ateed, sees the tripartite alliance as along-term programmeofwork de- business summit in Auckland signed to grow the Auckland econ- omy and increase the number of companies exporting, as well as at- mbitious high-tech com- with latest global trends in sectors tract talent and investment to the city. panies in Auckland have such as health and nutrition, enter- ``We want this summit to be an been given agolden oppor- tainment and digital media, advanced active meeting where genuine A tunity to establish business manufacturing, and urban design connections are made and result in deals in China, and United States, where Auckland has strong capa- enhanced business between the when the second Tripartite Economic bility. three cities,’’ he says. Summit is held later this month. The summit has attracted 55 Madame Li Xiaolin is bringing a The annual summit —more than speakers and panellists, and more small delegation and will be the 40 Auckland businesses attended the than 400 delegates —nearly two- highest-ranked diplomatic repre- first one in Los Angeles last June — thirds of them are businesspeople, sentative from China at the summit. was borne from the November 2014 investors, industry representatives She is joined by Vice-Mayor of signing of the historic Tripartite and academics. The mayors are Len Guangzhou Municipal Government, Economic Alliance between Auck- Brown (Auckland), Wen Guohui Wang Dong. land, Guangzhouand Los Angeles. (Guangzhou) and Eric Garcetti (Los President of the Chinese People’s The alliance focuses on increasing Angeles). Association for Friendship with trade and investment between the More than 170 businesses in Auck- Foreign Countries, Madame Li is the three cities and their regions, as well land and 60 from Guangzhou have daughter of Li Xiannian, President of as enjoying the civic and cultural registered.Bank of New Zealand, the People’s RepublicofChina activities. Huawei and Callaghan Innovation between 1983 and 1988 and then The alliance also takes the tra- are the principalsponsors of the Chairman of the Chinese People’s ditional sister city relationship to a summit, supported by Fu Wah, Indus- Political Consultative Conference un- new trade level —and Auckland trial and Commercial Bank of China til his death in 1992. wants to make the most of the part- (ICBC), NZ Trade and Enterprise, Asia Madame Li hosted the New nership when it hosts the summit at NZ Foundation, Aecom, China South- Zealand-China Mayoral Forum in the Viaduct Events Centre on May 16 ern Airlines and Silicon Valley Bank. Xiamen in September 2015 and is a and 17. Global ICT solutions provider strong advocate for developing city- The summit, organised by Auck- Huawei is providing aSmart City to-city economic relationships. land Council and its economic growth display at the Viaduct Events during The Auckland summit is themed agency Auckland Tourism, Events the two days of the summit. Making connections: From left, former Guangzhou Mayor Chen Jianhua, ``Making Connections’’ and Auck- and Development (Ateed), will fea- Auckland Mayor Len Brown says Auckland Waterfront’s John Hong, Auckland Mayor Len Brown and land is determined to strengthen ture stimulating keynote addresses, the summit is the chance for Auck- Auckland Councillor Bill Cashmore discuss city common interests at the first workshops and site visits associated land to put its best foot forward. Tripartite Economic Summit in Los Angeles. continued on F7

16-17MAY 2016 VIADUCTEVENTSCENTRE Making connections between businesses and entrepreneurs from Auckland,Los Angeles and Guangzhou. View the programme and register your interest at tripartiteauckland.com

TRIPARTITE ECONOMIC SUMMIT AUCKLAND 2016 MAKING CONNECTIONS 互联互通 三城经济联盟2016奥克兰峰会 AUCKLAND |GUANGZHOU |LOS ANGELES 奥克兰 | 广州 | 洛杉矶

PRESENTED BY PRINCIPAL PARTNERS MAJORPARTNERS

SUPPORTING PARTNERS The New Zealand Herald | Wednesday, May 4, 2016 nzherald.co.nz F7

China Business ■ Chinesebox officetops North America for first time ■ NZ film studio signs$86m deal in China investment and trade talks

continued from F6 the Guangdong province from “a TripartiteEconomic Summit -Auckland world factory of cheap goods” into a relationships and drum up more busi- ● In November 2014, the mayorsofAuckland, Guangzhou andLos Angeles centre of higher-value production. ness as it continues its drive to be- signed the world-first Tripartite EconomicAlliance agreement. The priority industries located in come the world’s most liveable city The threecitiesaim to set anew standardfor how modern citiescan engage the Knowledge City are ICT, creative, and an innovation hub of the Asia andcollaborateinthe 21stCentury. science and education services, Pacific region. The inaugural Tripartite Economic Summit washeld in Los AngelesinJune biotechnology, and pharmaceutical. Acrucial element for the summit 2015, with the theme of “Innovation —throughCommercialisation and There will also be cancer research is business matching. Ateed has set Connectivity”. facilities. aside the Bank of New Zealand Busi- The 2016 summit will buildonthe importance of making meaningful The city, being developed over ness Activation Lounge at the Vi- connections with fellowentrepreneurs andinnovators. 123sq km, will have amixture of high- aduct Events Centre for meetings ● Programme includes: tech business parks, residential, com- throughout the two days of the sum- —Presentations by global business leaders mercial, recreation, open spaces and mit. —Panelsessions focusedonkey industry sectors public amenities. It is expected to The business-matching can lead to —Sector-focused site visits, including innovative businesses andsupporting reach apopulation of 540,000 and acompany entering the China, United infrastructure create 270,000 jobs within 20 years. States or New Zealand market with —Networkingand businessmatching sessions at theBankofNew Zealand Anew rail link is being completed an expert local partner, or signing up BusinessActivation Lounge between Guangzhou and Hong Kong an ideal supplier, or discovering new ● Focuses and will stop at the Knowledge City. research and development and in- —Entertainment anddigital Leading Chinese diplomat Madame Site visits during the summit will vestment opportunities. —High-value foods Li Xiaolin is bringing asmall include atour of Auckland Univers- The companies have the oppor- —Advancedmaterials delegation to the summit in ity’s world-class Centre for Advanced tunity of connecting online and —Smartdata Auckland. Composite Materials at the New- sharing common interests and —Design market campus. This will also include objectives before meeting at the sum- When,16–17 May 2016, ANZ ViaductEvents Centre,Viaduct Harbour, an interactive workshop that mit. O’Riley says “we want to use the Auckland founded Guangzhou-based EHang provides an overview of technology business matching to start http://www.aucklandnz.com/tripartite/tripartite-economic-alliance-201 which makes consumer drones con- pioneered and developed in New discussions on potential collabora- trolled through asmartphone app. Zealand for global applications. tion projects. By the time they arrive and monetisation of data; advanced expert Steve Crombie and Tom EHang is now developing an all- There is also avisit to Auckland in Auckland for the summit, they may automation (vehicles); and additive Cassell, who operates YouTube chan- electric drone (or personal flying University of Technology’s Motion be ready to sign memoranda of manufacturing (involving advanced nel, TheSyndicateProject, will discuss vehicle) that takes off with the press Capture Lab to experience the latest understanding.” materials and 3D Printing). “The Power of the Influencer Econ- of abutton and is capable of carrying in virtual reality applications; and to For its panel sessions Ateed has The Auckland Council’s Design omy” and how social media channels passengers. the Maurice Wilkins Centre for Molec- selected five specialist sectors where Office will make apresentation on are changing the way global brands Tuo Zhai of the China Animation ular Biodiscovery which is renowned the city has world class expertise and transforming cities through urban de- market their products to consumers. Comic Game Group will lead awork- for its research and developments in ground-breaking research and de- sign and how different cultures play Professor Xue-Feng Yuan, of the shop on high growth global animation treating cancer, diabetes and infec- velopment: High-value food, enter- apart in that. The Design Office will Guangzhou National Supercomputer opportunities, and Ng Kok Siong, chief tious diseases. tainment and digital, advanced ma- also explore opportunities of col- Centre and Lim Chee Siong of executive of the Sino-Singapore Guangzhou, Auckland and Los terials, smart data and urban design. laboration with counterparts in Huawei, are part of apanel discussing Guangzhou Knowledge City Invest- Angeles are developing their The panel discussions will explore Guangzhou and Los Angeles. “Industry 4.0 …Coming, Ready or Not” ment and Development Office, is part waterfronts and city centres, and a the high-value food megatrends in- The inspirational keynote speech which highlights the digital revolu- of the summit-closing Auckland workshop entitled “Creating the cluding health and nutrition; cross at the summit will be given by Dr Erez tion. Conversations where he will update World’s Most Liveable Cities” will ex- border e-commerce; how virtual and Morag, former Nike Innovation Ex- Derrick Xiong, one of Asia’s top 30 delegates on the incredible urban plore ideas and knowledge, discuss augmented reality is changing your pert and founder of Acceler8 Per- under 30 entrepreneurs in 2016 development project. challenges and identify emerging op- world; new forms of media entertain- formance. Apanel of media (ranked by Forbes), is joining the The Knowledge City, under con- portunities. This will be the modus ment —such as apps and mobile entrepreneurs, 3Blackdot co-founder panel discussion on advanced manu- struction in an undeveloped area of operandi throughout the two days of video viewing; real-time analytics Angelo Pullen, Totem and YouTube facturing and automation. He co- Guangzhou, is designed to transform the unique summit. After lots of lunches, movie deals flow

Aucklandanimator Trevor Yaxleyhas made more than 100trips to Chinaand his persistence has paid offashis business Huhu Studios scoops up movieco- productions, writes Graham Skellern

Suddenly, China has become aheavy- Huhu Studios staff are presently weight player in the movie box office working on aChinese co-production, takings, and the world is opening up Beast of Burden. Pictured from left for local animation companies. to right are: producer Bill Boyce, In February China topped the North director Kirby Atkins and producer American (Canada and United States) David Townsend. Right, Trevor box office for the first time, with Yaxley. monthly sales equivalent to US$1.05 billion (NZ$1.50b). North America’s take world said ‘let’s make adeal’. The was $797 million ($1.14b). China’s box Chinese won’t talk business without office is growing dramatically. Ticket getting to know you first. It all comes sales surged 49 per cent last year to down to face-to-face meetings.” $6.7b ($9.6b), while the North American Huhu Studios, based at Snells Beach, million deal with Qingdao’s DeZerlin He says if everything is lined up with market increased 7per cent to $11.1b north of Auckland, has completed ani- Media to co-finance and co-produce the Guangzhou Municipal Govern- ($15.9b). The Chinese film market is mation work for television series, com- five animated movies over the next ment, the media centre development expected to grow afurther 60 per cent mercials and theme parks in China. three to four years —the first is Watch will be formally signed at the Tripartite over the next 12 to 18 months. And now Huhu is moving into ani- the Skies,anaction film about an alien Economic Summit in Auckland, and “It’s ahuge developing industry in mated feature films. “We have put alot stranded on Earth. Huhu had pre- details of the joint venture will be China,” says Auckland-based Huhu of time and investment in China and viously worked with DeZerlin on tele- released. Studios chief executive, Trevor Yaxley, we’ve been waiting for the movie side vision projects. He says the centre will be managed who is drumming up plenty of business will also present akeynote address to develop and grow. The new deal will create more than by Huhu and then handed over to a with the Chinese. “Back in the early titled: “Animation Culture”. “We are ready to handle that vol- 70 jobs and double staff numbers at local team after 18 months to two years. 2000s our team did some research on Yaxley says “everywhere you look, ume of business,” says Yaxley. the Snells Beach studio. Huhu would initially have 15 to 20 the growth of the movie industry in on the television screen and in adverts Huhu, which also has studios in Huhu expects to announce more co- of its own staff working at the centre China and predicted it would become and movies, there’s some form of ani- Guangzhou, Beijing and Taipei, is work- production deals this year. and then the number would be the No 1box office in the world. mation in the live action. The tripartite ing on the 3D animated family film, It is also developing acreative me- reduced to about six people. “That’s why we started going to provides the opportunity of three cities Beast of Burden,with abudget of NZ$28 dia centre in the new Guangzhou The media centre will be part of an China 15 years ago. People took us with —Auckland, Guangzhou and Los million, due for release in 2017. The Knowledge City in partnership with a exciting innovation ecosystem in the agrain of salt then, both in New Zealand Angeles —tocome together as ateam movie is financed by China Film Guangdong firm. The centre will in- Sino-Singapore Guangzhou Know- and other countries. The growth has to encourage more business and trade Group’s animation arm, China Film clude animation studios, an animation ledge City. The city, housing happened; it’s just enormous,” he says. between them, and in other markets.” Animation, Beijing Qi Tai Culture De- software research and development knowledge-based industries, will Entertainment and digital media is Yaxley, who founded the Huhu ani- velopment Group, Guiyang Chili Cul- facility, and an animation training eventually cover an area of 123sq km one of the main themes at the tripartite mation studio, left on his 107th trip to ture and Media, Beijing Chunqiubona academy. The partnership will also sell in an undeveloped part of Guangzhou. summit and the future of animation China when he attended the Beijing Cultural Communication, and Huhu. branded animation merchandise in Ng Kok Siong, chief executive of the will play aleading part in the Film Festival during the third week of Beast of Burden is the first official new stores throughout China. Sino-Singapore Guangzhou Know- discussions amongst delegates. April. He says during the first six years feature film co-production between “This deal will bring alot of work ledge City Investment and Develop- Tuo Zuhai, of the China Animation of travelling he had 100 lunches and New Zealand and China, and will lead to ours and other studios in New ment Office, will provide an update on Comic Game Group, will lead awork- dinners with prospective partners to producing other movies. Huhu and Zealand,” says Yaxley. the development during the Auckland shop in the AUT conference centre on without ever talking business. “Then China Film Animation own the global The work completed here and in Conversations: Shaping Future Cities the high-growth global animation op- one day the representative of one of IP rights for Beast of Burden. Guangzhou will be used in the inter- session that close the two-day summit portunities during the the summit. He the largest media companies in the Huhu has also struck up a$NZ86 national market, as well as in China.” on May 17. F8 nzherald.co.nz The New Zealand Herald | Wednesday, May 4, 2016

China Business ■ NZ China Innovation Centre to assistexporters ■ Innohub already investing through$20m Auckland fund Launch pad for Kiwi firms

Innohubwill work to help high-growth companies become‘Chinaready’, writes Graham Skellern

xport-oriented businesses in out of GridAKL. He says the centre The centre will build anetwork of New Zealand will soon be will work with sponsors and partners able to source expert to help high-growth New Zealand Chinese business communities E mentoring and advice on companiesbecome ‘China ready’ throughoutNew Zealand. how to be ready for the big and through acceleration programmes complex Chinese market. and China business connection and Guangzhou Municipal Govern- investment services. ment’s Science and Technology Inno- “The companies will get to know vation Commission will sign amem- Chinese policy, the local legal orandum of understanding at the requirements, potential customers technologies are quite advanced and Tripartite Economic Summit to estab- before they actually leave for China niche. Because New Zealand is asmall lish the not-for-profit New Zealand —this advice will save them alot of market we can help the start-ups China Innovation Centre, based in time,” says Xiaohui. think globally,” says Xiaohui, who Auckland. “The centre will review the com- worked for Guangzhou Software Al- The founding sponsor of the centre panies’ technology and indicate liance before joining InnoHub. is Chinese incubator InnoHub, which whether there is an opportunityfor “In China InnoHub has 40 tech- established an office in Auckland’s it in China —oronthe other hand nical people who are some of the best innovation precinct GridAKL at the it may suggest potential new market programmers in China, and if we start of the year. Other sponsors will applications for the technology that believe aNew Zealand company has be named at the summit on May 16 hadn’t been thought of.” potential in China we can inject tech- and 17. He says the centre will build a nical resourcestohelp it develop a Guangzhou-based InnoHub is one network of Chinese business com- prototype more quickly.” of China’s leading start-up accelerator munities throughoutNew Zealand, InnoHub is also planning to estab- networks and its presence in Auck- and provide aplatform for companies lish an academy and investment fund land resulted from the signing of the to quickly connect with opportunities in New Zealand. Tripartite Economic Alliance. in China. The InnoHub Academy will be a Innohub, with offices in eight Chinese InnoHub will also help provide one-day event in New Zealand later cities, Singapore and Sydney, wants facilities and services (launch pad) for this year where local entrepreneurs to foster innovation and New Zealand companies wanting to and companies will hear leading entrepreneurship through collabora- set up operations in major Chinese Chinese speakers talking about tion, partnership and an active com- cities, starting with Guangzhou, “doing business in China”. The acad- munity of online members. Shenzhen, Chengdu, Shanghai, Bei- emy, which also operates in China InnoHub’s founder and chief jing and Wuhan. and Singapore, creates an online executive Hongbo Xu, who gained a Xiaohui says the Chinese market InnoHub’s social network for participants to Master of Engineering degree from regards New Zealand as having founder and exchange ideas and other informa- Auckland University, will be back in strengths and capability in the chief executive, tion. the city to witness the signing at the agritech, cleantech, foodtech, Hongbo Xu, Xiaohui says InnoHub is comple- summit. healthtech, virtual reality, robotics, gained aMaster ting due diligence on two early-stage His brother Xiaohui Xu, also a education and creative sectors. of Engineering companies operating in the agritech/ Master’s graduate in engineering “InnoHub is impressed by some of degree from cleantech/biotech and medical from Auckland University, is leading the start-ups and technologies Auckland devices sectors, and they could be the InnoHub’s New Zealand operation they’ve seen in New Zealand —the University. first investments by the new fund.

Together we’lltakeyou to more of China Flying directfromAuckland to Beijing and Shanghai

Book now airnewzealand.co.nz airchina.com The New Zealand Herald | Wednesday, May 4, 2016 nzherald.co.nz F9

China Business ■ Deal puts Phoenix alongsideArsenal and AC Milan ■ Chinese football clubs spend over NZ$400m in 2016 Football diplomacy opens doors

Wellington Phoenix has areach IT solutions provider Huawei is well beyond the city limits. The team plays in the Australasian A-League sponsoring WellingtonPhoenix and schedules matches in Auckland. Bowater says there are plans to ex- to build businessnetworks and tend this further. Playing away games in Australia to giveback to thecommunity, means the company’s brand gets broad exposure in both countries. In reports Bill Bennett Beijing John Key acknowledged the importance of Huawei providing the means for the club to take part in the ast month, multi-national A-League tournament. telecommunications com- Key says “they’re amuch loved pany Huawei renewed its team and they provide an important L sponsorship of Wellington link for New Zealand football to be Phoenix. It is the largest sponsorship part of the Australasian circuit …they deal in the history of New Zealand have an enormous fan base, not just football. in Wellington but around New Zea- Though the deal is vital for the land. club, it is also significant for Huawei. “Competing at sport is never a So significant that Huawei global CEO cheap thing. Ultimately you have to Guo Ping made the official announce- buy players, maintain the facilities, ment when Prime Minister John Key you have to spend on the costs was at the company’s Beijing head- associated with running the team … quarters as part of his latest China that wouldn’t be possible without visit. naming sponsors like Huawei.” Huawei funded the All Whites Bowater says the recognition has when the team played China in 2012, paid off. “Although Huawei is only the and the match marked 40 years of third mobile device brand behind diplomatic relations between the two Apple and Samsung in New Zealand, countries. it has afast-growing market share. Ayear later Huawei began its When it comes to market share New relationship with Wellington Phoenix. Zealand is its number one country in Huawei director of public affairs the region and close to the top-perfor- Andrew Bowater says it’s part of the ming country outside of China.” company’s strategy “of localising” by Huawei’s involvement with Well- forming meaningful partnerships. ington Phoenix has been so success- “We see football as important. It’s not just about our signs at the ground Right: Football is We can sell our stuff or our logo on shirts. It is akey part popular in of becoming involvedinNew Zea- China and anywhere in the world. land. President Xi We’re in 170 countries “We can sell our stuff anywhere in Jinping has set the world. We’re in 170 countries and down agoal of and many of our many of our relationships with China hosting relationshipswith countries are now more important the football than just doing business. Football World Cup and countries are now more sponsorship is aform of diplomacy.” he wants his Bowater says football is aglobal nation to win it. important than just doing game and the ideal sport for Huawei Below, from left, business. Football to sponsor.“That makes it possible to Huawei global do things that might not otherwise be Board Director sponsorship is aform of possible. The Phoenix already play an and Asia Pacific diplomacy. annual tournament in Hong Kong. President Li Later this year the team will play two Jin’ge, Prime Andrew Bowater, Huawei games in Beijing. It helps that Well- Minister John ington and Beijing are sister cities.” Key and ful that other Chinese companies Football is popular in China and Wellington have taken note. Last year Sinopec, President Xi Jinping has set down a Phoenix the Chinese oil company, had its own goal of China hosting the football Chairman Rob sponsorship deal with the club. World Cup and he wants his nation Morrison get in One initiative Huawei has been to win it. the sponsorship working on with Wellington Phoenix Huawei’s involvement with mood. is the Huawei Business FC. Phoenix runs deep into the wider Bowater says the idea is to build community. The company helped set abroader business network around up the club’s training academy,which the club. He describes it as like a is running community-based pro- chamber of commerce with football grammes in New Zealand. The first where people can come together on year had 65 spots for local school match day and network. He says the children. first event was alunch attended by Wellington Phoenix now plans to 1200 people. extend the Academy’s reach by The arrival of the business net- attracting young players from Asia. work coincides with Huawei’s local They will come to New Zealand and push into the enterprise technology learn sporting skills along with im- market. proving their knowledge of the Eng- Beyond football, Huawei is build- lish language. ing other local partnerships. The high- Bowater says: “We take apride in est profile relationship is the partner- the club growingand expanding. We ship with GridAKL. Bowater says have helped bring key players on Huawei provides the Auckland inno- board like New Zealand-born Kosta vation precinct with ahigh-tech plat- Barbarouses and the Brazilian Gui form to ensure GridAKL has acutting Finkler.” edge campus. “It’s asmart building Perhaps the most important aspect equipped with sensors.” of the Wellington Phoenix sponsor- Next, Huawei plans to use GridAKL ship deal is that it has worked as a to introduce local suppliers to its global template for Huawei. Bowater global supply chain. He says: “We says: “The company had never have aprogramme in Australia with sponsored sporting teams before we 200 local suppliers who work with us. did it in New Zealand. We’ve shown There are app developers and other the rest of Huawei how to use sport- software companies among others. ing diplomacy.” We have three or four local suppliers It would be easy to underestimate in New Zealand but are looking for how important that lesson was. On more. Our plan is to bring our pro- Huawei’s sponsorship web page Well- curement team to the Grid to meet ington Phoenix now sits alongside more of these companies.” some of the most glamorous clubs in Bowater says Huawei has many the world including Arsenal, Paris partnerships with New Zealand uni- Saint-Germain and Atletico Madrid. versities. It is building asmart campus Lionel Messi is aHuawei global brand at Lincoln with an all-wirelessdata ambassador. These clubs put the network. This gives students and re- brand name in front of millions of searchers the flexibility to work from people each week. anywhere on site. F10 nzherald.co.nz The New Zealand Herald | Wednesday, May 4, 2016

China Business ■ China’s urban disposable income to quadruple by 2030 ■ Strong demand for NZ premiumproducts Chasing amoving target

Exporters should keep their sights on changes brought by Beijing’s aggressive economic targets and growing focus on productivity, urbanisation and the service sector, writes Raymond Yeung

hina’s 13th Five Year period is getting under way amid concerns about the country’s C growth prospects. Though growth is not expected to match the high levels of the recent past, it is still high by global standards. The key to identifying and executing opportunities for New Zea- land lies not in focusing on headline growth, but in understanding Beijing’s ambitious targets and moves to China plans to refocus the Chinese economy. add 100 million Against the backdrop of President to the urban Xi Jinping’s stated ambition to double population by 2015 v2016 economic goals GDP per capita from its 2010 level by 2020. 2020, the National People’s Congress 2016 Targets 2015Targets 2015 Actual conclusion last month was particu- GDP Growth 6.5-7.0% 7.00% 6.90% larly important. CPI Inflation 3.00% 3.00% 1.40% The Government Work Report, de- M2 Growth 13.00% 12.00% 13.30% livered by Premier Li Keqiang, laid Newly Added Urban Jobs 10m 10m 13.1m out policy targets for 2016 and the rest Fixed Asset Investment n.a. 15.00% 10.00% of the 13th Five Year period. Retail Sales n.a. 13.00% 10.70% To stabilise employment and ex- Foreign Trade n.a. 6.00% -6.90% pedite structural rebalancing, GDP Fiscal Deficit RMB2.18trn RMB1.62trn RMB2.36trn and CPI are targeted to grow by 6.5 Fiscal Deficit (% of GDP) 3.00% 2.30% 3.50% to 7per cent and 3per cent respec- Public Housing Starts n.a. 7.4m Units 7.8m Units tively in 2016, higher than our Source: CEIC, ANZ Research forecasts of 6.4 per cent and 2.1 per cent. China also aims to create 10 million new urban jobs, the same as (currently 56 per cent) and add 100 By 2030, our projections last year. The credit target is set at CHINA–REAL GDP million to the urban population by 13 per cent, higher than last year’s 12 2010 2020. Some 30,000km of high speed indicate that China’s per cent. With this target, China needs RMBbn rail will cover at least 80 per cent of urban disposable income to lift nominal GDP by about RMB6.6 60,000 big cities (2015: 19,000km). The trillion in 2016, more than last year’s country plans to add 30,000km of will almost quadruple, rise of RMB4.1 trillion. 50,000 new highway (2015 level: 120,000km) with over 300 million In adeflationary environment and achieve universal broadband with sluggish growth momentum, 40,000 coverage. new middle class these aggressive targets require sig- The Chinese economypresents a consumers emerging in nificant policy support. 30,000 moving target for New Zealand busi- Monetary policy, in our view, will nesses looking to secure future op- urban areas. continue to be more flexible in 2016, 20,000 portunities. The next few years will though the timing of traditional mon- see it increasingly become aconsu- Raymond Yeung etary policy easing such as changing 10,000 mer-led economy. the reserve requirement is relatively By 2030, our projections indicate uncertain. 0 that China’s urban disposable income As for fiscal policy, we expect this 1981 2013 will almost quadruple, with over 300 will become even more proactive million new middle class consumers given the fiscal deficit is budgeted as Herald graphic emerging in urban areas. This new 3per cent of GDP or RMB2.18 trillion, class of consumers will spend three higher than the planned RMB1.62 times as much in 2030 as they do trillion (2.3 per cent) in 2015. now. Though the Government is plan- They will not only eat more and ning RMB800 billion of railway in- RMB,bn Extra GDP added RMB bn Real GDP, y/y (RHS) % drink more, but also eat better and vestment and RMB1.65 trillion for 9000 16 drink better. Premium agricultural highways, around RMB500 billion of 8000 14 products will continue to enjoy deficits will stem from lowering the strong demand, providing ongoing 7000 12 tax burden. 6000 opportunities for New Zealand to Local government bond issuance 10 compete. 5000 will play asignificant role in fiscal 8 Large-scale construction driven by 4000 policy. This is a“two-birds-with-one- 6 urbanisation will continue to offer stone” policy, as it will not only 3000 solid demand for logs and represents develop the funding mix of fiscal 2000 4 along term market for New Zealand finance but also nurture China’s capi- 1000 2 forestry. tal market. 0 0 Concerns linger in markets over a Premier Li has said local govern- 1991 2016 slowing rate of growth in China. But, ment bond issuance will reach Herald graphic in the end, 6.5 per cent is still ahigh RMB400 billion in 2016 and the local rate of GDP growth by global stand- government debt swap programme to lift productivity and value added 2.4 percentage points to overall GDP ards. will continue. China will also explore per unit of factor inputs (that is, growth. The government forecasts that asecuritisation of state assets. labour, capital, natural resources) Given that cutting excess capacity China’s GDP will reach RMB90 trillion Despite the strength of the targets rather than productionvolume. will increase employment pressures, by 2020, one-third more than 2015. that have been set, we believe that Cutting excess capacity is one of agrowing service sector is expected The risk for New Zealand busi- alarge scale stimulusprogramme is the top priorities on China’s policy to help absorb some layoffs asso- nesses stems not from China’s unlikely. Premier Li reiterated this agenda, and service industries are ciated with these cuts. Services slowing growth, but from overlooking point recently, and this is consistent expected to outperform manufactur- created an estimated 12 million jobs the new opportunities that are with the policy tone of the past two ing. Indeed, services constituted last year, according to government rapidly evolving from China’s years. During the latest Five Year more than half of GDP and contri- officials. At the same time, continuing economic transformation. period, China will continue to navi- buted 4.2 percentagepoints to head- large-scale urbanisation will spear- gate through aperiod of short-term line growth in 2015, while manufac- head China’s investment pipeline. ● Raymond Yeung is Acting Chief pain for long-term gain. The supply- turing’s share droppedto40.5 per The government plans to achieve Economist Greater China, ANZ side structural reforms are designed cent and the sector contributed only an urbanisation rate of 60 per cent Research. The New Zealand Herald | Wednesday, May 4, 2016 nzherald.co.nz F11

China Business ■ Chinesecorporate debt hits 160 percent of GDP ■ IMF says15.5 per cent of bank loans at risk Hard landingmay be still to come

IMF warns that measures China is taking to dealwith its debt couldmakemattersworse, writes Liam Dann

tthe start of the year, Some are time but it makes the problem that China’s hard landing much bigger. That’s where we are.” seemed imminent. suggesting a The Chinese economy never A The Shanghai market seems to do things by half and there fresh round of plunged on the first day of the year are always plenty of worrying trends sparking aglobal panic. debt-fuelled to highlight if you look hard enough. Though we’re constantly growth Bloomberg has been reporting on reminded that Chinese markets aren’t adramatic surge in investors betting reflective of the economy, there were increases the on commodity futures as China’s fears their volatility was asign the demand for steel minerals surges central Government had lost control. risk of creating back in to life. Last week the There were fears for the value of abubble and InternationalMonetary Fund, in its the yuan as the US dollar recovered regular blog posting, warned that and lot of talk about the risk of capital causing an measures China was taking to deal outflow as Chinese investors sought even harder with its debt could make things to get funds out of the country. worse. The IMF highlighted two The IMF downgraded global landing in the specific issues —the conversion of growth projections citing China and long term. non-performing loans to equity and a“faster-than-expected slowdownin the packaging of bank loans into imports and exports, in part reflecting marketable securities—as high risk weaker investment and solutions. “They are not comprehen- manufacturing activity”. sive solutions by themselves,” The But far from sliding into meltdown IMF official wrote in the blog. “Unless territory, the situation in China seems Liam Dann visits the National Finance Museum on China's old “Wall Street” in Tianjin during a2015 trip as the they are carefully designed and part to have stabilised. receipient of the NZ China Council's Journalism award. of asound overall framework, they Markets have bounced. The could actually worsen the problem, Shanghai Composite is still down on So what’s happened? that China’s efforts to confront the big recently by saying the new surge in for example,byallowing “zombie” last year’s peaks, but is up more than Well, though there hasn’t been an challenges of its economic stimulus was putting China into firms (non-viable firms that are still 10 per cent since the end of January. official programme of stimulus rebalancing have simply been territory reminiscent of the US prior operating) to keep going.” Capital outflows have stabilised, unleashed by the Government, there delayed. Worse than that, some are to the global financial crisis of 2008. Other commentators are more GDP has come in on target at 6.7 per have certainly been some policy suggesting, afresh round of debt- China’s Government has “re-lit the bullish. Soros’ former colleague, cent and we’re even starting to see changes that have loosened credit fuelled growth increases the risk of furnaces. They also induced a hedge fund manager Bob Bishop, says signs of life in key economic statistics. conditions creating abubble and causing an construction and real estate boom. It he’s wrong. He’s picking China has March manufacturing data came Banks have been encouraged to even harder landing in the long term. is abubble but it can grow and it can already had its hard landing for this in above predictions for the first time lend, businesses have been The Financial Times reports that feed on itself. And markets are not current economic cycle and the next in 12 months and the property market encouragedtoborrow and some of China’s total debt hit 237 per cent of infallible and they buy into it and of two years will see more stable growth. has come back with avengeance. the property restrictionsinsome GDP by the end of the latest quarter. course that is another factor that China’s goal to shift from factory For the 12 months to the end of cities have been relaxed. Even more worrying to some is that makes it grow,” he said. Effectively based production to ahigher quality March prices for new-built houses in The immediate risk of financial or corporate debt in China has risen to China has managed to delay the technology and services-led growth Beijing were up 16 per cent and in economic meltdown seems to have about 160 per cent of GDP, inevitable, he argues, but in doing so is no easy mission. Shanghai they went up 25 per cent, been averted. But that’s got many George Soros, the savvy US has exacerbated the problem. There’s no doubt progress is being according to Trading Economics. Western commentators concerned billionaire investor, made headlines “(Stimulus) can buy you additional made. But big risks remain.

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China Business ■ Chinese arrivals 10 per centofthe total at Auckland Airport ■ 32 directflights aweek between Auckland and China Airport readies for Chinese surge

land Airport and mainland China. The latest wave of That has almost doubled in the last year. There are now 32 direct flights Chinese tourists is aweek. Air New Zealand has had direct not like any previous flights to Shanghai for adecade, the service is now daily. growth market, China is the China Southern Airlines has been flying to Auckland for five years. In Auckland Airport’s stand-out.We’re the past year it increased its seeing first- Guangzhou service from 10 flights a Adrian Littlewood week to 14. China Eastern Airlines hand the results now has anew daily year-round tells Bill Bennett of the service to Shanghai. Air China flies four times aweek on arecently economic launched Beijing direct route. This ast year atotal of 140 million service will rise to daily during the air passengers departed from transformation. peak season. China. Some 355,000 —about These people One advantage of Chinese tourism L 0.2 per cent —ofthem flew is that their seasons overlap, but don’t to Auckland. Auckland Airport chief are coincide, with New Zealand’s biggest executive Adrian Littlewood says the sophisticated, source of tourism. Australians prefer numbers show untapped potential to visit during the Christmas and New for New Zealand’s tourism sector. well- connected Year holidays. Littlewood says as the “Today, our share is just asmall travellers. Australians go back home, the Chin- fraction of abig market. It means our ese turn up for their New Year opportunity to grow is huge. If we Adrian Littlewood holidays, which are in late January could move the dial from 0.2 per cent and February. to 0.4 per cent of that total, our China Littlewood says the key is to en- numbers would double. At the mo- life with numbers up 20 per cent. to win ahigher share of Chinese Another way of making New Zea- sure Chinese direct routes are ment Chinese arrivals make up 10 per We’re getting 12 per cent more from passengers; we need to make sure we land an easy destination for Chinese sustainable over the long term. He cent of the total at Auckland Airport. the US. Yet China is the stand-out. attract the right kind of tourist to New visitors is to ensure there are plenty says; “Once aroute starts, you have An increase in that number would We’re seeing first-hand the results of Zealand.” of direct flights. to keep the planes full.” Auckland make adifference, he says. the economic transformation. These Littlewoodsays Auckland Air- In the past New Zealand was often Airport is involved in an initiative to China is Auckland Airport’s most people are sophisticated, well- port’s growth is down to awider tacked on as an option for Chinese do that by encouraging Chinese tour- recent success story. Littlewood says connected travellers.” effort. Everyone in the tourism sector tourists visiting Australia. They often ists to visit New Zealand in winter. all New Zealand’s main travel He says with mobile phones and plays apart, including airlines, the came here on package tours. He has built acampaign around markets show high growth, but with awealth of online travel information, hotels and the government. Littlewood says at that time, the aver- skiing and winter sports. “Winter is passenger movements from the the incoming wave of Chinese tour- “New Zealand was one of the first age length of stay for aChinese tourist important because it is along season. country climbing 25 per cent in the ists is not like any previous growth countries to have amore advanced in New Zealand was three days. It helps that China will host the Winter past year, China is by far the most market. “They are more confident visa system for Chinese visitors. Mak- Thanks to more direct flights and the Olympics in 2022. Skiing is growing important. about seeing New Zealand. There are ing it easy to visit is important. Many rise of independent tourism, they fast in Northern China. Bringing out “North Asia is solid. We’ve seen still tour groups, but more often they other countries don’t take it seriously now stay an average of eight and a of season Chinese tourists to the ski numbers from Korea up 20 per cent. come as independent travellers. That enough and that can act as an inhibi- half days. fields helps local operators who de- Even Japan, which was abright spot is good because it is the best way to tor. Among other things, our visa In April last year there were 17 pend on the school holidays and before declining has sprung back into see New Zealand. We don’t just want documentation is in Mandarin.” direct flights aweek between Auck- weekends for their business.”

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China Business ■ Chinese visitor arrivals grow 27.8 per centinyear to March 2016 ■ $1.34bspent by Chinese tourists, June 2014-15 as tourism market flies ahead

Air New Zealand’s Stephen Jonesis taking projectionsof amillionplus annual Chinese visitors in hisstride, reports Fran O’Sullivan

tephen Jones is upbeat about the unparalleled rate of growth out of the Chinese S tourism market. “The million comes from the Chin- ese president saying they want to quadruple the number of Chinese outbound,” says Jones, who is Air NZ’s Chief Strategy, Networks &Alliances Officer. ”Ifyou take that multiplier and bring it to New Zealand, it does lead you to some quite astonishing numbers.” In 2015, some 355,904 Chinese visi- tors came to New Zealand. As Jones relates, that is “effectively triple” the 122,000 visitor arrivals in 2010. “The rate of growth (up 34.4 per cent on 2014) is unparalleled to any of our markets we have seen pre- viously.” And it places the national flag carrier in astrong position to capital- ise on the desire of increasingnum- Air China has aglobal procure- key targets like international stud- bers of China’s middle class to “see ment system but it currently doesn’t ents, cruise visits, business events the world”. include New Zealand suppliers. and emerging markets. Air NZ is three months into its “As we have hosted them down StatisticsNZ figures show that of codeshare arrangement with one of here they have appreciated NZ food the 355,904 Chinese visitors recorded China’s ‘Big Three’ airlines. and wine and it’s an active conver- in 2015, 272,464 were here on holiday; “It’s fantastic to have cemented our sation with them about how they 40,512 were visiting friends and rela- partnership with Air China that now might put that on their flights,” says tives; 13,232 were on business; 7616 sees us accessing Beijing directly,” Jones. for educational purposes and 1808 says Jones. “We are seeing tremend- “It will not only give Chinese visi- travelled down to New Zealand for ous growth across all the China ports tors an early taste of New Zealand but conferences or conventions. —Shanghai, Beijing and Hong Kong it will also be more familiar for New Add to this anew category — —which is also important for growth Zealandersflying to China. incentive or reward travel —which out of Southern China.” The airline is successfully targeting is used by companies to incentivise Jones says the move is consistent the FIT (free independent traveller) and retain high-performing teams. with its approaches elsewhere. “Air market. During his recent visit to China, New Zealand can use its strength and StatisticsNZ figures show that Prime Minister John Key announced presence here in NZ,” he explains.” But annual Chinese visitor expenditure as soon as we step offshore we just has increased four-fold from $400 That was an absolute move further and further away from million in 2010 to $1.67 billion in 2015. that point of advantage. Chinese visitor average spend per milestone. If we do this “Air China is aStar Alliance partner day has also been trending higher properly those people of ours and they have been wonder- from $234 in 2010 to $464 in 2015, ful to work with ... no matter how while Japaneseaverage spend has will go back as advocates much effort we put into building our fallen from $400 to $132 over that and go out there with a own presence in China it is never same period. going to provide the same leverage Optimism about the market’s whole new product to as Air China’s network, its sales force potential was on display in China a and frequent flyer scheme. fortnight ago, when Auckland Airport sell which is New “We’ve already —inthe period that CEO Adrian Littlewood met with Jia Zealand. they have been operating —taken in Tiesheng, Air China’s vice-chairman 28,000 passengers after three (commercial committee), to sign an Stephen Jones (above) on Amway months.” agreement aimed at boosting tourist China’s plan to send 10,000 top sales Air NZ will bed down its Beijing numbers to New Zealand in the win- agents to Queenstown. route and is working with its ter months. codeshare partner to establish an- The agreement is part of ajoint that Tourism NZ had succeeded in a other daily flight out of Shanghai venture programme by the airport bid to bring 10,000 top-selling Am- which would double the existing fre- and the Ministry of Business, Inno- way China employees to travel south quency. vation and Employment —“Four to enjoy afive-day visit to Queens- On the radar is aproposal to seasons, Five senses” —promoting town. Amway China has 7000 sales- connect more passengers from China tourism opportunities outside the people and more than 190,000 to New Zealand and then on to South peak visiting month of February and contractors. America. Jones says that the Chinese New Year. The 10,000 who will come to connecting times are “not great”. Littlewood told the Herald that Queenstown in waves of 500 from “Once you move past once daily to snow sports are a“fairly new emerg- Autumn 2018 will also attend training double daily you can put that second ing market in China”. seminars while here. bank of flights at times that would With China set to host the 2022 The Amway deal is expected to connect better with the Americas.” Winter Olympics, interest in snow pump at least $50 million into the While China Eastern has now sports was growing. Queenstown Lakes district, giving an joined China Southern on the NZ- Tourism is now the country’s num- important revenue boost in the shoul- China route, Jones says Air NZ sees ber one export earner, overtaking der season. But the all-expenses paid their participation as growing the dairy where earnings have taken a trip will also expose them to Queens- market rather than posing acompeti- punishing through the lengthy com- town’s beauty and what New Zealand tive threat. modities slump. is about. “We’ve gone as acountry from 14 The tourism sector has set atarget “That was an absolute milestone flights aweek to around 35 flights a to reach $41 billion in total revenue for the country in terms of our ability week in the peak,” he says. by 2025, up from the $29.8 billion to work together,” says Jones. “For us that has led to increased netted in 2015. “Quite staggering. And it really just performance.We’ve got better loads, With just under adecade to go, it gives an insight into the scale of what we’ve got good yields. It really is is obvious that the galloping numbers is possible. about raising the awarenessofNew of tourism arrivals out of China will “If we do this properly those Zealand and tapping into aahuge play alarge part in hitting the target. people will go back as advocates and market for visitors. So far, it has been The 2025 strategy focuses on high go out there with awhole new pro- really positive, actually.” value Chinese visitors —among other duct to sell which is New Zealand.” F14 nzherald.co.nz The New Zealand Herald | Wednesday, May 4, 2016

SHARING THE GOODNESS OF NZ DAIRY WITH CHINA

From ourfarms to the world, Fonterra has been sharing the goodness of New ZealanddairywithChinese families forover40yearsthrough ourAnchor, Anlene, Anmum and NZMP brands. We’recommittedtoour strong relationship with China and proudto be working with Beingmate Baby& Child Food Company. As afarmer-owned co-operative, Fonterraisproudly bringing New Zealand dairytolifeinChina and around the world. www.fonterra.com The New Zealand Herald | Wednesday, May 4, 2016 nzherald.co.nz F15

China Business ■ Imports of Fonterra products fell 6per cent in 2015 ■ Drought caused Chinese farms losses of NZ$1.72b year-to-date China strategy bearing fruit

Fonterra gets Fonterra praisefromthe highest level, writes in China Fran O’Sullivan Fonterra is building an integrated business model in China made up onterra chairman John Wil- of ingredients, consumer brands, son was buoyed by the con- food service, farms and its fidence Alibaba’s founder has Beingmate partnership. F shown in one of its prime It says its unique advantage in dairy brands. China is this collection of “Jack Ma made some very positive businesses and the integration comments around Anchor’s clear between them. leadership position from their per- Footprint: spective in Alibaba and Tmall,” Wil- ● Fonterra employs more than son relates. “We just have to be right 1000 people across China at that leading edge.” ● China accounted for 15 per cent Wilson is confident that Fonterra’s of revenue (six months ended 31 China strategy is bearing fruit. “The January 2016) numbers are certainly in line with our ● China ingredients delivered strategy. We focus alot on the change growth in both volume and value in ingredients buying patterns, but, of to support the global Ingredients course, we’ve got asizeable con- business sumer and food service business ● Ingredient volumes into China underneath that.” of 814,000 metric tonnes (18 He found it invaluable to take part months to 31 January 2016) in John Key’s recent mission to China. ● Consumer and foodservice “When you talk to our key customers turns up on aconsumer shelf. business are performing strongly — in China and the other people that “There is very good work from MPI volumes up 24 per cent to 440 you meet when you are on atrip with and MFAT and Chinese authorities to million liquid milk equivalents the Prime Minister, many of the things speed this up ... but like all these (LME) with normalised EBIT up 353 that affect our lives here in New things it takes time.” per cent (to NZ$68 million) Zealand on amonth-by-month basis There are some niggles. ● Sales volume from China farms —because of the sheer scale of the The lengthy commodityslump is increased to 103 million LME (six Chinese dairy industry and the Chin- hurting Fonterra’s farmer share- months to 31 January 2016) ese economy —have abig impact on holders. ● Beingmate partnership — us because of the short-term impact. That’s why dairy “safeguards” enables Fonterra to capitalise on a “But really it’s just their very large were at the top of John Key’s list when rapidly changing regulatory market just breathing in and out. it came to discussing the potential to environment as it builds market “And that’s what we’re seeing at the upgrade the 2008 China New Zealand share in infant nutrition by selling moment, where the increase in milk free trade agreement in talks with its Anmum paediatric products supply had quite abig impact of build- President Xi Jinping last month. through Beingmate’s wide up of inventory ...but we are seeing The FTA provides for safeguards distribution channels, including that come back down and from our —inessence higher tariffs —tokick e-commerce. key customers’ perspective they see in at various trigger levels depending Foodservice snapshot: that as a“moment in time” over a on the product. For most forms of ● Half of all the pizza sold in China much longer time period. milk, they kick in at 140,358 tonnes. has Fonterra cheese on it “But of course it has significant Under the agreement these trigger ● Half of all the cheesecakes sold short-term impacts on the wider glo- thresholds increase each year leading in China use Fonterra cream bal dairy industry, and, that’s one of up to 2022/2024 when the tariffs on cheese the key reasons why we’ve had such the various dairy products are ● Together with quick service achange in supply and demand —but phased out. restaurants, Fonterra has market only one of the reasons.” Wilson says the safeguards have shares of between 40-80 per cent Key fed back to news media that abig impact on NZ dairy and he was in the premium dairy segment. President Xi Jinping had commented pleased the Prime Minister and Presi- to him on the importance of dent Xi had committed to more talks China’s NZ Dairy Footprint Fonterra’s investment in China. on the issue. ● Yili Wilson says the company has sig- “Importantly these roll off in 2022 China’s largest dairy company nificantly over abillion dollars and 2024 ... but there is certainly (2014 revenue) invested in China; created more than significant cost for New Zealand dairy —World’s 10th largest 1600 jobs and is making investments relative to Australian dairy currently —Headquartered in Inner Mongolia alongside the China dairy industry in with the safeguard that is in place. —Market cap US$15.7 billion food safety centres, educating gradu- “The other just as important factor, —Investing $400 million in ates and technology. is it certainly creates distortionin Canterbury plants. “The relationships —while they’re buying patterns, because we see that ● Mengniu Dairy business to business —they also quite significant amount of buying at the —Second-largest Chinese dairy quickly from-time-to time become start of January each year to pur- company (2014 revenue) government-to-government, and chase aproduct before the safeguard —11th largest in the world. there’s alot of government-to- kicks in,” he explains. “It would’ve —Byend of 2015, annual government interest in it.” been good to see safeguards being production capacity was 8.68m His confidence in the Chinese mar- able to be addressed, but pleasingly tonnes. ket is underscored by the rough we’ve still got good dialogue going on —Has majority stake in Yashili, doubling of the average disposable Guy’s expo mission on removing what is basically adis- which has a$220 million plant in income of urban Chinese consumers tortion on the market.” Pokeno (NZ) in the past five years. The Chinese Wilson says New Zealand has to ● Bright Dairy and Food middle class now numbers 250 to 300 Minister for market demands.” Guy was impressed ensure that high-level conversation —China’s third largest milk million and is forecast to grow by Primary by the size of Heilongjiang province about the safeguards continues. producer by market value (as of another 150 million in 10 years. Wil- Industries which is the second largest dairy “But Ithink we’re looking at aworld July 2015). son says with 6per cent forecast Nathan Guy led region in China with aland area twice globally now, where unfortunately —39.12 per cent stake in Synlait growth for the next five years; awider an NZ delegation the size of New Zealand. there just is alot more protectionism. (NZ). consumer base and increasing wealth to the World “They are trying to expand into the “Barriers seem to be going up and affordability levels, there is alot Dairy Expo in China dairy domestic market, says rather than coming down and we saw of interest in fresh dairy. Harbin, Guy. “There were nearly 140 dairy that through TPP as well didn’t we? “The (Chinese) Minister of Agricul- ”At the same time as we’ve still got Heilongjiang farm conversions in 2014 with an “And look, there has been some ture talks about two million farmers the underlying food security issue Province. average of 1200 cows per farm, and gains —it’s good to see some very —where the price is too low for them. and there’s alot more interest in our John Wilson joined Malcolm Bailey in the same year they imported over good gains for the meat industry, for At the same time you are seeing a ingredients into China. “ (DCANZ), Special Agricultural Trade 15,000 dairy cattle from New Zealand. example. As always for New Zealand demand for consolidation in the num- He is confident Fonterra’s verti- Envoy Mike Petersen, and MPI Deputy “However this growth in local dairy —for our agriculture products in ber of farmers within China. cally integrated strategy is paying off. Director General Roger Smith on the supply is still relatively small particular —wejust have to continue “So how is that playing out? What February imports were up 14 per cent trip. compared to the massive forecast to stay at the table.” we’re seeing is the inventory that on February 2015. Says Guy: “current dairy prices are growth in consumer demand.” The Chinese Government has certainly grew within China as their Wilson has talked previously challenging for farmers all around the Guy points to aforecast that 38 indicated it wants New Zealand to do milk productiongrew over the last 18 about the importance of getting UHT world. The Expo highlighted an children will be born every minute in more to assist its own dairy industry months is coming down to more product to China swiftly. Fonterra is opportunity for greater cooperation China over the next few years —“that’s —amovethat China-watchers historical levels. now able to get more product pre- between dairy industries so we are the equivalent of aNew Plymouth of suggest is an informal quid pro quo “That’s what our customers are approved to move faster through the better placed to react to changes in babies per day”. which may yet pave the way for reporting, and you are also seeing — border. “If you look at consumer movement in the safeguard triggers. up in Heilongjiang for example— demand there for fresh dairy from a Wilson acknowledgesalot of Chin- some of the provinces really looking New Zealand perspective —even getting, for example, our UHT product through Customs makes asignificant ese farmers are also not earning to drive investment in dairy to meet though our supply chain is very long, out of Waitoa pre-cleared and difference to its shelf time when it enough money. this fresh demand. F16 nzherald.co.nz The New Zealand Herald | Wednesday, May 4, 2016

China Business ■ Price of NZ-China sheepmeat exports up 67 per cent since 2008 ■ NZ-China scholarships, research, training on cards Appetite developsfor chilled meat Cool new system Loweringof Chineserestrictions Prime cuts being loaded into Foodcap’s new chilled meat handling system (left), which has already been wouldopen up the “commercially proven” in New Zealand and China. In 2015, FoodCap installed technology for Chinese highend of the company, the Little Sheep Meat Industry Co in its primal lamb processing operation in Bayannur, Inner Mongolia, as market, writes part of aproject to convert the plant from afrozen to a fresh chilled operation. Zhang Gang, chairman and founder Jamie Gray of Little Sheep explains, “For three years my team scoured the world looking for innovations that would lead to a competitive advantage in the extremely dynamic Chinese he New Zealand meat trade marketplace. We found such an innovation in the FoodCap stands to become abig win- primal handling technology from New Zealand, acountry ner, if and when China famed for its fresh chilled meat production and handling. T relaxes its rules around the FoodCap not only introduced its unique chilled material importation of chilled meat. This will handling system; they introduced Little Sheep to arange allow exporters to move up the value of specialist companies and technologies which collectively chain and away from the current deliver us aworld-class chilled lamb processing operation.” commodities-based model. At the heart of the new system is the FoodCap, ameat Prime Minister John Key said dur- storage capsule. It is robust, and seals completely to ing last month’s trade mission to China maintain amodified atmosphere where oxygen is excluded, that he had been given an undertaking preventing microbial growth and product deterioration. the issue of chilled meat access would Essentially the vacuum pack and transportation device be dealt with, and industry are all in one, and the capsule eliminates the need for single- participants expect the trade to get use packaging, says FoodCap chief executive Julian Beavis. under way before the year is out. As it stands, New Zealand meat exported to China is frozen —much of it being at the lower value end of “People are focusing on chilled the value chain. lamb but we would see beef as the Tim Ritchie, chief executive of the biggest opportunity,” he said. Meat Industry Association, said Japan is ANZCO’s biggest market for protocols around the export of meat chilled beef and the company to China were in the process of being accounts for 91 per cent that country’s refreshed. “It’s been part of aprocess imports of the product. that has been under way for some time Harrison said chilled beef exports in terms of refreshing the meat pro- to China would afford exporters the tocol between the respective regula- opportunity to build customer re- tory authorities,” Ritchie said. “The Sir Graeme lationships as it would mean more existing protocol goes back to 2003, Harrison product going into the higher end of so the negotiations have been ... to the market such as the restaurant make it contemporary. trade. “All the i’s have not been dotted, and Murray Brown, general manager the t’s crossed yet, but the positive marketing at New Zealand’s biggest thing from last month was that there sheepmeat exporter, Invercargill- were no red flags or big stop signs based Alliance Group, said the com- raised at apolitical level,” he said. pany was taking acautious approach. Once the protocols are agreed, New Zealand plants will need to be there will then be the need for New audited and certified by the appropri- Zealand facilities to be authorised to ate Chinese authorities before the send meat to China. trade can open up. Australia, on atrial basis, already Tim Ritchie “If the market opens up for chilled, has permission for 10 or so plants to then opportunities will be created, but send chilled meat to China. the export market. More than 40 per “But potentially, over time, it may producer in its own right. yes there needs to be auditing and “It will open up atotally different cent of exports sent to the major UK have aprofound impact on the mar- ANZCO, which jointly owned by certification for the plants,” he said. segment in the market at that high end, market is chilled, and that’s abusiness ket,” he said. Japan’s Itoham Foods, Nippon Suisan On the commercial side, it will be which will complement the other that has evolved over 35 years or so. China is already New Zealand’s Kaisha and directors and manage- amatter of finding out what products activities,” Ritchie said. “It’s ahigher-value product but a biggest export destination for ment, is New Zealand’s biggest chilled will fit into the market and whether Abig chunk of sheep meat exports product that you have to treat very sheepmeat —taking about 150,000 beef exporter. Chairman Sir Graeme there are the logistics and distribution to China are at the lower value end carefully —kept at plus or minus half tonnes of product ayear compared to Harrison said improved access to channels at the other end to deal with —meat destined for the popular “hot adegree,” Ritchie said. He said last about 70-80,000 tonnes for the tra- China also included “co-products” the tight specifications necessary for pot” dishes. Chilled meat will be aimed month’s development would not ditional UK market. New Zealand is such as blood. “Obviously chilled meat the product. at the high end. It is asegment that mean chilled meat would be “on the also the largest supplier of sheepmeat is the one that offers the greatest “But it will provide diversity for our is already ahighly significant part of water” bound for China tomorrow. to China —which itself is ahuge immediate opportunity. exports.” Growing co-operation on agriculture

AChina-New Zealand joint venture will see exchanges of information and expertise,writes James Penn

New Zealand’s agricultural industries an expansion of export opportunities find opportunities to help Chinese and understand the needs of China’s vet ary education systems while building are set for aboost under the Agricul- for Kiwi producers. New Zealand farmers work together to profession.” The training covered areas relationships with with the veterinary tural Growth Programme (AGP) The arrangement to establish the improve productivity and face an from basic equine anatomy to profession in China. formed last month between New Zea- AGP, apublic-private partnership, was increasingly competitive and challeng- musculoskeletal ailments affecting The initiative fits within the broader land and China. signed by New Zealand’s Minister for ing world.” performance racehorses and treat- aims of the AGP. Pete Jolly of Massey The AGP will provide abasis for co- Primary Industries, Nathan Guy, and Such co-operation has been piloted ment of common equine reproductive University, which is leading the vet operation that will “improve the China’s Minister of Agriculture, Han already, in the form of an Equine conditions. training programme, says “develop- economic wellbeing of our respective Changfu, during the Prime Minister’s Veterinary Professional Development Dr Fu, head veterinarian at Rider ment of the dairy industry is apriority agricultural sectors, enhance partici- latest visit to China. Programme. Horse, says that in his 15 years of for the Chinese Government. The pro- pation in the global value chain, and Ajoint advisory panel between the Supported by the Ministry for Prim- experiencing professional develop- gramme will encourage commercial address common challenges,” says respective ministries will work to ary Industries, alongside various ment opportunities, it was this model partnerships and opportunities for in- Chris Carson, Director of International identify new opportunities for agricul- equine businesses and organisations, that had provided him with the most vestment.” Policy at the Ministry for Primary In- tural co-operation, and monitor the programme involved aseven week valuable training experience. Such optimism is shared among key dustries. initiatives as they are implemented. mix of vet practice mentoring and The AGP is also expected to provide players in the AGP. The programme is expected to fur- These initiatives will take the form university block course learning for the impetus to apply this model in Carson says ``we are very pleased ther enhance ties between the New of joint research projects, expert three equine practitioners from Inner other sectors, with anew China Dairy to have the participation of Chinese Zealand and Chinese agricultural exchanges, and professional develop- Mongolian Rider Horse, amajor player Vet Training programme already agri-businesses in these co-operation sectors, with aview to improving the ment programmes. in the growing Inner Mongolia market under development. programmes”. exchange of agricultural policy For example, Crown Research for New Zealand-bred horses. The programme will pursue four Co-operation and sharing of exper- initiatives, livestock technologies, ani- Institutes and education providers can “The industry participation in the objectives: tise is the common theme for the mal health and disease control, and the be expected to explore new opportun- programme reflects the value they ● Building abetter relationship with individual initiatives and the AGP gen- training of dairy farmers. ities in joint research and exchange of place on the relationship with China China’s dairy sector erally. Aparticular focus will be placed on expertise through research fellowships says Dr Trish Pearce, executive advisor ● Contributing to the Chinese Govern- One example cited by Carson was the expertise New Zealand firms and and targeted scholarships. to the New Zealand Equine Health ment’s dairy development agenda “the positive engagement we’ve individuals can offer in these areas, “Agriculture is amodern, fast- Association. ● Supporting animal health and wel- received from Shanghai Pengxin on leading to improved productivity for moving industry,” says Carson. “New “The programme provided an op- fare in China building opportunities through the both nations’ agricultural sectors, and Zealand is keen to share expertise and portunity to exchange views and ● Promoting New Zealand’s veterin- Dairy Academy for Chinese farmers“. The New Zealand Herald | Wednesday, May 4, 2016 nzherald.co.nz F17

China Business ■ 123,059IPcases were adjudicatedinChinain2015 ■ Areported oneinfive Chinese IP cases involvedforeignparty Approach with caution ...

hina tops alot of global lists and seek to secure appropriate rights these days. It’s the world’s The Chinesejuggernautisgathering to protect it before you enter China. most populous country, the ● As soon as the germ of an idea C world’s largest economy, speed but beware of the speed bumps of exporting product to China enters and the world’s biggest goods trader. your mind, apply to register your But two recent international reports and read the warningsigns, say trade mark there. You need to register remind us that China also tops the your English mark, aChinese trans- world in areas that aren’t so compli- JohnHackett and Anton Blijlevens literation of your English trade mark, mentary. as well as your trade mark in Chinese Released aweek ago, the Obama characters. Administration’s 2016 “Special 301” ● Get expert advice on any report on the global state of intellec- contracts you enter into with Chinese tual property protection and enforce- manufacturers, suppliers, distribu- ment lists China, along with Russia tors, or joint venture partnersand do and India, as having the worst record your due diligence on the contracting for preventing the theft of intellectual party. property. In particular, the report ● If you are entering into ajoint singles China out for unchecked trade venture arrangement, make sure you secret theft, obstacles to market understand how ownership of your access for ICT products raised in the IP will be handled, and where overall name of security, extensive use of control of the venture rests. unlicensed software, and widespread ● Avoid trade secret theft by not piracy and counterfeiting. sharing all of your know-how with According to an OECD report on any one party. trade in counterfeit and pirated ● Be vigilant about how your goods, China is responsible for pro- The Alibaba brand and IP are being used in China, ducing 63 per cent of the world’s fake deal will open and vigorously enforce your rights. goods, estimated to have avalue of the floodgates For arelatively low monthly cost, over US$460 billion ayear. for New Zealand there are reputable companies that Of course IP theft and infringement brands to can carry out regular market surveil- in China is not anew story. Plenty market their lance, both on and offline. of foreign brand owners, including wares to the The juggernaut that is China repre- quite afew of our own, have fallen company’s 400 sents an enormous opportunity for foul of China’s less than stellar repu- million active New Zealand exporters, but it needs tation for respecting IP rights. Just last users, but there to be approached with considerable week, American sportswear brand are fishhooks. caution and preparation. Too many Under Armour fell victim to abrazen Kiwi companieshave learned the rip-off of its logo and identity when estimates suggesting that 40 per cent Trade and Enterprise to promote priority for any New Zealand busi- hard way that going into China with- new Chinese brand “Uncle Martian” of goods sold online in China aren’t trade and commerce with China. This ness wishing to take advantage of this out adequate planning around the came to town. genuine or of good quality. As one will effectively open the floodgates opportunity —orindeed, any other protection of their IP can have dire Meantime, online e-commerce Forbes report put it, ‘the scale of for New Zealand brands and product in China. and costly consequences. Don’t let sites in China are continuing to fuel fakery is enormous’. owners to market their wares to the Simple, and relatively inexpensive that be the case for your business. Get an insatiable demand for consumer Alibaba, the world’s largest online company’s 400 million active users. steps can be taken to help mitigate good advice, and act now. products. Unfortunately, these sites and mobile marketplace, recently As attractive as this may sound, the risk of losing your brand or know- are also hotbeds for counterfeit or signed amemorandum of under- the importance of IP protection and how in China. ● John Hackett and Anton Blijlevens bad quality products, with some standing (MOU) with New Zealand enforcement should remain ared hot ● Understand the value of your IP are partners of AJ Park

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mall.icbc.com.cn [email protected] F18 nzherald.co.nz The New Zealand Herald | Wednesday, May 4, 2016

China Business ■ Former MPs on NZ boardsofChinese banks ■ Onlinemarketingand e-commerce key for NZ Chinese banks Chinese banks well placed in NZ

man. The bank employs 35 staff in Three Chinese banks are now registered New Zealand, and at the end of December 2015 it had total assets of and trading in New Zealand. Tim McCready $208 million. BOCNZ’s clients include major Chinese companies Haier, takes alook at their operations here which bought Fisher &Paykel Appliances in 2012, and telecomm- unications giant Huawei. BOCNZ hen the NZ dollar be- Forbes.Agricultural Bank of China, hasn’t issued bonds in New Zealand, came the sixth currency which is third on Forbes’list, is pres- and doesn’t provide mortgages —but to be directly traded ently not in New Zealand, although it intends to do so in the future. W with the renminbi in does have afootprint in Australasia, BOCNZ provides full commercial 2014, China’s biggest banks looked having opened abranch in Sydney in services to New Zealand companies more closely at the market here. They late 2014. seeking access to China’s e-commerce wanted to boost bilateral economic Here’s how the three Chinese ICBC NZ chief market. Last year the bank held a relationships and support trade, banks are positioned in New Zealand. executive Karen cross-border e-commerce seminar people and capital flows in and out Industrial and Commercial Bank of Hou. with more than 30 Chinese of New Zealand and China. China (Registered November 19, e-commerce operators, and had 200 So far, three Chinese banking 2013) land companies to sell directly into 2016, the total value of mortgages New Zealand companies attend. corporations —Industrial and Com- In the year ending December 2015, the Chinese market through asecure issued reached $100 million for more During the Prime Minister’s official mercial Bank of China (ICBC), China ICBC NZ had assets of $742 million, $70 sales channel. ICBC NZ chief executive than 60 clients. visit to China last month, Immigration Construction Bank and Bank of China million in issued bonds, and more Karen Hou says, “New Zealand is an CCBNZ employs 35 staff, with one- New Zealand and Bank of China —have made the move. They are than $100 million in mortgages. innovative country. The bank wants quarter seconded from CCB Group signed adeal that will help simplify identifying New Zealand investment Although the bank’s capital base to learn more from this market, so that and the remainder locally employed. the visa application process for the opportunities for their existing Chin- here is small compared with the we can adapt and launch products Last year the bank launched the CCB bank’s high net worth customers ese clients, as well as working with Australian-owned trading banks, in its and technology here that will be of Enjoy NZ QDII Scheme, providing a wishing to study, visit or invest in New New Zealand businesses to expand first two years ICBC’s focus has been value to our customers.” one-stop solution for migrant invest- Zealand. into the Chinese market. on increasing its profile and establish- China Construction Bank ment applicants, offering foreign BOCNZ will hold aChina-New Zea- Their positioning in the New Zea- ing itself as arecognised bank here. (Registered July 15, 2014) exchange, funds transfer and bond land Agribusiness Investment and land market has been smoothed by ICBC NZ has 37 staff in New Zealand, The launch of China Construction investment. Trade Conference in Auckland later the appointment of former National with plans to increase that sig- Bank New Zealand (CCBNZ) took place CCBNZ’s total value of issued bonds this month to introduce New Zealand MPs to chair their local boards: Dame nificantly over the next year, and is during Chinese President Xi Jinping’s is currently $120 million, including agricultural technology, products and Jenny Shipley (CCNZB); Don Brash the only Chinese bank in New Zealand visit to New Zealand in November $90 million issued to local insti- services to aChinese delegation inter- (ICBC NZ) and Chris Tremain (BOCNZ). with aretail banking presence. 2014. CCB is the largest infrastructure tutional investors in 2015 and more ested in investing in New Zealand. Trading directly with the Chinese Don Brash, chairman of ICBC NZ, lender in China, and wants to bring than $30 million worth of immigration “China presents great opportunities renminbi removed the requirement says: “During ICBC’s start-up phase, the this expertise to New Zealand. Its local bonds. CCBNZ doesn’t plan to operate for New Zealand agribusiness to pro- and associated cost of conversion investment required in people, sys- chairman Dame Jenny Shipley has any retail branches here. Instead the duce and export more, but companies through the US dollar —asignificant tems, profile and marketing has been also served on the parent company’s bank does asignificant amount of here need the right partner to support benefit for importers and exporters. significant. It’s not surprising that board. marketing through Chinese social me- them in making that first step,” says ICBC, the largest bank in the world we’re not in profit yet, but we aim to CCBNZ’s total assets reached more dia and New Zealand’s most popular David Lei Wang, BOCNZ chief execu- by total assets and market capitalisa- as soon as possible.” than $400 million at the end of Chinese website, Skykiwi. tive. “By hosting 70 Chinese agricul- tion, was the first to set up in Auckland ICBC introduced its e-commerce December 2015, with around $300 Bank of China (Registered 21 tural companies here, we aim to in- in 2014, followed by China Construc- platform to the New Zealand market million coming from loans and ad- November 2014) troduce local agribusinesses to people tion Bank and Bank of China. All three late last year and has had over 4500 vances, 75 per cent of which are to BOCNZ was launched here in who can potentially help them access are among the largest four global transactions since its launch. The local blue chip companies and small November 2014, with former National the Chinese market and grow their public companies as ranked by “E-mall” allows reputable New Zea- and medium enterprises. At March 31, Party minister Chris Tremain as chair- business,” he says.

EXPORTING TO CHINA?

If you’re consideringselling your productsvia Alibabaorany other channelinChina,besureyou canuse your brandand register your trade mark in China before someone else does.

We’reheretohelp. ContactAJPark’sChina Desk today.

Anton Blijlevens John Hackett +649356 7665 +649356 3310 [email protected] [email protected] The New Zealand Herald | Wednesday, May 4, 2016 nzherald.co.nz F19

China Business ■ Offshore sellers lose e-commerce tax advantage ■ E-commerceregulations wipe 19 per cent off company’s value E-commerce and China

Helou, former managing director of Tax and other changes havebeen made, butgreateraffluence Murray Goulburn (Australia’s largest processor of milk and largest exporter and the rapid rise of e-commerce create more opportunities for of processed food), said that although he is surprised at the “clunky way” New Zealandexporters to China,writes Tim McCready regulatory changes are occurring in China, food companies must prepare themselves for more sudden regula- t used to be said that the biggest tory changes. challenges to doing business in Helou’s comments were made in China were language, culture, light of media, stock market analysts I and the sheer scale of the mar- and investors reacting quickly to the ket. Now, throw in the rapid pace of changes in China. change. Company valuations —particularly Over the past month, araft of those in the dairy or natural health changes to regulations and tax have sector —have recently climbed to new been introduced by the Chinese gov- highs. This has been dubbed the ernment. E-commerce is also evolving “Blackmores effect” after its stock at apace never seen before, and New soared more than 500 per cent last Zealand’s access to online channels year in response to the opportunity have never been easier. in China. Though some of these changes are However, confusion over the im- likely to cause price increases, the pact regulatory changes on the bot- premium customers New Zealand tom line of businesses has resulted in exporters target tend to make shop- asell-off in stocks. ping decisions far less based on price Australian health supplements pro- and are prepared to pay for the safety ducer Blackmores fell as much as 19 and reassurance that comes with the per cent in one day. NZX-listed New Zealand brand. premium dairy and infant formula Research by The Boston Consulting marketer, a2 Milk, fell 6.3 per cent. Group and AliResearch, the research “Daigou” is the Chinese term given arm of Chinese e-commerce giant to buying items overseas on behalf of Alibaba, found the increasingly others. Products are purchased by powerful role of e-commerce is Chinese tourists, smuggled into the rapidly reshaping China’s economy country through professional “per- and consumer market. sonal shoppers” or bought through China has now overtaken the online channels —with international United States to become the world’s students often acting as the intermedi- largest e-commerce market. In 2010, ary. online transactions made up only 3 With prices of manuka honey run- per cent of Chinese private consump- ning as high as 1789 renminbi tion. Since then, the number of online Alibaba’s Jack Ma and Trade Minister Todd McClay at aChinese Entrepreneur’s Club function in Beijing. (NZ$400) for a500g jar in Shanghai, shoppers has nearly tripled, with it is often much cheaper to buy pro- online transactions now accounting ducts directly out of New Zealand. for 9per cent of private consumption. Alibabalink opens newchannels Furthermore, there is still adeep This growth is expected to con- concern in China about the safety of tinue. China’s Ministry of Commerce products —something that was expects the country’s cross border already in place when the country e-commerce trade to reach 6.5 trillion James Penn navigate the e-commerce landscape seafood to China amounting to experienced its melamine scandal a yuan (about NZ$1.5 trillion) this year. in China. For example, businesses can NZ$485 million last year. few years ago. Coupled with an increasing de- New Zealand exporters will be able make strategic decisions about which The memorandum of under- Instead, Chinese consumers seek mand from Chinese consumers for to access the world’s biggest group Alibaba platforms to list products on. standing comes on the back out products directly from some- quality and safe products, it is no of consumers more easily following The group owns anumber of increasing logistical support for where or somebody they trust. surprise this transformation presents the signing of amemorandum of ecommerce websites, all with businesses selling food products on The grey market is amultibillion- an enormous opportunity to New understanding between e-commerce different focuses. There is Alibaba’s platforms. Earlier this year dollar business. It can be argued that Zealand exporters. giant Alibaba and New Zealand Trade Alibaba.com, abusiness-to-business Alibaba announced that “Tmall has daigou can help put innovative new The evolution of e-commerce pro- and Enterprise. platform, or Tmall.com, abusiness-to- shortened the delivery time to less products on the radar. ducts in China means that it has never The partnership is symptomatic of consumer platform, or one of its than aweek, enabling food to be Some brands estimate daigou is been easier than now for exporters to Alibaba Group’s focus on global many other websites. enjoyed fresh and opening up major responsible for asignificant percent- take advantage of the platform. markets, both as destinations for its Whether it is selling to Chinese opportunities for New Zealand’s age of sales into China. Imported This was highlighted last month exports of goods and sources of businesses or directly to consumers, seafood businesses.” products can be personally promoted during Prime Minister John Key’s visit imports for China’s growing middle the burgeoning spending power of Alibaba’s optimism about the to friends and families, which is to China. New Zealand Trade &Enter- class. The company opened offices in the Chinese population drives the region is evident in the appointment undeniably an excellent marketing prise and Alibaba signed amemor- late 2015 in key markets like the UK, opportunity for online sales for of two key players in to grow the method —particularly in China. andum of understanding aimed at Italy, Germany, and France, with the companies based in New Zealand. number Kiwi businesses selling Recent changes, however, have developing opportunities for New goal of reducing barriers for In the last quarter of 2015, Alibaba through its e-commerce platforms. seen authorities tighten up on the Zealand businesses to enter China’s businesses to sell to Chinese Group reported revenue of NZ$6.4 Maggie Zhou has been appointed practice. Amaximum value of 2000 consumer market through e-comm- consumers. billion in its China retail marketplace, managing director for Australia and yuan (NZ$450) per single cross-border erce channels and potentially provid- The memorandum of under- an increase of 35 per cent on the New Zealand, while John O’Loghlen transaction has been introduced, as ing access to millions of new cus- standing, signed during the Prime previous year. This amounts to more has been appointed director for well as an annual cap of 20,000 yuan tomers. Minister’s delegation to China last than one tenth of New Zealand’s business development in Australia (NZ$4500) per customer before pay- In 2014 New Zealand Post launched month, has similar aims for New entire GDP in the same period and New Zealand. ing an import duty. an online store for New Zealand pro- Zealand. “There will be increased (NZ$56.5b). Some 45 per cent of businesses To ensure this is monitored, logis- ducts on Alibaba’s Tmall Global. Chin- communication and co-operation One major opportunity for New responding to a2014 survey by tics companies are requiring ese banks operating in New Zealand between NZTE and their key Zealand is its unique, high quality Export New Zealand indicated that consumers to register online before also see the importance of e-com- accounts, Alibaba in Hangzhou, and food products. “Alibaba’s focus is regulatory and non-tariff barriers they will deliver products. merce, and are beginning to introduce the physical teams on ground in bringing the best of the world to affected their ability to export. Furthermore, Chinese authorities their own online shopping malls. Australia and New Zealand,” says an China,” says the spokesperson. These businesses will be hopeful are tightening up on inspections of ICBC New Zealand, China Construc- Alibaba spokesperson. “Chinese consumers have astrong that the memorandum of goods entering China through tion Bank, and Bank of China are all This is expected to result in the appetite for New Zealand specialty understanding, and the assistance it airports. actively promoting their own formation of teams within Alibaba fruits, seafood and fresh dairy promises to bring, could be the key There have been reports of two- e-platforms and e-commerce and NZTE, which will be tasked with products.” Some proactive New to accessing the ever-growing hour delays in Shanghai’s largest air- consulting services to their clients. assisting New Zealand businesses to Zealand producers are already selling Chinese consumer market. port —and products being dumped at In the wake of the explosive growth the border —ascustoms officials of online shopping, China’s Ministry of inspect luggage and charge tax on Finance, the General Administration loophole in regulation. been revised to allow both. items worth more than 5000 yuan of Customs and the State Administra- Eliminating the tax advantage off- In addition to the list of prescribed (NZ$1120). tion of Taxation introduced new tar- shore sellers have over locals helps products, China has begun imposing China is evolving on adaily basis. iffs on cross-border e-commerce, ef- level the playing field, and makes up tougher regulations on infant formula Managing that, as well as the more fective April 8, 2016. part of apledge by the Chinese Gov- products sold online. traditional challenge of doing busi- Online purchases will no longer be The evolution of ernment to protect domestic retailers. Forming part of China’s revision on ness in China is not easy. But greater eligible for the lower personal tax rate On April 7all major government food safety laws, all foreign infant affluence and the rapid rise of of 10 per cent on parcels worth less e-commerce products in bodies in China involved in food and formula companies will be required e-commerce is creating more oppor- than 1000 yuan (NZ$224), or no tax China means that it has drug control, customs and tax, and to apply for new product registration tunity than ever. on parcels worth less than 50 yuan business trading, jointly published a with the China Food and Drug Admin- Assuming New Zealand companies (NZ$11.20). Instead, imported products never been easier than cross-border e-commerce retail list of istration if they want to continue to continue to have patience, comply purchased online will be treated as now for exporters to take imported goods. sell through cross-border e-commerce with changes as they occur, and get imported goods, and are required to This so-called “positive list” platforms. their products across the border, the include an 11.9 per cent tax. advantage of the outlines products that are allowed to Companies have until January 1, opportunities in China for New Zea- Under the current system, many enter the country via free trade zones. 2018 to comply, but in the meantime land businesses continue to be almost products have been entering China platform. Running to 23 pages, the list initially can continue to sell without certifi- limitless. with minimal tax. Although some included wine and infant formula, but cation. ● Tim McCready is Director of have reported this tax as acrackdown, omitted adult milk powder and long- Speaking at The Global Food Fo- Innovation &Business Development others consider it the closing of a life UHT milk —though it has since rum held in Australia last month, Gary with NZ INC. F20 nzherald.co.nz The New Zealand Herald | Wednesday, May 4, 2016

China Business ■ Value of “counterfactual test” questioned ■ OIOgovernancestructure in need of reform Afresh look at theOIO regime

oreign investment in any process to know whether atransaction country can be an emotive and can proceed or investment made is too political topic. Indeed it would In Australia foreign investmentconsenttakes long. Our Australian counterparts F seem to be in New Zealand. A typically expect an approval from their variety of politicians, in my view, op- up to 40 days;here, it cantakesix to 12 months Foreign Investment Review Board pose foreign investment at different within 40 days. times to advance their own political —and that’s too long, writes Cathy Quinn Deal dynamics can change dram- agenda. atically over asix to 12 month period: The reality is that New Zealand has the availability of credit for financing relied, and continues to need, foreign can change significantly, foreign investment to grow and develop New exchange is likely to change —some- Zealand businesses for the economic times drastically —competitive forces prosperity of our nation. That foreign may change significantly, and markets investment often creates or maintains change. These changes in the market jobs for New Zealanders, supports inno- while waiting for OIO consent can add vation, opens up markets, brings global considerable cost and transaction risk perspectives to New Zealand business for parties to transactions. and creates wealth for New Zealanders. The fact that it can take 6-12 months These are all good things. They are to obtain OIO consent and that the things in my mind we should celebrate ability to obtain consent is not clear in and encourage. light of the need to pass the New Zealand is indeed an island but “counterfactual test” is causing concern we cannot lock ourselves away from to parties investigating investing in New the world. Indeed the overwhelming Zealand and doing transactions here. majority of New Zealanders do not It can be difficult to explain to a want to be isolated from the world. The bid by global player doing atransaction across To survive as asmall nation at the Shanghai multiple jurisdictions why it is that end of the world we need to connect Pengxin to buy obtaining OIO consent can take so long with and explore opportunities with the the Lochinver and be so difficult, when it is acom- rest of the globe. As our Prime Minister estate was paratively smooth and simple process often says —noother country owes us scuttled by the across the Tasman. aliving. Part of that is being open to Government. Ifear that if parties have achoice foreign direct investment in our of where to invest that New Zealand country, particularly with respect to will be discounted in favour of jurisdic- investment in business enterprises. Our of the Overseas Investment Office or The reality is that where “sensitive follows from when they believed they tions which are seen to be easier to do current foreign direct investment others involved. The Overseas Invest- land” is involved it is not uncommon lodged an application —not when the business and more welcoming of regime, contained in the Overseas In- ment Office is simply seeking to do its for applications to take six to 12 months regulator has decided that it is com- foreign investment. vestment Act, Regulations and job, has struggled with limited to be approved. plete. If Icould wave amagic pen, I’d interpreted by case law, could do with resources and responding to the impact The Overseas Investment Office Certainly most experienced corpor- conduct afresh review of the OIO an overhaul, in my opinion. of decisions of the Court, in particular, may take issue with this time period ate lawyers will manage clients’ legislation and regulations. I’d change The Act and Regulations were writ- in relation to the High Court decision and refer to afaster turnaround from expectations by referring to a6month the law to: ten in 2005 and have not been re- in respect of the Crafar Farms. the time they deem an application to to 12 month timeframe —noting that ● Exclude land which in reality not viewed or amended since then. Why It is only natural that office holders be complete. This however can be there are exceptions and occasions “sensitive” from being caught within an overhaul? In my view the current want to take the time to follow aprocess some time after an application has been where consent can be obtained in a the definition. Currently, for example, regime is too slow and has become and make decisions that they believe filed. shorter time frame. some manufacturing sites that no New overly complex. will withstand judicial review proceed- From an applicant’s perspective Having to wait six to 12 months for In saying this, Iamnot being critical ings. what counts is the time period that the outcome of aregulatory approval continued on F21 The China Connection

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China Business ■ Outward FDIup55.4 percent year-on-year in Q1 2016 ■ CentralBankreservesfell arecord $108binDecember Chinese venturesare growing

Latest foreign direct investment targetshigh-value andconsumer-relatedsectors,writes Martin Thomson

ew Zealand’s prosperity countries’ supply chains, there is a and foreign direct invest- Recent Chinese new opportunity for investment ment into our economy are investment highlights emerging in New Zealand. This may N inextricably bound. challenge New Zealand alittle in ● Construction of the$200 million Our current account has been in five-star Park Hyatt hotel at 2016-17, but history shows this kind deficit for most years since 1951, mak- Auckland’sWynyard Quarter by of investment is mutually beneficial. ing the economy heavily reliant on Fu Wah International Group Amoderating factor on Chinese foreign capital. Encouraging the right commenced in March 2016. investment into New Zealand has sort of investment is essential for New always been the Overseas Invest- Zealand’s economic well-being. ● New WishInvestmentLimited ment Office. This regulator looks at Historically, China has not been a obtained OIO approval in investments of more than NZ$100 large provider of foreign direct invest- February 2016 to buysecurity million and all investment in sensitive ment to New Zealand. But that is interestssecuredover the land and fishing. Issues are now changing. There is strong outbound Kawarau Falls development, apparent around the OIO process — investment from China globally. This which includes theQueenstown especially the length of time is expected to continue —some say Hilton, valued at $80 million. approvals can take. This needs fixing at agrowth rate of more than 10 per ● Oceania Dairy, owned by Inner for capital to flow more freely. cent ayear. Mongolia’s Yili Group, The arrival of three major Chinese President Xi Jinping is on the re- commenced constructionofits banks in 2014 has also changed the cord as wanting to increase foreign $200 millionexpansion of its investment landscape. They facilitate direct investment by China. dairyfactory in SouthCanterbury further investment, and are capable China’s “going out” policy, anno- in January 2016. of debt-funding mergers and acqui- unced in 1999, was the start. It was sition activitiesinNew Zealand. founded on the Chinese Government ● SuperOrganic DairyCompany’s Afurther, less noticed, arm of encouraging Chinese companiesto establishmentofsheep dairy Chinese capital flows into New Zea- invest offshore. By 2015, outbound farms andagenetic sheep land via investor category immi- direct investment flows were at an breeding programme, including in gration. Chinese immigrants are by historic high of US$118.02 billion. ajointventure withWaituhi far the biggest source of investor The nature of that investment, Kuratau Trust, in December 2015. category immigration at 55 per cent however, has been changing and is of that class. set to change more. KPMG noted in This integration is a So while outbound direct invest- of NZ$1 billion. It sees New Zealand They bring money with them, its China Outlook report of March 2016 ment (some argue) may have briefly as stable economically and politi- which they invest in the New Zealand that Chinese outbound direct invest- marked strategic change slowed last year, the overall aim is cally, with investor-friendly policies. economy. ANew Zealand China ment had more recently targeted and recognises that the ongoing growth in offshore invest- But China is not our largest foreign Council Report in October 2015, high value-addedand consumer re- ment. direct investor. According to KPMG’s stated that the average value of in- lated sectors, as well as healthcare, Chinese economy needs Chinese investment in New Zea- review of Overseas Investment Office vestment made by these migrants is entertainment and high-tech. to be more than the land continues to grow overall. It will decisions (in the year to December NZ$2.32 million. This change has been cemented by accelerate (although we need to 2014), Canada was the “most sig- There is potential for investment China’s 13th Five Year Plan (for ‘export- import’ economy understand that we are one of many nificant source of FDI (in that year)”. in the tourism sector. Driven by 2016-2020), revealed in October 2015. countries competing for much- Also contrary to perceptions, enormous growth in Chinese tourism The plan sets goals and targets for it has been historically. needed capital). China’s investment in New Zealand to New Zealand (and the prospect of China’s development, and is the first Martin Thomson During Prime Minister John Key’s is relatively diversified. Of a$6.6 even more), there has been alag in under President Xi’s leadership. recent visit to China, he attended a billion investment total (May 2015 — infrastructure in this sector. Recognising the economy had be- gic change and recognises the Chin- business networking event, hosted by NZTE database), capital was spread High-quality accommodation is in come unbalanced,iturged Chinese ese economy needs to be more than Jack Ma of Alibaba fame. He con- through primary industry and food, demand, and must be built. China has companies to invest overseas,sell the “export-import” economyithas firmed to investors that New Zealand forestry, manufacturing, financial already stepped in with Fu Wah’s more Chinese technology and been historically. It is also making a was open for capital. services, infrastructure and hotels. investment in ahotel in Auckland’s services offshore,and more fully in- transition from investment-led to If we’re clever, we can facilitate In fact China’s choice for the largest Wynyard Quarter; NDG’s planned ho- tegrate into global supply chains. consumption-led GDP growth. foreign direct investment into areas sector for its investment most re- tel in Elliott St, Auckland, and New This means that in future we can Thus President Xi forecasts that of need in the economy. cently has been infrastructure and Wish Investment’s purchase of the expect to see more production estab- Chinese outbound direct investment Chinese investment in New Zea- utilities. Hilton, Queenstown, but there is still lished by Chinese companies in other will increase by US$1.25 trillion in the land has increasedby370 per cent With growing financial stress more opportunity here. countries. next 10 years, or atotal of about from 2009, admittedlyfrom alow apparent in the agri-sector, and given ● Martin Thomson is aPartner with This integration is amarked strate- US$200 billion annually. base, with acurrent annual growth China’s appetite to get involved in DLA Piper New Zealand Afreshlookatthe OIOregime

continued from F20 agroup of people that could assist OIO personnel on judgments around Zealander would remotely regard as Pengxin loses bid for big chunk of Australia commercial and economic matters. “sensitive” fall within the sensitive ● Require the OIO and Ministers to land regime definition due to adrain “volunteer” to deal with applications or creek resulting in the site falling Australia’s foreign direct investment Acquiring Kidman &Co—a doubts as to whether Australian within specified time periods of re- within the definition. I’d keep as “sen- regime is arguably more transparent, company formed in 1899 which owns companies had been given enough ceipt. sitive land”, land that Kiwis do think but it was all politics when Treasurer 10 massive cattle ranches spanning opportunity to bid on the land and ● Use the power under Regulations is sensitive (even if Imay not) —for Scott Morrison again blocked a more than 100,000 square suggested the size of the sale may to prescribe other factors that Minis- example, farmland and land adjoin- Pengxin-led bid to buy the country’s kilometres —inconjunction with have been untenable. ters may take into account in deter- ing foreshore or lakes. largest private land holding. Sydney-based Australian Rural Pengxin’s initial offer for all of S. mining whether to approve an invest- ● Remove the Court-created Morrison said last week he Capital (20 per cent) would be a Kidman’s ranches was rejected over ment (than currently relied on). In “counterfactual test”. believed the A$371 million sale to significant trophy for Pengxin “security concerns“as the largest particular, Iwould suggest that the In essence, this test requires Chinese-led Dakang Australia founder Zhaobai Jiang. ranch overlapped with arocket firing purchase price received by aNew foreign buyers to establish that they Holdings was not in the “national It makes up 1.3 per cent of range operated by the Australian Zealand vendor should be arelevant will bring asignificant and identifiable interest”. Australia’s land mass and 2.5 per cent military. factor the Ministers may take into benefit over and above what ahypo- Coming on top of NZ’s decision to of its agricultural land. That ranch was dropped from the account. thetical New Zealand purchaser block the Lochinver station But Morrison told AP there were second bid, reducing the area for sale In my view, in order for New would do. There are cases where a acquisition last year, this was a not too many jurisdictions anywhere to 77,000 square kilometres. Zealand’s economy to continue to New Zealand owner wishes to sell double whammy for Pengxin —the in the world where foreign It makes sense to observe that, grow, we need as acountry to con- their well-performing business to a driving force behind the formation of acquisitions of land holdings of this with an Australian election pending, tinue to attract foreign investment. foreigner so that there will be no such bid vehicle Dakang Australia nature would be permitted. Morrison is not taking chances. Our regime should be efficient and no benefit. The foreigner simply wants Holdings. The Treasurer went on to to raise —Fran O’Sullivan more complex than is required. to hold the well-performing New Zea- The current regime is widely seen land business and continue to run it by those in the investment and legal in the same way with the same include people with commercial, or powers. Further, the Government with the likely arguments those op- community as being too slow, com- management team (which may in- economic and other skills that would does not believe they have the num- posing change are likely to raise. The plex and uncertain. clude many New Zealanders). In my assist the management team. bers in Parliament to change the law. changes would be driven at making Iurge the Government to use what view, our law should not make it so ● I’d allow parties to pay for the Iexpect that even if the Government our foreign investment laws more powers it has to improve the current difficult for such transactions to oc- urgent dealing of their trans- had the numbers, that the political efficient and workable. regime. In that regard, Iunderstand cur. actions in the same way that furore opposition parties would make On the basis that the law cannot the Government is open to and will ● Give the Overseas Investment participants on NZX can apply for about changing our foreign invest- be changed, what could be done to be increasing the resourcing of the Office agovernance structure (and pay) for urgency. ment laws means the Government’s make our current regime more ef- OIO so that it can more quickly deal more akin to other significant enti- ● I’d require the OIO and Ministers appetite to do so would be low. ficient, practical and workable? Here with applications. Icall on opposition ties in our regulatory regime such to deal with applications within a Iexpect opposition parties would are some ideas parties to put politics aside and sup- as the Financial Markets Authority much shorter timeframe than is make afurore, accuse the Govern- ● Introduce an advisory board to the port changes for the broad benefit of and the Reserve Bank. I’d have a currently the case. ment of selling out New Zealanders Overseas Investment Office. Have our nation. board to whom the management of and the like because that makes good this board set key performance ● Cathy Quinn is chairperson of the OIO reported. That board would Unfortunately Ihave no magic pen politics or headlines. Idonot agree indicators (KPI’s) for the OIO. Appoint MinterEllisonRuddWatts F22 nzherald.co.nz The New Zealand Herald | Wednesday, May 4, 2016

China Business ■ China box office will grow by over 20 per cent in 2016 ■ NZ cinema software developer holding 6-8 per cent of market Vistafindsarole in films

hina’s booming cinema market is expanding by Innovative Aucklandsoftware company, VistaGroup, is making the most of the C leaps andbounds. The stat- istics are eye-popping. upsurge in moviegoing in China, writes ChristopherAdams Therewere 2000 cinema complexesinChina in 2010, accord- ing to areport by Credit Suisse. “They’re seeing it as an opportun- Driven by growth in the middle ity to tie-up with someonelike Vista, class and urbanisation in smaller who has relationships with oper- cities,that figure had almost tripled ators, which can help them market to 5812 by 2014, with 9600cinemas cinema ticketsinto their 600 expected to be running across the million [WeChat]users.” Asian superpower by 2017. Cadzow thinks long and hard Credit Suisse reckons China’s box before describing how concerned office will overtake North America’s he is about China’s economic out- in 2017 to become the world’s look. biggest, and reachUS$16.1 billion by “Clearly you can’t ignore the 2020. overall financial situation in China All thisgrowthhas been aboon and what impact that might have,” for New Zealand cinema software saysCadzow,one of the co- developer Vista Group. founders of Vista, which was estab- Since 2009, the Auckland-based lished in 1996. company hasrampedupits pres- “But at the moment this industry ence in Chinatothe point where seemstostill be growingand there’s it now has a6-8 per cent share of still alot of investment going into the country’s large circuit market it.” (exhibitors with 20 or more China’s so-called economic mir- screens). acle has been on shaky ground Its technology —used for appli- lately. cations includingonline ticket Question marks hang overthe booking,analytics, food and bever- Chinese Government’s abilityto age sales andstaff rostering —has manage atransitionaway from the been installed in more than400 investmentand export-led growth sites across China, from the wilds of the past in favour of domestic of Yunnan province to the mega- consumption-driven expansion. cities of the eastern seaboard. GDP growth fell to 6.7 per cent The company, whichhas an Brian Cadzow says Vista has a in the first quarterofthis year, 18-strong office in Shanghai, rolled strong position in China, but according to official figures, the out its technology in 230 sites run there are regulatory risks. slowest rate since the depths of the by Chinese cinemaoperatorDadi in Below: Lumiere is one of global financialcrisis in 2009. just six weeks during2014. Vista‘s Chinese clients. Cadzow says the cinema market “Forthe people doing thatjob it has proven relatively resilient in the was tough,” saysVista executive face of economic downturn in director Brian Cadzow. “That wasin manydevelopedeconomies. something like 70 cities across “When times are tough, cinemas China in some pretty far-flung can actually do quite well,” he says. places.” Clearly you can’t ignore “What tendstohappenispeople In its latest Chinese develop- who would normally go away for ment, the company announced a the overall financial the weekend can’t afford to so they partnership in Marchwith China’s situation in China and go to the movies instead.” WePiao, the operator of a So would China’s booming smartphone movie ticketing app. what impact that might cinema industry be insulated from The tie-upisexpectedtogenerate have. But at the moment ahard landing for the Chinese econ- more than $30 million for NZX- omy? listed Vista in the first year. this industry seems to “Clearly it depends on how hard WePiao’s investors include the landing is,” Cadzowsays. “If Tencent —the parent of Chinese still be growing and there’s adepression-type hard land- onlinemessaging giant WeChat — there’s still alot of ing that’s going to haveanimpact the China Cultural Investment because it’ll slow downbuilds... Fund, and some ofthe biggest Chin- investment going into it. shopping malls will stopbeing built ese cinemachains. and basically almost every shop- Its ticketing app is embedded in ping mall thatgets builthas a WeChat, which has morethan 600 cinema in it.” million monthly active users, For now, Vista —whose software mostly in China. is used on morethan 60 countries The dealwill see WePiaotake a —isupbeat on its prospects for 2per centstakeinVista and estab- further Chinese growth. lish ajoint venturebetween the two “We wanttosee our market share companies that will receive distri- in China lift towards ourworldwide bution rights to all of the New market share [around 38 per cent],” Zealand firm’s technology,includ- Cadzowsays.“Exactlywhere we ing its Veezisoftware targeted at thinkthat will end, we don’thave smaller, independent cinema oper- adefinedgoal.” ators and its Movio film marketing The Credit Suisse report says software. ongoingnew cinemabuildswill be Given its software systems are driven by further urbanisation in used for collecting tax and govern- China’s smaller cities. “We believe ment reporting in China,Vista had that cinema coverage in Tier1cities to meet many regulatory [such as Beijing, Shanghai and requirements to gain the Guangzhou] is already saturated, certifications required to operate in which was evident in 2014 and only the country. 10 per cent of the newcinemas were Allofits competitors inChina are actually built in those cities,”says domestic players. the report. “As aresult, the future “We’re stillthe only international expansion of cinemas will focuson company to havealicence to sell Tier 2, 3and 4cities.” cinemasoftware in China,” says The report, published in Septem- Cadzow.“Andatthis stage, from ber, saysChina’s film sector is going what we can tell, they’re not going through awarring period. to issue any other licences to any “The market landscape is rapidly other international players.” changingand both incumbents and He saysVista has astrongposi- new entrants are eagertomake a tion in China,but there are regula- push to become the five to eight tory risks.The WePiao joint venture major players in Chinaover the should give Vista added protection Roger Donaldson's 2005 NZ box director, producer and martial artist, Seven films representing awide next three to five years,”itsays. against that risk,Cadzowsays. office hit, The World’s Fastest Indian, Sammo Hung and writer/director, range of genres and styles were “On top of that, Hollywood is also “It’s all very well to change the screened at the launch of the first Sherwood Hu joined Donaldson for screened: The World’s Fastest Indian, making astrongpush, hopingto rules and affect aforeign company, New Zealand film festival in Shanghai the opening night. Taika Waititi’s Boy and Eagle vs. grab apieceofthe new box office but to do this to alarge,local last month. The festival was officially hosted Shark,Roseanne Liang’s My Wedding market, despite SARFT’s [the State company would be different.” Prime Minister John Key, Chinese- by the New Zealand and Shanghai and Other Secrets,Jane Campion’s Administration of Radio, Film and Cadzowsaysthe WePiaopart- Canadian superstar Shawn Dou and governments and was supported An Angel at My Table,Christine Jeffs’ Television] protective measures of nership may also help Vista scale anumber of other high-profile guests by the New Zealand Film Rain and Brad McGann’s In My tryingtocontrol the import and up and get amore meaningful share such as leading Hong Kong actor, Commission. Father’s Den. release of Hollywoodfilms in of the Chinese cinema market. China.” The New Zealand Herald | Wednesday, May 4, 2016 nzherald.co.nz F23

China Business ■ Zespri considering growing Kiwifruit in China ■ Projected horticulture exportgrowth $700m in June 2016 year Zespri increases tempo in China

hina is about to become New Zealand’s biggest kiwifruit cus- Global marketer Zespri has refreshed its China Strategy to take advantage of the tomer and global marketer C Zespri is investing $40 million increasing consumer demand for good tasting, quality kiwifruit, reports Graham Skellern there to further increase sales. Tauranga-based Zespri expects to sell 24 million trays of kiwifruit —made up of an even balance of the Green and SunGold varieties —inChina this year, a40per cent increase on last year’s sales. Japan has long been New Zealand’s largest kiwifruit market and sales this year are expected to remain steady at about 23 million trays. “The industry’s recovery from the Psa outbreak has been abig story and now China is the next chapter,” says Zespri chief operating officer, Simon Limmer. “The Chinese consumer is looking for quality and safe products and is prepared to pay more. Zespri has a powerful brand —ofconsistently pro- ducing good tasting kiwifruit with health attributes. “We have sufficient confidence that the market in China will continue to grow —despite the volatility of the exchange rate. Simon Limmer (above) says Zespri “Not only will China be the biggest has to fully understand the local in volume but also it will become our growing conditions before rushing most valuable market. Over the next in and producing kiwifruit in China. two years it is expected to generate Right: Zespri’s quality and health better returns than Japan,” he says. benefits are promoted in China. According to ANZ Research, 300 Below: The 2016 season launch in million new middle class consumers China, with PM John Key. will emerge in urban areas by 2030 and China’s urban disposable income will SunGold production in New Zealand almost quadruple. ANZ says the Chin- By stepping is hitting arecord level and the latest ese will not only eat more but also eat crop will push Zespri’s supply to 140 better. Premium agricultural products further into million trays this year —80million will continue to enjoy strong demand. the supply green kiwifruit, 50 million gold and the Zespri, which will hit $2 billion in remainder organic. total sales this year, has aquality, chain, we can Last year Zespri handled 122 million premium brand, and it has just updated capture more trays, including 30 million gold, and its China Strategy. Zespri’s biggest move total sales reached $1.9 billion. is to take control of the supply to China value from To maintain an all-year-round and become an importer of record. supply, Zespri is looking at growing The first containers in the new kiwi- the Chinese kiwifruit in China, the home of the fruit selling season arrived in China market, as chinese gooseberry (since renamed). under the new system two weeks ago. Zespri already has growers and post- “In the past we have relied on Chin- well as harvest partners in Italy, France, Korea ese partners but it’s amore hands-on maintaining and Japan. business now and we are masters of But China is the world’s largest kiwi- our own destiny,” says Limmer. overall fruit grower, with production volumes Zespri has created new logistics and control of our of about 1.5 million tonnes ayear and transport partnerships to move the equal to the rest of world put together. kiwifruit after the containers have quality Limmer says the prospect of grow- landed in China, and it has opened delivery. ing Zespri kiwifruit in China is only at more offices to sell the fruit. the investigation stage. Zespri will also hold stock on the “We are going through trials, and China mainland. Previously, the kiwi- an enhanced level of service to our years up to 25 per cent of total sales Guangzhou, Xian and Chongqing, developing scientific and commercial fruit was already accounted for with a distribution customers. may be going into China.” alongside existing Beijing and Shanghai partnerships to understand the local fixed price before it left Port of Tau- “We can focus our marketing spend Zespri, which has sold kiwifruit in (head office). The present number of 25 environment there. “We need to be sure ranga. on where the fruit is heading and be China for more than adecade, is spend- Zespri staff in China will grow to more of the safety and quality standards and “We have control of our whole im- more aligned with our customers. ing $40 million over the next 18 months than 80. the consumer perception in Asia of portation and inventory process and Above all, we can provide more to increase its positioning and market- Lately, Zespri has put in alot of effort putting the Zespri brand on kiwifruit we have the opportunity of being flex- value to our growers-shareholders ing on the mainland. into promoting its new SunGold variety, grown in China. ible with our pricing —when we can rather than leaving (some of it) with our The company is broadening its dis- which was developed to withstand the “The proximity to the biggest market make that,” says Limmer. Chinese partners,” he says. tribution and sales from Tier Iand 2 Psa disease. Its marketing campaigns in is an advantage but we won’t be rushing “By stepping further into the supply Limmer says Zespri has to consider Chinese cities and the Eastern Seaboard China have associated SunGold with in and making adecision. chain, we can capture more value from how much exposure it wants in China by expanding inland into other large vitality, fun and wellness. Zespri wants “We have to look at the opportunities the Chinese market, as well as —interms of supply and quality. “China provincial cities, and especially more to show Chinese consumers SunGold and threats, and the prospect of grow- maintaining overall control of our qual- is (presently) taking up 17-18 per cent Tier 2and 3cities. offers all the positive qualities of its ing kiwifruit in China is still afew years ity delivery in the market and offering of the total crop. Over the next five It is opening new regional offices in kiwifruit, full of taste and juiciness. away,” says Limmer.

China, with is fast-evolving market,isbecomingahotbed of innovation YI TA CHNG,CEI WHATIF!ASIA F24 nzherald.co.nz The New Zealand Herald | Wednesday, May 4, 2016

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