Liu Linlin, Economic and Commercial Counsellor of the Chinese Embassy, was invited by China–NZ Business Council to speak at the Air New Zealand seminar on 30 November 2006.
Below is a slightly edited version of his speech.
It gives me great pleasure to be with you this afternoon to celebrate Air New Zealand’s direct flights between New Zealand and China. This is an event worth celebrating as its significance goes far beyond the business operation itself. Given the long time strong bilateral relations and close interactions between the two countries and peoples have existed, especially in the economic, trade and tourism sectors, direct flights will play a very positive role in facilitating an even deeper and wider economic and trade integration between the two countries.
I would like to take this opportunity to share with you briefly information about China’s economic situation, and its economic and trade relations with New Zealand.
As you may be aware, in a matter of twelve days, on 12 December, China will celebrate its fifth anniversary of accession into the WTO. During the past five years, through deepening the reforms and opening up the process, and strictly honoring its market access commitment, China has successfully integrated with the world economy and has made great achievements in the economic and trade fields.
With an average annual growth rate of 9.5% from 2001 to 2005, China is now the fourth largest economy in the world with a GDP of USD2.2 trillion, the third largest trading nation in goods with a trade value of USD1.4 trillion, and the seventh largest trading nation in services with a trade value of USD166.5 billion. China has been the top FDI recipient country among developing countries for 15 years. The accumulated FDI it received from 2002 to 2005 is USD227.2 billion. China’s investment overseas is also on the rise, with an accumulated value of over USD51.7 billion. As of the end of this October, China’s foreign reserves are over USD1000 billion.
China’s sustainable and robust economic growth and its surging domestic demand are providing enormous business opportunities for the rest of the world, and this is adding momentum to the development of the world economy. During the five years since its accession into the WTO, China has imported USD2.4 trillion worth of products. Foreign investors have remitted USD57.94 billion in investment returns out of China. By 11 December, China will finish its WTO phase-out period in the financial sector.
In the tourism industry, China registered 30 million overseas travellers in 2005, and the trend is still on the rise.
China has been pursuing reform and opening up policy for some twenty-eight years. Based on past experience and lessons, the government is now adopting a “scientific approach of development”, which focuses on development in a comprehensive, coordinated and sustainable way. This new approach will have far-reaching implications for China’s immediate and long-term economic and social development and its relations with other countries.
One important component of this approach in the economic sector is changing the mode of economic development from an extensive one to an intensive one. In the past, China had been focusing mainly on GDP growth, taking less notice of resource and environmental costs. That had brought about negative consequences. To change the mode of economic development, the government is now introducing a green GDP concept, changing the evaluation system of local officials, modifying the guiding catalogue for attracting FDI and standing ready to offer preferential treatment for innovative ideas, advanced technologies from home and abroad that can help energy conservation, environmental protection, and increase efficiency in production. Many potential business opportunities exist in this area.
Another component of the scientific approach is to achieve balanced regional development through the “development of Western strategy”, to even out urban and rural areas imbalances by addressing the issues of agriculture, countryside and farmers, mainly focusing on increasing farmers’ income, and solving the income disparity problem by institutional arrangements. These are economic as well as social issues. A good solution will not only contribute to building a harmonious society but also help China foster the domestic market and rely on domestic consumption as the main engine of economic development.
Take the “development of Western strategy” as an example. The coastal region of the eastern part of China is well developed. With a GDP per capita of USD3000, the Eastern region is exporting 90% of China’s total export products and attracts 85% of inward FDI. The inland Western region, on the other hand, is much less developed. But the region accounts for 56% of China’s land and 23% of the population, is rich in mineral resources and has great potential for cooperation in energy, agriculture, tourism, environment protection, and science and technology.
In 2000, the Chinese Government launched the “development of Western strategy”. Massive investment has been made in the region over the past six years and has brought about noticeable results. Infrastructures have been greatly improved; ecological construction and environmental protection have been enhanced; and education, science and technology, health care and so on are developing steadily. The trade and investment environment of the region is far better than ever before.
Many foreign companies including New Zealand companies see this region as strategically important and have started to set up businesses there. CHH has invested USD130 million to set up forestry and forestry product businesses in Sichuan Province and Hubei Province. Zespri International secured a large area of land in Sichuan’s Pujiang County last year as a production base to plant, process and export kiwifruit. NZPR Group Ltd in Christchurch is actively helping the western Shannxi province by introducing new varieties of seeds and seedlings for environmental protection, farmland protection and urban beautification.
At present, China’s fast economic development is mainly bolstered by investment and export. As far as exports are concerned, the international trading environment is far from satisfactory. Trade protectionism prevails in some parts of the world, and Chinese products are facing an increasing number of trade disputes with its trading partners. This makes China’s economic development less stable. Therefore, the third component of China’s scientific approach to development is to foster the domestic market and progressively rely on domestic consumption as the main engine of economic growth.
In terms of the potential of the Chinese market, many people are talking about the emerging middle class in China. The newly emerged social stratum mainly consists of private company owners and self-employed people. They number about 21 million and are still on the rise. They boast considerable consumption power. But the potential of the Chinese market is far bigger than that. By exploring the consumption potential of 1.3 billion people, Chinese economic growth is not only based on solid ground, but also provides huge export opportunities to business people in other countries.
It is projected that from 2006 to 2010, China’s average annual imports of goods will increase by 10% and services by 21%. In 2010, the domestic demand for goods will be worth USD4 trillion, of which, China will import USD1 trillion. The demand for service imports will be over USD200 billion. In 2010, the flow in FDI will be USD30 billion.
Since China and New Zealand established diplomatic ties thirty-four years ago, the two countries have been enjoying stable and sound relations. The bilateral cooperation in the areas of economics, tourism, education, science and technology are running smoothly. In recent years, the two countries have witnessed more frequent high-level mutual visits and closer economic and trade interactions. In its relations with China, New Zealand has achieved three number ones:
• New Zealand is the first country that has concluded bilateral market access negotiation in China’s bid to joint the WTO.
• New Zealand is the first developed country that recognized China’s full market economy status.
• New Zealand is the first developed county that has started free-trade negotiations with China.
All these three number ones in the country-to-country relations are actually number ones achieved in the bilateral economic and trade field. It fully explains that economic and trade relations serve as a pillar bolstering the bilateral relationship.
Why are economic and trade relations so important to both countries? The answer lies in the complementary nature of the two economies.
China and New Zealand have different comparative advantages and are complementary in trade and investment. Every year China imports a large quantity of New Zealand’s dairy products, forestry products, wool and other agricultural produce. China is the largest international customer for New Zealand’s milk powder and wool. Many Chinese students are studying in New Zealand. More and more Chinese citizens are choosing New Zealand as their ideal tourist destination.
Meanwhile, New Zealand imports from China a lot of textile and apparels, light industrial products, and mechanical and electronic products. As China is making efforts to upgrade its industrial structure and optimize its export production mix, it can’t just provide the fore-mentioned traditional products. It needs to also provide ocean vessels, trains, cars, yachts and other heavy equipments.
In the area of investment, this complementary pattern is also obvious. This will naturally bring about mutual benefits and win-win outcomes, enabling us to take the other side as an ideal cooperative partner.
To explore this complementary nature, many New Zealand companies have already been engaging in active business activities with their Chinese counterparts. To name a few, Fonterra has invested USD1.07 to buy out 43% of the shares of China’s famous Sanlu dairy company; ANZ bank has opened offices in Guangzhou, Shanghai and Beijing; The Warehouse has doubled its office personnel in Shanghai; and Econet New Zealand is using China’s Hua Wei Technology company to build a 3G broadband network around New Zealand, with work well under way in Auckland.
According to New Zealand’s statistics, in the year to September 2006, China–New Zealand trade amounted to NZ$6.47 billion, up by 19.1%. China is now New Zealand’s fourth largest trading partner, the fourth largest export market and third largest import origin. According to Chinese statistics, by the end of 2005, New Zealand’s investment in China was US$603 million, involving diverse areas such as agriculture, light industry, textile, metallurgy, food, medicine and computers, while China’s investment in New Zealand was about US$58.77 million, mainly in forestry, trade, insurance, ocean shipping and tourism.
In this same September year, the number of Chinese tourists visiting New Zealand topped 100,000 for the first time.
The closer economic and trade relations couldn’t have happened so quickly without the direct attention and facilitation by our leaderships and governments. In May 2004, Chinese Minister of Commerce Bo Xilai and New Zealand Trade Minister Hon. Jim Sutton signed a historical “Trade and Economic Cooperation Framework”. In the framework document, the two sides identified thirteen areas with significance for strategic cooperation. The New Zealand Government formally recognized China’s market economic status; the two governments agreed to jointly kick off a feasibility study on a Free Trade Agreement (FTA), and decided to establish a Joint Ministerial Commission to ensure the smooth and healthy development of bilateral economic and trade relations. This milestone document indicates that the two countries began to seek more comprehensive and deeper economic and trade integration through all-round economic and trade cooperation.
In April 2006, Chinese Premier Wen Jiabao visited New Zealand with great success. The two countries decided to establish a “cooperative relationship of mutual benefit for the 21st century”. Premier Wen and Prime Minister Helen Clark agreed that negotiators of FTA should follow four principles, which are that the terms should be “comprehensive, high quality, balanced and mutually acceptable”. They also decided that the FTA should be concluded and the documents signed within two years. These high-level visits and government facilitation certainly add impetus to the bilateral economic and trade relations.
For the bilateral FTA arrangement, so far nine rounds of negotiation have been held in New Zealand and China. Positive progress has been made. The negotiations have now entered into the later stages and, naturally, there will be some hard bargaining and a significant amount of work to be done. I am fully optimistic that our negotiators will use their wisdom to bridge differences and deliver on time the outcome that our country’s leaders wish to see. With that, I believe, New Zealand will most probably achieve the fourth “number one” in its relations with China, by being the first developed country to conclude a free-trade agreement with China.
Ladies and Gentlemen, reform and opening up is China’s basic state policy. Utilising foreign capital and pushing forward trade with the rest of the world is an integral part of this policy. The fast-growing economy and ever-opening market of China are presenting more opportunities to the rest of the world than ever before. After the conclusion of FTA between the two countries, New Zealand business people will be much better positioned to take advantage of China’s economic development and market potential.
With such a bright market prospect in China, I encourage our New Zealand business friends to lose no time in getting to know more about China and to take bold and strategic steps forward to gain the first-mover advantage. My office is willing to do what we can to facilitate this process.
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Bilateral Visits
