David Mahon urges business leaders on China trip with Christopher Luxon to speak out on behalf of their own commercial interests

By David Mahon*

‘Without high mindedness… you will surely fall into someone’s conspiracy.’

Hong Zicheng, 1600 C.E.

New Zealand Prime Minister Christopher Luxon visits Beijing this week, his first trip to China since being elected 18 months ago. He will be accompanied by a small but significant delegation of companies, most of which are well established in China and therefore in little need of the New Zealand Government’s introduction or imprimatur.

Had the prime minister brought a wider range of finance, technology, education, and service entities, local Chinese-owned companies, film and television groups, and a more diverse media contingent, he would have demonstrated China’s importance and signalled New Zealand’s sincere intent to expand the relationship.

Instead his trip will be perfunctory and verging on a diplomatic slight when viewed alongside his visit to India, a nation with which China is in intermittent, contained military conflict. Three months earlier, Luxon took to India one of the largest trade delegations in New Zealand’s history. He appears to be reinforcing the aims of a long-standing faction in Wellington that want to do more than diversify away from China through natural trade expansion; they wish to replace China substantially with India and others as soon as possible.

The prime minister and his cabinet have spoken of China as a regional threat while striving, partly clandestinely, to realign New Zealand with Washington and its allies working to contain China. Wellington condemned the Chinese Navy for sailing through and undertaking military exercises in the Tasman Sea (although ships remained in international waters), without referring to the fact that the New Zealand and Australian Navy had joined sizable US war games aimed at China in Chinese-claimed waters only months before. At the same time Luxon has acknowledged China as New Zealand’s critical trading partner, one with which Wellington shares a rare free trade agreement. The New Zealand Government has become more unabashed in its imperviousness to facts and diplomatic norms, possibly guided by a sense of Western cultural primacy.

New Zealand should not expect China to do nothing as it conducts joint military exercises and declares its intention to enter into a defence alliance with the United States. The US seems determined to block China’s regional economic and political rise at any cost, even if it means war. Pentagon strategists have repeatedly concluded that despite the United States’ military pre-eminence,  any prolonged military conflict with China would be so damaging to both sides – and the world – as to make it essentially unwinnable. Contrary to popular Western opinion, a US-China clash is more likely to spring from a miscalculation than a Chinese invasion of Taiwan, which remains unlikely.

New Zealand should not and need not take sides. It can take a step back – particularly as the US exaggerates claims of Chinese injustices and trade imbalances while itself exacerbating regional tensions – and wait until the dumb show ends. For decades New Zealand chose to let international law guide its regional political choices, and ensured international trade conventions informed its offshore endeavours. It should be unthinkable for New Zealand to ally itself now with America’s collapsing democracy, led by a president who boasts of annexing sovereign nations, engages in mutually destructive trade disputes with allies and adversaries alike, and abets genocide in the Middle East.

Some on the New Zealand delegation may expect to find a sluggish, deflated Chinese economy with dispirited consumers and anxious policy makers. Current global economic commentary on China is overwhelmingly negative and equally inaccurate. China is rebuilding well; retail prices are rising, and local governments are letting real-estate market demand recover with little intervention now that the sector has largely bottomed out. Demand for healthy, premium food is strong and growth in this sector will be considerable for New Zealand companies that can articulate their uniqueness and the New Zealand story well, and are able to support their distributors and marketing agents closely. Zespri sold kiwifruit worth over NZ$1.1 billion last season, selling 1.4 billion pieces of fruit: one for each Chinese person. Despite deflation in the dairy industry and its recent investment exits from China, Fonterra remains a trusted supplier and arbiter in the sector, particularly to high quality milk processors.

Chinese households have US$20 trillion in savings to spend as the recovery of the economy gains momentum. Employment and wages are improving, with fewer factory closures in the last two quarters than forecast, and demand for skilled workers is strong. Chinese factories must fill 25 million jobs in the next two years. Trump not only blinked on tariffs but kowtowed, and the Chinese public have renewed faith in their government’s steadfastness and resilience.

There will be the customary red carpets, handshakes and smiles when Prime Minister Luxon is in Beijing this week, but sources in the Chinese Government have been clear that they have lost trust in their fair weather trading partner. Behind the scenes there may be some terse words and perhaps warnings of possible changes to the New Zealand-China Free Trade Agreement if Luxon continues with his aims to ally with Washington against Beijing.
 
Some of the larger companies on the delegation should speak out for their own commercial interests and in support for the scores of companies and people in New Zealand that have their livelihoods staked on continued healthy trade with China. This is particularly important at a time when their government is handling the nation’s sovereign interests so clumsily.

*David Mahon is the Executive Chairman of Beijing-based Mahon China Investment Management Limited, which was founded in 1985. This Briefing is here with permission.