Why we should stay close to China

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A fortnight ago Foreign Minister Winston Peters sent shockwaves through the New Zealand foreign policy establishment when he refused to endorse New Zealand’s support for China’s Belt and Road proposal.  

"The position of the new Government is that we are studying the ramifications, what it means and as time goes by and that study is completed we will tell you what our position is,” he said.

That is in contrast to the attitude of the National Government, who signed a Memorandum of Understanding indicating its support last July.

Then Foreign Minister Gerry Brownlee said: “Brownlee said New Zealand's approach to Belt and Road would "be consistent with our track record as an advocate for open, rules-based trading systems.

"New Zealand’s engagement on China’s Belt and Road initiative is starting from a good base. Our relationship with China is built on a constructive, pragmatic approach in areas that align with our mutual interests."

Australia has not joined Belt and Road but instead is promoting what at this stage is called an “Indo pacific grouping” which includes the USA, Japan, India and Australia.

At a recent forum, Peters described the grouping as a:”counterweight” to China.

So why should New Zealand go it alone among the Five Eyes partners and support Belt and Road --- and what is the case against it.

In the first of two articles, Senior Fellow at Victoria University's Centre for Strategic Studies, JIM ROLFE, looks at the argument for being part of the Chinese scheme. 

His analysis:

The Belt and Road Initiative (BRI, otherwise ‘One Belt One Road’) was announced by China in 2013 as a series of projects aimed at establishing new and improved land and sea routes, ‘economic corridors’, between Asia and Europe, with China as the hub of all activity. This is the ancient silk road reborn.

Although the focus is on infrastructure the initiative is much wider, aiming for policy coordination, financial integration, people-to-people bonds, unimpeded trade, and facilities connectivity in sectors as diverse as health, education and digital connectivity.

This breadth of ambition makes the Initiative more than a mere facilitator of trade.

It is an economic (and potentially political and social) system that could, at the unlikely extreme, become internally interdependent to the extent that those not connected to it will find it difficult to interact with participants. This is potentially the reincarnation of the Middle Kingdom.

New Zealand became associated with belt and road in 2017 when it signed a Memorandum of Association with China, in conjunction with the review of the very successful bilateral free trade agreement between the two countries, designed to act as the foundations for a ‘specific bilateral action plan’.

That plan is due in September 2018. Despite the commitment, there has been almost no public debate in New Zealand about the relationship, its possibilities and its potential pitfalls.

BRI is a fact. Some 70 countries have become associated with it in one way or another. Most of those countries are on the direct land or sea routes between Asia and Europe, but countries in South America and Africa have also joined up.

The underlying impulse behind belt and road (additional to any specifically Chinese motivation) is that global connectivity makes sense; remove the barriers to the free flow of good and services and we all benefit. Global supply chains rather than bilateral trade-routes add economic value for countries, and the fewer constraints the more value is added.

It is a truism to assert that New Zealand needs unimpeded trade if it is to remain economically healthy. The country is one of the most internationalised in the world in trade terms.

This is both an advantage and a disadvantage. An advantage in that no single market can dominate, a disadvantage in that we rely on unimpeded trade flows as we are not self-sufficient across the full range of the economy.

A new or improved trading infrastructure is therefore of direct benefit to New Zealand, offering opportunities that would not otherwise exist.

China Premier Li Keqiang and then-PM Bill English shake hands on the Belt and Road in Wellingon last July

China Premier Li Keqiang and then-PM Bill English shake hands on the Belt and Road in Wellingon last July

Belt and road is also an opportunity for New Zealand to extend  its relationship with China.

The existing free trade agreement between the countries is robust, belt and road gives another plank through which the bilateral relationship can be developed.

China has made belt and road the centrepiece of its own international economic (and wider) relationships.

For New Zealand to stand-aside would be to give the message that ‘your economic concerns are not ours’. In fact, in many ways the two countries’ economic concerns overlap, in principle if not in specific geographical focus.

The initiative does not commit New Zealand to any particular course of activity.

What New Zealand needs to do is to show how it can add value to the overall process and how it can take value from the process without undue cost to itself.

Value for this kind of endeavour is, however, very difficult to quantify. We can though, assume that there will be more benefits than costs to participating in the BRI.

Value, whether added or extracted, is unlikely to be through the development of hard infrastructure, although Chinese investment could help develop port facilities in New Zealand to act as a link between the Pacific, or indeed South America, and the various economic corridors.

More likely for New Zealand, value could be added through the software of the belt and road infrastructure by improving connectivity, rather than the hardware; through development of efficient border processes; through partnering with Chinese organisations on projects of benefit across the developing system; through developing the social component of the initiative; or through providing expertise in areas of concern to other belt and road partners.

There are two ways New Zealand can take value from the belt and road initiative.

The first is in political value. New Zealand has many ‘firsts’ with China and these add symbolic and material value to the relationship. As one of the few non-European western countries formally involved in BRI, New Zealand demonstrably supports the relationship.

This in its own right is valuable for New Zealand.

The second source of potential value is material. Governments can set the shape of the playing field and the rules, but businesses need to exploit the playing field. With 70 countries involved, many in areas not high on New Zealand’s list of business relationships, and with a potential range of activities almost as wide as the imagination allows, there is much scope for new commercial activity. The more we can trade, the more we are likely to benefit.

But value will not be extracted without action. New Zealand must complete its obligations under the Memorandum of Arrangement - primarily to develop an action plan - and it must ensure that New Zealand’s commercial sector is aware of the Belt and Road Initiative and how it could benefit them if they invest in it. As well, the action plan needs to spell out how the non-commercial arrangements of BRI will work in relation to New Zealand.

Without this kind of purposeful activity, New Zealand will be left on the sidelines of what could become the major inter-regional structure of the next decades, perhaps the rest of the century.

The Belt and Road Initiative has the potential to become a significant system, shaping not only trade flows, but all forms of connectivity within the region and between regions.

As such, it does not replace more focused systems (the Trans Pacific Partnership, Closer Economic Relations, Five Power Defence Arrangements), it does not require any particular form of political, economic or social relationship and it does not preclude other relationships in the political, economic or social spheres.

It makes sense, therefore, for New Zealand to be involved with BRI in all of its international, commercial and social aspects to the extent possible, but always keeping watch for costs, obstructions and pitfalls.

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