China: Changing New Zealand forever
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pwc.co.nz
China: Changing
New Zealand forever
PwC New Zealand
China Practice
April 2012
China: Changing
New Zealand forever
The importance of changing businesses as China becomes more The rise of China is the most
open than ever before to inbound remarkable event of this century. China
with the times
investment and expertise. has become the world’s powerhouse
While some commentators have talked about
It’s an exciting time to be a New
As a country, we are very lucky
economy, returning to a level of a real estate bubble in China, China’s housing
Zealander. It’s been a challenging
few years, yet we have many great
to have a strong and successful
international status and influence held
for centuries prior to the industrial
market is not central to its financial system in
things going for us in our corner
neighbour like China on our side,
revolution in the west. In 2000, China the way housing is critical in New Zealand and
especially when China has no
of the world.
shortage of companies and countries
accounted for only 7.1% of global gross the United States.
domestic product (GDP) in purchasing
With China’s rise as an economic queuing up for its investment capital.
power parity (PPP) terms. In 2010, the
powerhouse, New Zealand no longer
We need to consider how we can best number had increased to 13.3% and by We expect the New Zealand presence $245 million (m). Of New Zealand’s
has to fight to be heard from the
benefit and grow this relationship, 2020, it is expected to reach 20.7%1. in China to grow significantly non-agricultural exports, 2011 saw
outer edges of the world. We are now
by positioning our businesses and China is now the world’s second largest with governments on both sides the largest increase in value, up 37%
firmly positioned in the centre of
planning for long term strategies that economy, having overtaken Japan in encouraging investment and growth, to $2.1bn3.
eco-political power in the Asia Pacific
region, where many of the world’s further build our already close ties. 2010, with Goldman Sachs estimating yet New Zealand businesses must
China’s economic output will match the also change to embrace and enjoy the
fasted growing economies are based,
United States by 2027. It contributes
A stable outlook?
with China leading the charge. opportunities.
about $400 billion (bn) of new wealth According to PwC’s 2011 APEC
The Year of the Dragon is set to be a annually, double the amount of new In this short paper, we consider the
survey 4, Chinese CEOs have concerns
fortunate year for us in New Zealand. current relationship between China
wealth creation in the United States. about inconsistent regulations
At a time when New Zealand and New Zealand, and consider what
opportunities this offers to businesses and standards, underdeveloped
businesses have a desperate need Yet, companies from around the globe China also has plenty of capacity to
from both countries. infrastructure, restrictions in cross
for capital investment, none more are also targeting China, focusing deal with any economic slowdown.
border investments, talent shortages,
so than in Christchurch, we particularly on the opportunities With national debt at less than 20%
lack of access to capital, effects of
are delighted China is showing a created as a result of the growing The numbers tell the story climate change, inadequate and of GDP, the Chinese Government can
real interest. consumer market being generated by engineer a soft landing. According to
According to the Ministry of Foreign unreliable power supply, weak and
China’s burgeoning middle classes. the official figures, consumer price
As you’ll read in our report, China Affairs and Trade (MFAT), in the year restricted access to consumer credit,
Many of these companies already inflation dropped from 5.5% in October
is now the world’s second largest to October 2011 New Zealand’s exports and political and regional instability.
have significant business interests and to 4.2% in November 2011, suggesting
economy, having overtaken Japan investments in China. The Chinese to China grew 34%, from $4.3bn to
Experts from the region say the Chinese the Chinese Government is taming
in 2010, and it is estimated China’s market is enticing but competitive and $5.8bn, and imports from China grew
Government is aware of these issues and inflation. Bank lending is also tightly
economic output will match the attracting ever increasing numbers of 13%, from $6.1bn to $6.9bn2. This was
is moving to rectify them with various controlled by the Chinese Government.
United States by 2027. international competitors. largely driven by a surge in two-way
programmes, a number of which are While some commentators have
trade, education and tourism, since
China is transforming its economy at outlined in the Government’s 12th Five- talked about a real estate bubble in
Bruce Hassall New Zealand relies on its exports and New Zealand signed the historic free
breakneck speed. It will move from Year Plan, published in March 2011. China, China’s housing market is not
Chief Executive Officer trade with the rest of the world for trade agreement (FTA) with China in
being the world’s workshop, into as central to its financial system in
its wealth creation and standard of 2008. With China’s economic growth You may ask if New Zealand businesses
an economy with a large domestic the way housing is critical in New
living. As the global economic centre of outpacing other major countries, New are running a risk building links with
consumer market thanks to a rapidly Zealand and the United States. Buyers
gravity moves East, China is changing Zealand is well placed to benefit from China when the World Bank has
growing middle class. This creates are restricted to the relatively wealthy
the world, creating new opportunities Chinese growth through, amongst other warned of a slowdown in China5. These
enormous opportunities for all and they generally pay in cash. There
for New Zealand businesses to tap into things, energy and resource exports. warnings should be kept in perspective.
New Zealanders and New Zealand are also strict regulations, including
the world’s fastest growing market. Statistics New Zealand figures show China is still in the early stages of its
a mandatory 30% down payment
agricultural exports to China increased development. China’s GDP per capita
for first-time buyers and a 60%
by 37% and are now worth $3.5bn, is just US$5000 and its PPP is only
down payment for a second property
including $2.3bn in dairy exports. US$10,000: compare this with Korea
purchase (regardless of whether the
1. Euromonitor Global Market Research blog. July 2010. Available at http://blog.euromonitor.com/2010/07/special-report-top-10-largest-economies- Forestry exports increased where the GDP per capita is US$20,000
in-2020.html. loan for the first property has been
by 43% to $1.4bn, while fish and and PPP is US$30,000.
2. Ministry of Foreign Affairs and Trade. March 2012. Available at http://www.mfat.govt.nz/NZ-Inc/6-Opening-doors-to-China/1-New-Zealand-and- repaid, or the property has been
China/1-Bilateral-relationship.php.
shellfish exports were up 89% to
3. Statistics New Zealand. Global New Zealand international trade, investment, and travel profile: year ended June 2011.
4. The future redefined, Asia Pacific at an inflection point. PwC’s 2011 APEC CEO Survey, November 2011.
5. Marketwatch. World Bank’s Hansson sees slower China growth. November 2011. Available at http://www.marketwatch.com/story/world-banks-hansson-
sees-slower-china-growth-2011-11-25.
2 PwC New Zealand China Practice China: Changing New Zealand forever PwC New Zealand China Practice China: Changing New Zealand forever 3
China is more open than ever before to inbound
investment and expertise.
Water and cultivatable land scarcity in China limit Chinese
agricultural production, making New Zealand agribusiness an
attractive option for Chinese food producers feeding the world’s
biggest market.
sold), limiting opportunities for risky Phases of investment In February the New Zealand
borrowing like the kind seen in the US Government announced its NZ Inc
sub-prime market. While a material New Zealand’s trade relationship China Strategy “Opening Doors to
decline in property values would still with China is now strong, but China”. Increasing bilateral investment
impact the broader economy, the investment is not at the same level was one of the Government’s five The big opportunities for New Zealand business are in the
of maturity. To create permanent strategic goals and it identified target
impact would not mirror the US or
European experience. In short, any links with China that will benefit sectors where it wished to grow New
Chinese hinterland, in the second and third tier cities.
broad economic slowdown in China New Zealand, greater investment Zealand’s presence. One of the biggest
is expected to be carefully managed, is critical: trade is always more growth areas in the short term is food
ensuring opportunities remain for temporary than investment. Chinese and agriculture. New Zealand food and
New Zealand businesses both at investment in New Zealand stands agriculture, particularly dairy products,
home and abroad. at around NZ$1.8bn as of early meat, seafood and fruit is particularly Finding your opportunity driver over the next three to five years. grow our economic ties. As part of this
20101, with much of this due to attractive because of the rising demand Furthermore, 79.3% said they would focus, the Government announced
It is important to remember China led in China
investment flowing into the forestry for quality food and products from be making their largest investment over five strategic goals in its NZ Inc China
the world in science and technology sector, along with manufacturing a growing middle class. Water and Chinese investment in New Zealand the next three to five years in China. Strategy, which included increasing
from about the tenth century to about and commercial construction cultivatable land scarcity in China limit represents a big opportunity which bilateral collaboration, investment and
the fifteenth century. Chinese sciences There are specific areas of focus: doubling two-way goods trade with
industries. Chinese agricultural production, making will generate jobs and help create
and technologies were concentrated 64% nominated financial services, China to $20bn by 2015.
New Zealand agribusiness an attractive prosperity. It will strengthen the
But we should now be moving into our 66.7% would be looking to develop
in several fields, mainly material option for the Chinese, particularly food bilateral relationship and draw
next phase, with Chinese investment managerial capabilities, and 53.8% said Businesses that could target China
production, transport, weaponry and producers feeding the world’s biggest the two countries closer together,
starting to expand into other areas. they would be investing in innovation. would include beef and seafood
medicine. While western countries have market. China has positioned itself as creating a valuable economic
We’re seeing increasing interest in suppliers, transport, financial services,
led the way in these fields in recent the world’s biggest factory and New alliance. This is significant because it suggests
real estate, food and agriculture, agribusiness, pharmaceuticals, health
times, China is certainly returning to a Zealand could turn itself into a key food China is more open than ever before
and tourism sectors by smaller Chinese Still, Chinese investment in New products, and niche IT technologies. Yet,
stronger global position once more. It’s provider. China is rapidly running out of to inbound investment and expertise.
investors. The Government has Zealand will be heavily influenced by opportunities may exist for any company
important to recognise this long history farmland and its population is growing And with Europe and the US economies
the focus of Chinese companies on with ambition.
of industrial and economic strength identified the following sectors as and getting richer. New Zealand, by still convulsing from the impact of the
means the Chinese Government takes being of potential interest: food and way of contrast, has plenty of water. their domestic market, and that offers global recession, New Zealand is well Other opportunities are emerging with
a long-term perspective on economic beverage, natural resources, cleantech, New Zealand also has strict rules about New Zealand businesses significant positioned to offer good partnership Chinese planners trying to transform
high-value manufacturing, IT, growing crops and stringent regulations investment opportunities in China. opportunities for China. New Zealand’s China from being just the world’s
cycles. There will be rises and dips, but
and infrastructure. about animal welfare and food In PwC’s 2011 APEC survey, Chinese strong historical relationship presents a factory. In China’s 12th Five-Year Plan
the trend to growth will continue. With
production to ensure a high quality and CEOs revealed of the investments great advantage, but how should New preferential tax, fiscal and procurement
a population of 1.4bn, no other country
safe product. New Zealand also does being made over the next three to Zealand businesses make the most of it? policies have been introduced to develop
is in a position to replace China as the
not have the same sort of contamination five years, 88.5% said they would be seven strategic emerging industries:
world’s factory. China has the world’s investing in domestic manufacturing To make the most of Chinese
issues found in other markets. Already, biotechnology, new energy, high-end
largest manufacturing workforce, and 75% said they would be making opportunities, New Zealand businesses
China is New Zealand’s largest market equipment manufacturing, energy
estimated at more than 112m people. investments to meet domestic demand. need to be prepared to invest and
for exported milk powder: this could conservation and environmental
According to the survey, Chinese CEOs collaborate alongside Chinese partners protection, clean energy vehicles, new
be just the beginning. to generate commercial opportunities.
remain heavily focused on domestic materials and next generation IT. For
demand with 34.4% seeing it as the The New Zealand Government has New Zealand businesses with expertise
main growth opportunity, and 51.7% recognised this need for greater in these areas, China’s plans represent a
saying they see their domestic market investment and collaboration by
big opportunity.
as the most important investment committing resources to formally
1. Ministry of Foreign Affairs and Trade. March 2012. Available at http://www.mfat.govt.nz/NZ-Inc/6-Opening-doors-to-China/1-New-Zealand-and-
China/1-Bilateral-relationship.php.
4 PwC New Zealand China Practice China: Changing New Zealand forever PwC New Zealand China Practice China: Changing New Zealand forever 5
Perhaps the greatest opportunities The importance Others would prefer to go in on In summary PwC welcomes the New Zealand Government’s
for New Zealand businesses are their own, working with locals to
in the Chinese hinterland, in the
of relationships
build relationships. To do that, the China is becoming the global
‘NZ Inc China Strategy’
second and third tier Chinese cities Relationships are very important to the business needs to identify key decision
makers; keeping in mind Chinese
economic centre of gravity
like Huangshan, Shaoxing, Wuzhen success of a product or service in China.
and Chengdu: the capital of Sichuan If the relationship is solid and the organisational structures are often for the next generation. Over
province in southwest China which has product or service is good, the company rigidly hierarchical. In New Zealand, many years New Zealand has We welcome the New Zealand Our firm believes New Zealand has
a population of 14m (2010), out of a is in a strong position. Sometimes, even companies can build connections by positioned itself well to benefit Government's NZ Inc China benefited from China being our
developing relationships with entities Strategy that was launched on second largest trading partner. China
total of 80m across Sichuan. China is if the relationship is strong but the
and managers at the coal face. Once
from this change. Yet, New 3 February by Prime Minister has continued to grow strongly
much more than Beijing, Shanghai and product or service is not top line, the Zealand must be prepared to
other internationally recognised cities. company can still do good business.
those relationships are well established, Hon John Key. when most of the rest of the world
the business can make contact with the invest in order to secure long has faltered. The Government has
people running the company and the Indeed, we confirm our support for
European and American companies In China, the quality of relationships term meaningful benefit from the Government’s policy directions
recognised the importance of the
have been in Beijing and Shanghai for can make or break a business. In owners. In China, it works the other relationship with China for the
way. The connection needs to be made
this relationship. China’s and partnership objectives it
30 years. They are well entrenched in New Zealand, you win a contract future economic prosperity of New
those markets and they have already and develop a relationship from with the decision makers first. long economic history means identified across five key areas: Zealand, and is committing resources
built strong relationships. Without a there on. In China, if you don’t have business and government 1. Retain and build a strong resilient to take economic ties with China to a
Cold calling in that kind of market
unique product, it can be difficult for a solid relationship to start with, you does not work. Instead, New Zealand counterparts think long political relationship with China new level.
New Zealand companies to break into are probably wasting your time. But businesses need to find people either term, and are less focused on 2. Double two-way goods trade with Our firm and its people have been
those markets. building relationships takes time and in their own organisation, or through short term economic hurdles. China from $10bn to $20bn by
there are different approaches to doing working hard to facilitate closer
their business networks, who know and To succeed, New Zealand 2015
New Zealand companies on the other it, much of it would depend on the relationships between China
have access to the decision makers and
hand could pick up business with the industry and the products and services establish links from there. This requires companies need to plan their 3. Grow services trade with China by and New Zealand for mutual
continued growth of the second and being offered. Some companies may own long term strategy, do 2015 (education by 20%, tourism benefit - as shown by the China
a lot of time and research. For many
third tier cities. Over the next three to by at least 60% and other services Development Bank’s recent signing
five years, China will have the entire
choose to enter a joint venture with a companies, it could take two years to their research, and build of a Memorandum of Understanding
Chinese company. build relationships before they even trade)
infrastructure it needs in tier two and relationships. For many New with PwC.
start making money. 4. Increase bilateral investment to
three cities, a massive opportunity for Zealand businesses this long
levels that reflect the growing
New Zealand companies. There are also tremendous term perspective requires a commercial relationship with
opportunities for Chinese expertise in
building New Zealand infrastructure.
change in mindset. It is critical China
Infrastructure development in New New Zealand businesses 5. Grow high quality science and
Zealand takes years, but the Chinese ensure they have a long technology collaborations with
A New Zealand China Council will have shown the world they can
build cities quickly. Through the
term alignment of interests, China to generate commercial
however the business venture opportunities.
bring together leaders in business, China Development Bank, China has
is structured. China is not a
the public sector and academia. offered to help with the rebuilding of
Christchurch. The relationship between market for the short term.
It will be charged with leading a New Zealand and Chinese businesses
is a work in progress and governments
high-level bilateral partnership on both sides are investing heavily in
forum with Chinese counterparts. building those connections over the
next few years, to keep things on track
and make the most of our existing
strong platform.
6 PwC Australia China Practice China: Changing Australia forever PwC New Zealand China Practice China: Changing New Zealand forever 7www.pwc.co.nz Contacts Colum Rice Craig Armitage Scott Kerse Partner Partner Partner Auckland Christchurch Auckland T: +64 9 355 8094 T: +64 3 374 3052 T: +64 9 355 8433 E: colum.rice@nz.pwc.com E: craig.armitage@nz.pwc.com E: scott.kerse@nz.pwc.com Mandarin & Cantonese queries Mandarin queries Michael Tan Wendy Wang Senior Manager Manager Auckland Auckland T: +64 9 355 8770 Tel: +64 9 355 8774 E: michael.s.tan@nz.pwc.com E: wendy.yun.wang@nz.pwc.com © 2012 PricewaterhouseCoopers New Zealand. All rights reserved. ‘PwC’ and ‘PricewaterhouseCoopers’ refer to the New Zealand member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
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