New Zealand apol­ogy ex­plains a lot about

China Daily (Hong Kong) - - BUSINESS VIEWS - GILES CHANCE The author is a vis­it­ing pro­fes­sor at Guanghua School of Man­age­ment, Peking Univer­sity. The views do not nec­es­sar­ily re­flect those of China Daily.

China’s eco­nomic suc­cess has changed the world. No longer iso­lated, China has be­come in­te­grated into the global econ­omy and, there­fore, into global af­fairs. China’s ex­ports are en­abling emerg­ing na­tions to im­prove their stan­dards of liv­ing. Its mas­sive de­mand for qual­ity im­ported prod­ucts makes it a key mar­ket for many multi­na­tion­als, while its ap­petite for com­modi­ties has be­come es­sen­tial to the health of many national economies, in­clud­ing poor ones.

One re­cent po­lit­i­cal and diplo­matic de­ci­sion high­lights this new in­ter­con­nected eco­nomic world or­der.

Ear­lier this month, we learned that New Zealand Prime Min­is­ter John Key will make a spe­cial trip to China to apol­o­gize in per­son for the re­call of con­tam­i­nated milk prod­ucts sold by his coun­try’s largest dairy co­op­er­a­tive, Fon­terra.

Al­though the con­tam­i­nated batches of milk prod­uct were pro­duced as long ago as May 2012, it was only at the end of July 2013 that Fon­terra sent a re­call to the eight cus­tomers in China, Aus­tralia, Rus­sia and the United States who had re­ceived the con­tam­i­nated prod­uct.

Within a few days, the story had spread. Fon­terra’s CEO vis­ited China in early Au­gust to pro­vide ex­pla­na­tions and re­as­sur­ance. A week later, Key de­cided he will come to China him­self.

The prime min­is­ter’s re­sponse con­trasts with what hap­pened ear­lier in May, when the for­mer chair­man of Fon­terra, Sir Henry van der Hey­den, told a busi­ness con­fer­ence in New Zealand that “do­ing busi­ness in China is full of sur­prises”. In re­sponse to a ques­tion, he added: “Bad ex­pe­ri­ences should be used as ex­pe­ri­ences to learn from. Don’t trust them, ever.”

New Zealand op­er­ates 60 per­cent of the world’s trade in dairy prod­ucts. Since the Sanlu milk scan­dal in China in 2008, when it was dis­cov­ered that Chi­nese farm­ers were adding a poi­sonous in­dus­trial prod­uct to cows’ milk to in­crease the per­ceived pro­tein con­tent, China’s de­pen­dence on im­ported milk prod­ucts, par­tic­u­larly in­fant for­mula, has in­creased dra­mat­i­cally.

New Zealand’s rep­u­ta­tion for prod­uct safety has made it into a key sup­plier to Chi­nese house­holds. In 2008, New Zealand’s ex­ports to China to­taled NZ$2.5 bil­lion ($2 bil­lion). In 2012, they were worth NZ$6.9 bil­lion, al­most a three­fold in­crease in four years.

Al­though Rus­sia joined China in plac­ing an im­me­di­ate ban on im­ports of the af­fected dairy prod­uct from New Zealand, Key has not an­nounced that he will visit Rus­sia to apol­o­gize there as well. It’s not dif­fi­cult to see why. Rus­sia im­ported NZ$230 mil­lion worth of prod­ucts from New Zealand in 2012. By con­trast, so far in 2013, 18 per­cent of New Zealand’s ex­ports have gone to China, which, re­in­forced by a Sino-New Zealand free trade agree­ment signed in 2008, has just over­taken Aus­tralia as New Zealand’s num­ber one trade part­ner.

Given New Zealand’s lead­ing role in the global dairy trade, and with Chi­nese de­mand for dairy prod­ucts pro­jected by Fon­terra to in­crease by 7 per­cent an­nu­ally through to 2020, China is set to be­come New Zealand’s dom­i­nant ex­port mar­ket.

Ex­ports make up one-third of New Zealand’s GDP. China is start­ing to play a crit­i­cal role in New Zealand’s eco­nomic well-be­ing. That’s why Van der Hey­den was forced to is­sue a pub­lic apol­ogy a few days af­ter mak­ing his com­ments about do­ing busi­ness in China.

Van der Hey­den said his re­marks had been taken out of con­text and that he was “re­ally pos­i­tive” about China. The fact is, though, that New Zealand’s in­creas­ing eco­nomic de­pen­dence on China has changed the coun­try’s at­ti­tude to­ward its huge North Asian trad­ing part­ner.

It’s not just New Zealand that is be­com­ing heav­ily de­pen­dent on Chi­nese de­mand to ex­pand its econ­omy. Six per­cent of Aus­tralia’s GDP now de­pends on ex­ports, mainly of iron ore, to China. Com­mod­ity pro­duc­ers in poor or mid­dle-in­come coun­tries in Africa and Latin Amer­ica — such as Peru, Brazil, the two Con­gos and South Africa — have ben­e­fited greatly from the surge in Chi­nese de­mand since 2000.

Statis­tics pro­vided by the In­ter­na­tional Mone­tary Fund show that be­tween 2000 and 2012, per capita GDP in pur­chas­ing power terms in emerg­ing coun­tries in­creased by 123 per­cent. In ad­vanced economies over the same pe­riod, it in­creased by only 45 per­cent. China’s ar­rival on the world scene has given much of the poor world a huge eco­nomic boost.

But the other side of the coin is that many coun­tries with much smaller economies are be­com­ing heav­ily de­pen­dent on con­tin­ued growth in Chi­nese de­mand for in­creases in their stan­dards of liv­ing.

Even as its econ­omy slows, China will con­tinue to de­pend for food and com­mod­ity im­ports on sev­eral key sup­pli­ers. Some of th­ese, such as Brazil, are still emerg­ing coun­tries. Oth­ers are ad­vanced economies, such as Switzer­land, which has just fi­nal­ized a free-trade agree­ment with China and makes it a vi­tal con­duit for China’s trade with the Euro­pean Union. In the first half of 2013, Swiss ex­ports to China leapt by 135 per­cent year-on-year to $26.8 bil­lion, plac­ing Switzer­land 10th be­hind South Africa, Malaysia and mighty Ger­many in a 2013 list of coun­tries ex­port­ing to China.

Key’s de­ci­sion to visit China high­lights the ex­tent of the coun­try’s in­te­gra­tion into the global trad­ing sys­tem, which has made the sit­u­a­tion to­day very dif­fer­ent from 200 years ago..

The Fon­terra case shows that China’s con­tin­u­ing global in­te­gra­tion, highly ben­e­fi­cial both for China and the rest of the world, re­quires a con­tin­u­ing align­ment of ideas be­tween East and West. This dif­fi­cult but es­sen­tial process will play a ma­jor role in the world’s evo­lu­tion over the next few decades.

ZHANG CHENGLIANG / CHINA DAILY

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