China's One Belt One Road may offer best avenue for NZ trade talks, academic says

New Zealand is unlikely to gain traction in its bid to upgrade its bilateral free-trade agreement with China while Asia's largest economy is focused on developing its broader One Belt One Road initiative, a leading academic says.

Prime Minister John Key, Trade Minister Todd McClay and Primary Industries Minister Nathan Guy visited China in April to push for a renegotiation of the country's 2008 FTA after long-time trade rival Australia was seen as gaining an edge with New Zealand's largest trading partner from its recently inked agreement.

However, New Zealand is unlikely to make much progress in the talks while China is focused on its OBOR strategy to develop economic cooperation with countries along the historic land Silk Road from eastern China to western Europe, and the maritime Silk Road via the sea, according to Professor Siah Hwee Ang, who holds Victoria University of Wellington's Bank of New Zealand chair in Business in Asia.

"What New Zealand wants is a comprehensive free-trade agreement but what China wants is more like a relationship that allows infrastructure to flourish," he said. "It's not their priority basically to spend more time just trying to negotiate a comprehensive free-trade agreement with a very small trading partner."

The Chinese government turned its focus to OBOR after the policy was announced by President Xi Jinping in 2013. That's moved China's focus toward infrastructure development as a way to bolster trade. Asia alone is estimated to need $US8.2 trillion of infrastructure investment over the decade to 2020, Professor Ang says.

"There is limited proof to prove that free-trade agreements always increase trade," he says. "If China continues signing free-trade agreements and yet their imports and exports are down, that doesn't make any sense. That only makes sense because something else is actually not right and that is not free-trade agreements."

He says the policy is much larger than a free-trade agreement. While the much-touted but now stalled Trans-Pacific Partnership involved 12 countries, 38% of global GDP, 40% of global trade and 11% of the world's population, OBOR includes at least 65 countries, 38% of global GDP and 64% of the world's population.

"The spread of love is actually much bigger in OBOR's case," he said. Major construction projects to build ports in Pakistan, Sri Lanka, Kazakhstan, Cambodia and Indonesia are already underway, as well as railway constructions linking China to Laos, Thailand, Myanmar and Tajikistan.

Professor Ang says New Zealand should actively seek to join OBOR by gaining recognition for projects involving Chinese infrastructure investment, and seeking to become a trade hub for the Pacific route of OBOR.

The Ministry of Foreign Affairs and Trade says China's belt and road initiative is a significant, ambitious project that will have major economic, commercial and financial implications for China and the countries within its scope.

"A more open and efficient international trading environment is certainly in New Zealand's interests," an MFAT spokesman said.

Professor Ang says New Zealand companies need to be aware of the changes afoot that could have a ripple effect on trade flows, noting eight of New Zealand's top 20 export markets are located along the OBOR and 10 of New Zealand's top 20 export markets have signed up for OBOR projects.

Improved infrastructure is likely to mean goods will be delivered to market faster and more cheaply, which could improve New Zealand's geographic remoteness. However, it could also result in some trade displacement as competition increases with countries along the OBOR route.

New Zealand will be best placed to progress its trade ambitions if it aligns itself with China's aims, he says, noting that Australia gained its trade agreement at about the same time it signed up to the Asian Infrastructure Investment Bank, of which New Zealand is also a member.

"There's a lot of 'I give you something, you give me something," he notes. "If we want to have what we want, we also need to make sure we know what they want."

For China, the approach is more along eastern lines of collaboration and networking to achieve mutual benefits over time, compared with a more western approach of explicit formal agreements and contracts, he said.

(BusinessDesk)