It had an abundant supply of high-quality food and the NZ China Council described the other desirable features as a stable economic and political environment and investor-friendly policies.
But there were two other significant features attracting Chinese investment.
NZ businesses had historically struggled to attract investment capital, especially for the primary sector, and the Chinese government’s Going Out policy encouraged Chinese companies to invest offshore.
The Going Out policy was initiated at the start of the century and a report by the Centre for International Governance Innovation described it as an extension of China’s foreign policy, a driver for economic growth and the result of changes in the relationship between the government, state-owned enterprises and banks.
The policy gave companies access to low-cost loans from state banks such as the China Development Bank, which has pushed international investment in the last decade to rise from very little to more than $100 billion a year.
Most of the larger NZ investments have been by some of China’s 113 state-owned enterprises, such as Shanghai Maling’s $261 million investment in Silver Fern Farms.
China was easily the largest foreign investor in the NZ dairy sector with $800m already spent and more than $900m in announced projects.
“Most of China’s largest dairy companies are building a stake in the NZ dairy sector. Many of these are large greenfield projects,” a NZ China Council report said.
At the end of 2014, 107 Chinese SOEs accounted for 70% of China’s overseas direct investment.
“As a result many Chinese investors are able to outbid private companies in competition for assets because of assistance from Beijing.”
NZ’s 2008 free-trade agreement with China accentuated that bilateral relationship with two-way trade worth about $18b.
The goal had been $20b this year but was ankle-tapped by the fall in dairy prices. A new target of $30b has been set for 2020.
Council chief executive Stephen Jacobi said access to safe and secure food that was sustainably produced drove the increased investment in NZ primary production.
China’s food production was a sensitive issue with growing concerns about weak systems, hygiene and water use prompting companies to look internationally.
The benefits of Chinese investment worked both ways.
Jacobi said Shanghai Maling’s investment in Silver Fern Farms enabled the meat company to retire debt and invest in its value-added strategy.
“With SFF the options for owners were not bright.
“With a partner like Shanghai Maling it will transform that business.”
For NZ companies to succeed in China alone took money and knowledge so partnering with a Chinese company was a logical option.
“If they want to sell in China they have to become more like a Chinese company.”
Jacobi said Chinese companies wanted access to food processing so they could tailor products to the Chinese market.
“There is no one-size fits all scenario but companies generally like to have a degree of control over the way product is presented in the market.”
At board level Chinese investors brought funds and knowledge of the Chinese market but realised they often did not have the processing expertise of the company they were buying into.
Jacobi did not think NZ was becoming too reliant on China saying while it was prudent business to spread risk, NZ exporters had by no means exhausted the business opportunities in that market.
China’s investment in the primary sector was dwarfed by deals in other sectors such as the $785m paid by Cheung Kong Infrastructure for Wellington Electricity and $490m paid in 2012 for Envirowaste.
The sector attracting the greatest Chinese investment was infrastructure and utilities followed by primary industry and food.
Writing in the NZ-China Council report, Fostering Growth, NZ Trade and Enterprise China market analyst Parley Reynolds said compared to other small, developed nations, NZ’s stock of foreign direct investment as a percentage of GDP had historically been high.
“In contrast, China’s rapid economic development over the last 30 years sees it positioned to become a new exporter of capital in the very near future.”
The sectors to benefit the most were primary industries, premium food and beverage, tourism, specialised manufacturing, infrastructure, oil, gas and mining and ICT-digital.
Economist Shamubeel Eaqub of Aotearoa Development Co-operative, writing in the same report, said positives outweighed the negatives with investment usually accompanied by management expertise and market access not readily available to the recipient business.
It also allowed greater control of the value chain.
Eaqub said critics of foreign capital viewed it as a form of economic colonialism that raised questions about sovereignty and political influence.
But, NZ’s strong institutions and independent judiciary ensured there was no abuse of ownership.
Historically, such waves of capital investment were led by the United States in the 1970s, Japan in the 1980s and now China.
“In each instance there is a fear that foreign investors will buy up businesses, land and buildings at prices that locals cannot afford, making locals tenants in their own country.
“However, in most instances, these fears have proven unfounded.”
