Newsroom Pro March 28: Premier Li's steely rebuke; NZ and one belt, one road

The stage managed signing session at Premier House. Photo: Bernard Hickey

In today's email we detail what really matters from the Chinese Premier's visit, including his steely response to a trade question and what the 'One Belt, One Road' initiative might mean for New Zealand.

1. Premier Li's steely rebuke

Yesterday's joint signing session and news conference was supposed to be a staged managed affair where the object was not to create any news other than the slew of friendly trade and cooperation deals.

And that was almost the case until the last moment when Premier Li Keqiang intervened to lash back at Newshub reporter Lloyd Burr's question about MBIE's investigation of New Zealand Steel's allegations of steel dumping by China.

Premier Li had appeared to let the question slide, perhaps after hearing a mis-translation, but jumped in after Prime Minister Bill English seemed to have finished the news conference. And importantly, after he was handed a note from a Chinese official.

Firstly, he referred back to Burr's question and pointed out that only 10 percent of China's steel output had been exported, and that China had been reducing production of unwanted products in the last year because of a global over-supply.

He also said China's zinc-coated exports of steel made up just five percent of New Zealand's steel imports.

"China is not dumping steel products in New Zealand," he said.

And then came the less than subtle followup...

2. Putting dairy and steel together

Premier Li went straight to a discussion about dairy exports.

"Likewise, 50 percent of China's dairy product imports are from New Zealand, but we haven't said New Zealand is dumping dairy products in China," he said.

He then went on to highlight China's trade deficit with New Zealand and the need to be "open-minded" in addressing that.

"China has a deficit with New Zealand, but we haven't seen that as negative."

New Zealand exported NZ$9.570 billion worth of goods to China in the year to February and imported NZ$10.218 billion worth of goods, so New Zealand actually has a goods deficit with China. But once the services are added (particularly the NZ$2.55 billion of tourism), the balance of trade turned into a surplus for New Zealand of NZ$1.806 billion for the calendar 2016 year.

Last year's suggestions from exporters that China was issuing not-so-vague threats about the New Zealand Steel allegations may therefore have had more substance, given the strength of the reply by Premier Li in public -- especially while standing next to Bill English at such an official function.

To connect the allegations with New Zealand's massive dairy exports to China and then to mention in passing that China has a trade deficit with New Zealand shows China is watching that MBIE investigation closely -- at the very least.

3. No pressure Jacqui...

MBIE is still investigating the allegations and is due to report back to new Commerce Minister Jacqui Dean by July. She will have to make a decision with cabinet about whether to proceed with any anti-dumping measures through the WTO.

That will be one of the Government's biggest foreign policy decisions in the year ahead, with the timing just a few months before the September 23 election being less than convenient. There will be 1,500 workers at the Glenbrook steel mill on tenterhooks too.

A decision is due by July 9.

4. One belt, one road and many big projects

The other major topic in the news conference, where Premier Li and English received one question each from a Chinese journalist and a New Zealand journalist, was the 'One Belt, One Road' Initiative.

This is Chinese President Xi Jingping's major geo-politicial push out into Asia and Europe and is seen as a projection of soft power aimed at filling the vacuum left as America under Donald Trump recedes from the region.

It is a US$1 trillion collection of road, rail and port projects designed to encourage and drive trade within Asia and between Asia and Europe over the old Silk Road by land and a new maritime Silk Road via the South China Sea.

China is gathering together partners and is also seen pushing the initiative down into Oceania. Yesterday's slew of agreement signings included a vague "Memorandum of Arrangement on Strengthening Cooperation on the Belt and Road Initiative."

The details on what that meant were sparse, but MFAT's briefing document referred to commercial opportunities for New Zealand firms and that it "provides a way for New Zealand to engage in China’s key regional integration strategy."

5. Is the CRL in One belt, One road?

Bill English told a later news conference for New Zealand journalists he had not discussed any specific Chinese bids for infrastructure projects here -- in particular for the City Rail Link project.

RNZ's Phil Pennington reported
a Chinese state run construction firm could bid to build parts of the CRL rail tunnel project, with hundreds and possibly thousands of workers from China being used to build the project, but living in cruise ships moored in Auckland.

English said New Zealand welcomed bidders from all around the world and said they would have to comply with New Zealand rules and regulations, including labour rules.

He agreed that housing Chinese workers in cruise ships on Chinese wages was probably not legal.

6. How NZ tip-toes between China and America

Here's my longer piece over at Newsroom on how One Belt, One Road fits into New Zealand's strategic thinking, and how our diplomats and politicians have to be careful with our footwork so as not to upset either China or America too much.

Victoria University's Professor of Strategic Studies Robert Ayson says we will want to be in to ensure we're not locked out, but we're unlikely to want to be in boots and all.

"New Zealand's great fear in this is we worry about being left out. We worry about being marginalised. We don't want Pacific Rim countries like ourselves, western-oriented countries like ourselves, left out," he says.

"The New Zealand approach is we would rather take the risk of being involved, than the risk of being left out. You can be bit involved, and it's better to be a bit involved than not involved at all."

7. But there's good news too...

The steel comments and the One Belt, One Road talk may have overshadowed the other agreements signed yesterday, but there was good news for beef exporters and the tourism industry.

China agreed to a six month trial of imports of chilled beef from 10 processors and also to extra 10 direct flights between New Zealand and China. See more here in the piece we put up for Newsroom Pro yesterday.

There may be a loser though -- the onion industry. New Zealand also agreed to take imports of retail-ready onions from China.

8. One fun thing...

The translation of Premier Li's comments on steel were closely listened to, but they weren't without a bit of fun.

The translator kept pronouncing dairy as diary.

As one colleague noted, we could be making a fortune if we were major exporter of diaries for China's 1.4 billion people.