A long-gestating proposal to place New Zealand at the centre of a trade route between Asia and South America may be given new life, with Trade Minister Todd McClay seeking fresh advice on the concept’s merits.
McClay told Newsroom of his interest in the Southern Link plan before a trip to China this week – the first by a minister under the new Government, just over six months after last year’s election.
The minister said the decision to prioritise travel to other countries including India and the United Arab Emirates reflected the coalition’s desire to forge new trade ties, rather than any change in the significance of bilateral ties.
He had already met Chinese commerce minister Wang Wentao on the sidelines of the World Trade Organisation’s ministerial conference earlier this year, and the country’s foreign minister Wang Yi had visited New Zealand last month.
“New Zealand can’t take the trading relationship for granted – we’re too small [and] too far away, and if you think about China, everybody is there trying to do more as far as the relationship and trade is concerned, so you’ve got to keep investing in those relationships.”
Though some Kiwi exporters have noticed a drop in demand from the Chinese market because of an economic slowdown, New Zealand International Business Forum executive director Stephen Jacobi told Newsroom the country was “still adding enormous amounts of growth every year” and remained a crucial market.
Jacobi visited Shanghai late last year and said large companies such as Zespri and Fonterra, as well as business groups, were all bullish about the future of the trade relationship.
“Yes, China has difficult structural problems. Yes, it has to continue the work it started on reform and opening up. Yes, they’ve got a huge unemployment problem.
“But remember, we are not supplying to the whole of China – we’re supplying to China’s middle class, which is continuing to expand.”
McClay said one key area for improvement was trade in services, with both countries having agreed to move from a ‘positive list’ approach – where specific sectors are granted favourable access – to a ‘negative list’, with businesses able to trade freely unless otherwise specified.
Jacobi said New Zealand also needed to bring “some big ideas” to its discussions with China, rather than relying solely on trade and investment.
“If that’s all the relationship is, then it’s risky because who knows what might happen to disrupt that, particularly in the world in which we live?”
One of those big ideas is the plan for a Southern Link trade route – placing New Zealand as a central hub for the flow of goods and people between South America and China (and the rest of Asia).
A 2021 report from economic consultants NZIER for the NZ China Council estimated there would be $1.87 billion in direct economic benefits for New Zealand over a decade.
There has been little progress since the council first proposed the Southern Link in 2019, but McClay said he had asked officials for some advice on the practicalities of the concept and the economic benefits it could deliver to New Zealand.
“It is quite interesting as a concept … how do you get from Southeast Asia with air freight and with people to South America? It’s pretty hard at the moment, you’ve got to go up and down, and for once geographical isolation is a real advantage [for New Zealand].”
McClay may also face questions from China about its desire to join both the CPTPP trade deal and the Digital Economy Partnership Agreement (Depa).
The country first applied to join the trading bloc more than two and a half years ago, but geopolitical sensitivities – coupled with concern about whether China can meet the deal’s rigorous standards – have acted as barriers to progress.
In late March, the Chinese ministry of commerce announced it had begun pilot programmes on par with CPTPP standards in its free trade zones that serve as a testing ground for new regulations. Last week, the South China Morning Post reported a new data flow service centre in Shanghai’s Lingang free trade zone, “with pledges to adopt internationally recognised standards”, would seek data cooperation agreements with New Zealand and Singapore.
Jacobi said China was almost certainly frustrated with the lack of progress on its accession request, but its “complicated relationships” with CPTPP members such as Japan, Australia and Canada were another hurdle the country would need to overcome.
McClay said he was happy to talk to Chinese officials about their interest in CPTPP and Depa, but work was still underway on how to handle the multiple accession requests.
“The most important thing here is that actually for countries that can meet the level of ambition in CPTPP, they all deserve to be treated equally and fairly and the same.”
McClay said he was not personally aware of any approach from the Shanghai data centre, but was looking forward to learning about it – and the broader free trade zone concept – when he visited the city.
McClay is also visiting Beijing and Harbin, and will return to New Zealand on Friday.
Todd McClay knows, as we all do, that we must stop using fossil fuels. So it is only natural for him to see expanding trade routes would increase fossil fuel use, one of the most intense planks of the new government.
Really great to see trade ties matured with China, but it is important not to dissociate that with our broader common interests, particularly around a future of developing a peaceful cooperating community as China expands its influence. At the same time as NZ maintains its engagement with its traditional western allies, as well as expanding relations in the Indo-Pacific. It is a complex dynamic to maintain.