China can't get enough of our dairy

Last updated 05:00 02/03/2014
Xi Jinping
Reuters
NO 1: Chinese President Xi Jinping often expresses food safety and agricultural need as the number one issue for China.

Relevant offers

Dairy

Synlait Milk plant approved, waiting on China New Synlait Milk canning plant gains MPI approval More Canterbury farmers obey poo rules A2 growing but little profit Westland Milk's forecast dives under $6 Big dairy deal fillip for south Business welcomes Fonterra expansion Fonterra's Chinese food deal a 'game-changer' Fonterra workers get down in the mud Fonterra plans China partnership

How long will China's insatiable thirst for New Zealand dairy products last? Make that at least a decade. Maybe two.

Mark Schwartz, vice-chairman of Goldman Sachs Group, has been immersed in Asian markets since his first visit to the region in 1980.

After 10 years away from the global investment bank, spent advising fund manager George Soros and co-founding a clean-tech investment firm, Schwartz returned to Beijing in 2012 to take charge of the firm's Asia-Pacific business.

During his first visit to New Zealand as chairman of Goldman Sachs Asia Pacific, he talked to the Sunday Star-Times about the opportunities and frustrations in dealing with the Asian juggernaut.

Q: If China is the world's most important economy, how does New Zealand fit in?

A: "New Zealand is small country and a small economy but interestingly the things that New Zealanders focus on are hugely important to many countries in Asia, most especially China and most especially in the whole agriculture sector.

"Food safety, food security and food quality are hugely important to China in particular. China's lacking all of the above.

"In the last few years the dairy industry is booming in China. We've been taking public, and investing in, a number of Chinese dairies, but the Chinese dairies are hugely reliant on New Zealand. For example one of the companies we were taking public in China, Huishan Dairy, was extremely interested in Fonterra, just in terms of learning how a quality dairy operates, how cattle are raised, all of the technology associated with farming at that level."

Q: Some of the supply shortage in China is said to be due to outbreaks of foot and mouth disease, which they call "disease number five". How bad is it?

A: "I read those same reports. How bad is it? I really don't know. It would be hard to know because this is where the Chinese are still very opaque and very guarded. The extent of issues and problems like that are never easily knowable to journalists or anyone actually. I hear Xi Jinping, the President of China speak all the time and I'd say Xi Jinping often expresses food safety and agricultural need as the number one issue for China."

Q: Once the disease has gone and with investment in more dairy farms and processing, will China's supply shortage ease in a few years?

A: "I don't really believe that. New Zealand being a leader in dairy and agriculture is a huge competitive advantage. That's not going to go away. I think it will become a bigger and bigger advantage this decade.

Ad Feedback

"Over the next 20 years, not the next five or 10 years, China will figure out solutions to most of its issues. But for the foreseeable future, certainly the next two decades I think there's going to be tremendous demand for New Zealand products, in China alone."

How long will China's insatiable thirst for New Zealand dairy products last? Make that at least a decade.

The latter. The issues in China related to food safety are all intra-China. The Chinese have very high regard for New Zealand and for Fonterra. That company in particular is viewed as one of the highest quality businesses and management teams. I know there was a concern about some of their dairy products being contaminated, but the way they responded immediately and openly is a good model for the Chinese. They don't respond nearly that way and there have been endless numbers of concerns about contaminated food and dairy products in China.

"Those issues about quality and safety haven't gone away but it's among all the Chinese dairies, not extending to Fonterra or any of the New Zealand dairies."

Q: There's a lot of restriction on New Zealand companies trying to do business in China. How do they get around that?

A: "Well it's not just New Zealand companies, it's frustrating for companies around the world including Goldman Sachs to really engage as much as we would like with the Chinese. I think that'll change over time, and it'll change in the near term now."

Q: There's also concern about Chinese inward investment here. Should we be concerned? Is China working to a plan?

A: I'd broaden it to say firstly I'm very impressed with China's government. I've been impressed over the last 30 years and I'm even more impressed this year, because 2013 was a real pivot for the Chinese - a new government in Xi Jinping and Li Keqiang, a plenary session which created a roadmap for comprehensive reform in the long term.

"So I'd give Xi Jinping an A for his first year as the leader of the Chinese. One of the things that's very impressive about the Chinese is they're very strategic, they set goals nationally and then they pursue those goals. They're very strategic in the way they need to and want to acquire assets overseas.

"Most of the assets they're trying to acquire are natural resources, energy and agricultural assets. There's a reason for that - they are deficient in all of those areas and they are not going to overcome their deficiencies for a very long while. They realise that, so they've aggressively gone after assets in Latin America, in North America, across Africa very significantly in mining, and across Australia/New Zealand - Australia primarily for minerals and mining resources, New Zealand for agricultural resources. "Now you can have a lot of intellectual debate whether the countries who have these trading relationships with the Chinese are gaining as much. In Africa there is concern about China being the neo-colonialists - that they're building a big presences in Africa, but building a Chinese presence, moving Chinese populations to Africa and not employing local populations, so not creating a local multiplier effect for local economies. And that's valid criticism.

"It's terrific that the Chinese are investing abroad in reaching for the kinds of resources and assets they don't have naturally themselves. That seems perfectly right. It would probably be better if they were investing and leaving behind a big multiplier effect in the local markets or local economies where they're investing.

Q: That means New Zealanders should engage with eyes open?

A: "Absolutely. New Zealand is like the rest of the world. New Zealand probably welcomes Chinese investment but in return New Zealand and rest of the world wants as much access to Chinese consumers as China's gaining globally in many other jurisdictions.

"Access has to go both ways, and it's been difficult for many if not most multinational companies to really get as much access to the China market as most companies want. The market hasn't opened up that significantly yet."

Q: How do businesses deal with Chinese corruption?

"In same way that economic development creates lots of environmental degradation and it's an evolutionary process, I'd say the same about corruption. In developing economies it's not uncommon to go through decades of corruption, and I think China and much of Asia are going through those issues today.

"Corruption is a very significant problem in China. The people who think that the most are Xi Jinping and Li Keqiang and Wang Qishan, the leaders on the standing committee who are hugely focused on a big anti-corruption initiative. "Many Chinese - the 1.3 billion Chinese - are hugely discouraged by the amount of corruption in China.

"It's going to take years and years of determined effort to change the culture and behaviour. But here too I'd make the same optimistic judgment about China's focus and determination as I made about their concerns environmentally.

"This time it feels different, it feels a lot more public, determined and even in year one there's been a big impact. A lot of the spending that so many government officials were used to was reduced very meaningfully in this first year.

Q: What's your advice for New Zealand companies about how to do business in China?

A: "My general advice is the next 20 years in China is all about quality of growth, quality of product and quality of service.

"The country is now pivoting very smartly and very properly and saying ‘the system that worked so successfully for 30 years - very cheap credit directed into the market in a centralised state-owned way - we're changing that system and we're going to focus on quality of growth more than quantity of growth'.

- Sunday Star Times

Special offers

Featured Promotions

Sponsored Content