OPINION: Each month I publish a report called Growing With China which examines developments in the Chinese economy, China's role in the world, and most importantly, our economic relationship with China, writes Tony Alexander.

If you want to go on the free emailing list to receive it just email me at tony.alexander@bnz.co.nz.

My aim with the report is to inform people about the reality of China's recovery in the world economy back towards, one day, accounting for over 25 per cent of global GDP as it did in the late 1700s.

I also want to inform business people about how to engage with China with neither an overly pessimistic view of how hard it will be or a myopically optimistic view that it is all a land of honey just waiting to be scooped up. In fact, one of my strongest recommendations is that if China is to be your first export market, maybe you should delay things, get some experience exporting elsewhere, then expand into China.

A key thing about China is that one should think of it as a continent rather than a country and focus not just on one province, but one city. One would make the same comment about the United States or Europe. But unlike Western countries where the business focus is on contracts, the Asian business model is based around first building up relationships then engaging in business.

It is vital that Kiwi business people understand this way of doing things in China because we are a long, long way from there, we have a tendency not to like spending a lot of time on the ground overseas, and we often assume that once a contract is signed, our profit is locked in. Bad mistake.

China's business environment moves faster than anything anyone has ever seen in New Zealand and you want to have a trusted, reliable partner on the ground who, seeing and adjusting to market changes, will keep your interests at the front as they protect their own returns.

Unless your firm's most senior people have made multiple trips to China over an extended period and undertaken a lot of social drinking with your partners, they will not accord you “face” as conditions change and ensure you are not disadvantaged as things alter.

Speaking of face, here is an example. If your bottom line for selling your product is $100, you do not start negotiating at $150. I say that not because by the time the bargaining ends you may end up almost at your limit.

Instead start your bargaining at $300 - an obviously outrageous price. Why? Because you will give massive, very valuable face to your counterpart as they successfully bargain you down to something far more reasonable. We don't tend to think of the bargaining process in that way.

This week I attended the signing ceremony in NZTE offices in Wellington for the deal between New Zealand crystal making company Rakon and what we think is now the world's biggest telecommunications equipment supplier, Huawei. The deal is worth US$56million (NZ$69m).

The deal is very important in that it illustrates one of the ways for New Zealand to benefit from China's integration in the world capitalist trading system through supplying vital components into other products. Traditionally people think in terms of producing a whole thing.

But that business model started falling to pieces over three decades ago as Western businesses moved towards producing different components in different parts of the world - and interestingly this happened at exactly the same time as China threw off millennia of snobbish aloofness from the rest of the world and opened itself to foreign capital.

Tony Alexander is chief economist at the BNZ.

- © Fairfax NZ News

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