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The Standard


Written By: - Date published: 9:40 am, March 13th, 2012 - 19 comments
Categories: business, International, overseas investment - Tags:

There’s been much wailing and gnashing of teeth over Pengxin Shanghai’s attempt to buy the Crafar farms. Justified too. I want to take a step back (fuck, I’m starting to talk like Key) and look at the strategy that China is executing and the imperatives behind it.

To perpetuate itself, any organism needs to expend effort and resources on securing access to the resources it needs to function. I’m hardly the first to note that a human society – just a collection of organisms, after all, behaves in much the same way. A powerful nation, or more accurately the governing elite of that nation, to grow and maintain its power, needs to secure access to the resources that enable it to do so. Chiefly – food, energy (in order, the world’s chief energy sources are – oil, coal, gas, nuclear, and hydro), and metals.

China obviously wants to grow. A) because that’s what States do, just like populations of any organism will grow if they can and B) because if China doesn’t grow, or if growth even drops to what we would regard as ‘normal’ levels, then the governing elite fears there will be revolution from the vast mass of people who will suddenly find the tide’s not rising any more and they’re stuck in a leaky dinghy while a few comrades are riding in big yachts.

China knows that is attempting to grow in a resource-constrained world. The oil is running out, the water is running out, the arable land is running out, the ores are running out, soon the coal and gas will be running out too, while the climate is changing and the population keeps growing in what is probably the biggest overshoot in the history of life on Earth. Peak everything is upon us. Rightwing morons can deny that if they want, a State that wants to perpetuate and grow its power can’t (the US faces the problem that it wants to do the latter but is run by the former).

So, what does China do?

The first instinct, that goes back to long, long before we were apes is to use physical force, violence, military power. But there’s already a big old silverback who has got that game all wrapped up. China is not wasting a whole lot of effort on matching the US militarily, just yet.

What China does have though, is $3 trillion US in foreign reserves which it accumulated as part of its strategy of running an undervalued currency to makes its exports more competitive and corner world manufacturing. Two-thirds of those assets are held in US dollar dominated bonds and other US assets. With the US now pursuing a beggar thy neighbour strategy of printing money to cause inflation and devalue the US-dollar debt of its debtors, China has good reason to want to convert as much of that cash as it can into hard assets.

So, China has two reasons to buy lots of things: it’s getting a low or negative return on holding US dollars and it needs to secure its resource chain to ensure its power in an increasingly resource-constrained future. Both of those are reasons to accept low rates of return, which is just the finance way of saying ‘think a long way into the future, something that even Pengxin’s New Zealand shill says is part of the Chinese national psyche (maybe its something to do with having a 4,500 year history too, Iran has the same outlook and claims the same lengthy history as a civilisation – settler states like the US and NZ just don’t seem to get how to think long-term).

And the great thing about having more money than you know what to do with and being willing to accept lower rates of return than Western corporations is you can outbid them every time. This is happening around the world with the Chinese Investment Corporation and dozens of major Chinese corporates which are, of course, tightly government-linked (to be major in a country where all the land is government-owned and executives get executed if they displease the authorities, of course you have to be government-linked) buying up big chunks of energy reserves, mineral reserves, political capital with third world rulers, and, yes, farms. All of this is funded with soft loans, sometimes to the Chinese corporates, sometimes to the local rulers, who also find China is a source of aid dollars that doesn’t attach those pesky good governance conditions that the West insists upon.

China’s strategy is optimal. It’s what any smart rulers would do in China’s situation. It’s allowing China to secure preferential access to resources and ruling elites around the world, ensuring its future power. In a strategic blink of an eye, China has gone from being that cheap country where crap gets made to being the world power house that’s more and more dedicating the run of play. It happened while the neoliberals were congratulating themselves on ‘solving’ inflation when all they had done was rip up our manufacturing and send it to China, which made cheaper products, which we bought with money borrowed from China while telling ourselves we were getting richer. It’s the most impressive, and relatively blood-free, rise of a world power ever. And it’s contributing to the astounding collapse in US hegemony (wasting a trillion dollars in the Middle East fighting several bunches of amateurs with AKs to bloody draws helped too).

But that doesn’t mean New Zealand has to just go along with it.

We’ve got our own interests to look out for. Chief of which is making sure that the wealth we produce is enjoyed by us. That means keeping our profits here, not acting like a bunch of yokels – selling the farm to the first out of towner with a big wad of cash who shows up and then, once we’ve drunk our ‘profits’, finding ourselves working for his gain forever.

I don’t care about the details of the overseas investment regime, as long as it makes sure we don’t go selling the base of our country’s economy for a bit more cash up front now. Our well-watered, fertile fields are our ace in the hole. They’re only going to become more profitable in the future. Selling them for a few pieces of soft-loan silver would be moronic.

19 comments on “China”

  1. thatguynz 1

    Well Michael, I was one of the first to criticise your previous pieces on Syria etc, but in this case I need to give credit where credit is due. 
    This piece seems to be a well written, well justified narrative that doesn’t just follow the “xenophobic” tripe that the MSM have used around China’s investment goals and its flow through effect in NZ – a la Crafar farms etc.
    Nicely done.

  2. Bill 2

    In no particular order…

    1. China is not the country that produces cheap crap. China is the country that western corporations take advantage of to produce cheap crap.

    2. China has just dropped its growth forecast and is awash with debt. It ain’t no powerhouse.

    3.Where does the idea come from that economic growth has benefited Chinese people in general? As per usual, economic growth has impoverished the majority and made their situation more insecure while at the same time enriching the minority. Therefore, fear of a revolution coming off the back of any drop in growth just doesn’t add up.

    4. This idea of growth or expansion as a natural and inevitable phenomena is utterly wrongheaded. It simply results from following the rules of the economic environment that we’ve constructed.

    5. The reductionist analytical appeal to machoism (talk of silverbacks, ‘first instincts’ and the contention that everybody, in this case China, always aspires to beat their chest and ‘take on’ the big fulla) is lamentable on a number of levels.

    6. The west just does not insist on ‘pesky good governance’ from anyone…you need a list of democratically elected governments overthrown by the west or dictators installed by or supported by the west?

    edit. Missed the bit about ‘displeasing’ the authorities = execution. wtf?

    • Blighty 2.1

      Bill. I’m not sure where you get the idea that Michael is defending any of these things, just stating them as fact.

      1. China was the country that took over cheap, bulk manufacturing
      2. China is the lynchpin of world economic growth and is sitting on the world’s largest foreign currency reserves
      3. Who says growth has benefited the masses greatly? Of course its been concentrated in the rich but while growth is still strong people can be fooled into thinking that their future is brighter, when growth slows they see they’re still poor and a few are rich. Hell, why do you think that growth as been the overriding priority of Western governments since the Great Depression?
      4. That’s the way countries behave. Doesn’t mean it’s right.
      5. That’s the way countries behave. Doesn’t mean it’s right.
      6. You need to do some basic research on aid programmes. Countries like NZ don’t just give money away, they insist on transparent and accountable processes for the spending of that aid, which isn’t convenient for a lot of rulers who want to use that money for political purposes. China doesn’t impose such restrictions.

      China does execute executives. I would think that it’s obvious that in a military dictatorship, if you’re going to become a powerful business player and survive long, you’re going to have good friends in the government.

      • Bill 2.1.1

        His ‘facts’ are inaccurate, Blighty. But you just went right on ahead and repeated them or underscored the assertions that flowed from them. Guess you didn’t really read the (admittedly brief) points I was making.

        Lets just pick up on one of those (you can give the other points a closer read at your leisure and, if you like, actually answer to or comment on the points made)

        Michael asserted that executives were executed for ‘displeasing the authorities’. I’d like some evidence of that. You obviously don’t and merely assert in defense of Michaels assertion that China executes executives. I don’t dispute that. China has capital punishment and uses it. But does it execute executives merely becasue thay are a source of ‘displeasure’?! Michael is suggesting a childish characature of China as a place presided over by a ‘Red Queen’ who issues orders for decapitation on a grumpy whim ffs. And you’re okay with that?

        • Blighty

          I’m not OK with the Chinese government doing that, but the reality is that in military dictatorships that do regularly execute executives then you’re going to be safer if you keep in the good books of the authorities.

    • Draco T Bastard 2.2

      As per usual, economic growth has impoverished the majority and made their situation more insecure while at the same time enriching the minority.

      It’s not economic growth that’s done that but capitalism.

  3. Rich 3

    Isn’t that what the British did before 1973? Maintained NZ as an offshore farm to provide security of food supplies and a strategic outpost?

    Until they realised that:
    - food supplies that needed to be shipped round the world weren’t very secure
    - the Northern Antarctic (or SW Pacific, if you prefer) wasn’t very strategic
    - it was cheaper to source food locally, or on the global market

    (and that they needed to join the EU to slow their economic decline)

    I actually think that the Chinese leadership don’t give a fuck about dairy supplies. Chinese people traditionally don’t even drink the stuff – it’s a recent fad. A bit like the NZ government worrying about how we source tofu.

    I suspect it’s a purely business thing – they reckon that by owning the whole supply chain they can undercut Fonterra.

  4. insider 4

    The chinese govt has far more important things going on than to worry about the minor investment plans of a moderate sized company like SP. Sure they are encouraging investment and development, but what country doesn’t? To imply it is all part of a master plan ignores the far more likely explanation that SP is a private company looking to make a buck to complement something it already does.

    This post is really jsut a modern updating of the manipulative but inscrutable oriental stereotype. If I were Chinese, I’d probably be offended by its oversimplistic racial overtones.

    • Bill 4.1

      This post is really jsut a modern updating of the manipulative but inscrutable oriental stereotype


    • lprent 4.2

      Umm in that case you should probably lay a complaint against The Economist (which I happen to read each week), who have been stating the same precepts about Chinese offshore investment in their pages for much of the last five years. They have also been pointing to the strategies the the Chinese government has been using to control savings and sequester investment capital as their economy grows.

      It isn’t exactly rocket science. About the only thing of any real change recently is that the US has been steadily getting better at freefalling their currency as they play soldier and have exercise their sovereign right to have test the limits of partisan deficit creation.

      Where have you been for the last decade or so?

    • Blighty 4.3

      “The chinese govt has far more important things going on than to worry about the minor investment plans of a moderate sized company like SP”

      I’m sure the Chinese government can walk and chew gum.

      Of course China has a strategy of buying up crucial assets around the world. It’s what you would do in their shoes and it’s what is self-evidently happening. At the pointy end of that strategy is numerous relatively small purchases and investments. There’s no racism in that. Michael calls their strategy ‘optimal’ – hardly seems critical.

  5. RedLogix 5

    The entire notion of empire has reached it’s used by date. Time to discredit and end this ancient practise. I don’t care if it’s an English, American or Chinese hegemony… it no longer has a place in the modern world.

    John Michael Greer’s last two posts are well worth reading in conjunction with the OP.



    Imperial rhetoric down through the centuries normally includes the claim that the imperial power only takes a modest fraction of the annual production of wealth from its subject nations, and provides services such as peace, good government, and trade relations that more than make up for the cost. This is hogwash—popular hogwash, at least among those who profit from empire, but hogwash nonetheless. Historically speaking, the longer an empire lasts, the poorer its subject nations normally get, and the harder the empire’s tame intellectuals have to work to invent explanations for that impoverishment that don’t include the reasons that matter. Consider the vast amount of rhetorical energy expended by English intellectuals in the 19th century, for example, to find reasons for Ireland’s grinding poverty other than England’s systematic expropriation of every scrap of Irish wealth that wasn’t too firmly nailed down.

    • Draco T Bastard 5.1

      Historically speaking, the longer an empire lasts, the poorer its subject nations normally get, and the harder the empire’s tame intellectuals have to work to invent explanations for that impoverishment that don’t include the reasons that matter.

      And matches exactly what’s happening with NZ.

  6. newsense 6

    so-what’s our play?

    • RedLogix 6.1

      It’s much the same question Maori were asking themselves 160 years ago.

      On one hand they could see the legal, technical and economic imperative of hooking up with the global super-power of the day, Great Britain. There was much to be gained.

      On the other hand there were those who could foresee what the continued and uncontrolled arrival of tens of thousands of colonists would inevitably mean in terms of their own cultural and economic sovereignty.

      Maybe we could consider what Maori might have done differently.

  7. Born red 7

    [Banned under a previous handle...RL]

  8. Colonial Viper 8

    China is not constrained by the neoliberal/neoconservative political economics that so much of the western world has fallen sway under.

    The bad news for them: the US still controls the entire world’s sea lanes, and having gas deals with Australia, oil deals with Brazil and milk deals with NZ doesn’t mean fuck all in the final analysis when that is the case.

  9. I enjoyed the article. It was balanced and mentioned home truths that need to be trotted out on a regular basis so that people understand why they exist.

    That said, China has its problems, and they are substantial ones. For example:

    1) A TIME magazine article a few weeks ago mentioned that they are building vast towns in the mountainous interior near Mongolia, to prop up what looks like a false economy. It is false in that no one is moving to them; they are costing billions that could be spent on other things and leave a huge environmental footprint.

    2) It has growing debt, despite annual reports of another 8-10% increase in it’s defence budget – hasn’t been a year since the mid 1990′s when this increase did not happen.

    3) It can’t keep – despite best efforts to the contrary – 1.4 billion people in check on the internet. It is not that all of them ARE on the internet, but the portion of the population that currently is, is constantly testing what human rights activists call the “Great Firewall of China”. Often they get suppressed, arrested and locked up, but it doesn’t stop them trying.

    4) Corruption and inefficient practice is entrenched at all levels. Not very surprising in a command society that affords few if any legal rights to its citizens.

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    The Government has a critical role to play in regional development on the East Coast says Gisborne-based Labour MP Moana Mackey “The release of the East Coast Regional Economic Potential Study highlights a number of areas of strength and weakness...
    Labour | 23-04
  • Another interest rate hike will punish mortgage holders
    Green Party Co-leader Metiria Turei says another interest rate hike on Thursday will cost home owners an extra $25 a month on a $250,000 mortgage, on top of the $25 dollars a month from the previous rates rise, and she...
    Greens | 23-04
  • Green Party launches Internet Rights and Freedoms Bill
    The Green Party has today launched the Internet Rights and Freedoms Bill, New Zealand's first ever Bill crowdsourced by a political party.Members of the public will be invited to shape the proposed law, which will protect ten basic rights and...
    Greens | 23-04
  • Sanil Kumar has to leave New Zealand tomorrow
    The Associate Minister of Immigration Nikki Kaye’s decision not to intervene means kidney transplant patient Sanil Kumar must leave New Zealand by tomorrow, says Labour’s Immigration spokesperson Rajen Prasad. “Kumar, a plumber and sheet metal worker, was on a work visa...
    Labour | 22-04
  • Time to do the right thing for our veterans
    A Labour government will adopt the Law Commission’s recommendation to ensure all war veterans are eligible for a Veteran’s Pension, Labour Leader David Cunliffe says. “Veterans are only eligible for the pension if they are considered ‘significantly’ disabled, or more...
    Labour | 22-04
  • Public servant is owed an apology
    Nigel Fyfe is owed an apology from the State Services Commissioner Iain Rennie and Foreign Affairs Minister Murray McCully, says Labour's State Services spokesperson, Maryan Street. “The former MFAT official has now been restored to a position in the Ministry...
    Labour | 22-04
  • Laws for enforcing not trading off
    The idea that a Government department can give a nod and a wink to traders that it won’t enforce shop trading laws and for a Government MP to then claim it as grounds for a review of the law is...
    Labour | 21-04
  • Kiwis still paying too much for ACC
    Kiwis are still paying too much for ACC so that the National Government can balance its books, Labour’s ACC spokesperson Iain Lees-Galloway says. “ACC Minister Judith Collins told Cabinet levies were too high but ACC’s proposed cuts would impact the...
    Labour | 21-04
  • Collins’ memory recovery raises further concerns
    Judith Collins sudden memory of briefing the New Zealand Ambassador to China about her dinner with a Chinese border official and her husband's fellow Oravida directors raises further concerns about exactly what was discussed, Labour MP Grant Robertson says. "This...
    Labour | 21-04
  • MP to attend progressive politics conference
    Labour MP Grant Robertson will attend the Progressive Governance conference in Amsterdam later this week. “This conference brings together Social Democratic parties from around the world to discuss how progressive politics should work in the post global financial crisis environment....
    Labour | 20-04
  • Storm fans fire service commitment
    Further damage from the huge storm that battered the West Coast was prevented by the great work of our volunteer Fire Service and locals will be extremely grateful, Labour’s MP for West Coast-Tasman Damien O’Connor says. “Our region has been...
    Labour | 19-04
  • Time for Ryall to fix mistakes and help families
    Families who won a long and lengthy Court battle for financial help to support their disabled daughters and sons are now facing a new battle with health system bureaucracy and need the Health Minister's help, Labour's Disability Issues spokesperson Ruth...
    Labour | 18-04
  • Time for greater ministerial accountability
    The Green Party has today released a proposal to introduce a ministerial disclosure regime in New Zealand to improve the transparency and accountability of government.The proposal, based on the system used in the United Kingdom since 2010, would require all...
    Greens | 18-04
  • Power prices soar on the eve of winter
    On the eve of winter as New Zealanders are turning on their heaters, power prices have soared sky high, Labour’s Energy spokesperson David Shearer says. “Energy Minster Simon Bridges claimed in Parliament that prices were estimated to rise 2.4 per...
    Labour | 18-04
  • Workers can kiss goodbye to Easter Sunday off
    The Government’s decision to “reprioritise” scarce labour inspector resources by abandoning the enforcement of Easter Sunday Shop Trading laws means workers can kiss goodbye to a guaranteed day off, says Labour’s Associate Labour Issues spokesperson Darien Fenton. “The Labour Minister...
    Labour | 18-04
  • Businesses need to respect workers this Easter
    Businesses intent on flouting Easter shopping laws should face stiff penalties, Green Party industrial relations spokesperson Denise Roche said today. This Easter, at least one major garden centre chain intends to open on Good Friday despite this being in breach...
    Greens | 17-04
  • Time to deliver on 26 weeks Paid Parental Leave
    Today marks two years since Labour MP Sue Moroney's Bill extending paid parental leave to 26 weeks was drawn from the members' ballot. “It’s time the Government acted in the interests of families,” Sue Moroney says. “National has tried every...
    Labour | 17-04
  • Taxpayers robbed of $130m in Genesis sale
    Kiwi taxpayers have been robbed of $130 million by the Government in its final failed asset sale, says Labour’s SOEs spokesperson Clayton Cosgrove. “National set the price for Genesis far too low in a desperate attempt to beef up demand....
    Labour | 17-04
  • Work visa problems need monitoring
    The Government is handing out temporary work visas to migrants to work in jobs that could easily be filled by unemployed Kiwi workers in the Christchurch rebuild, says Darien Fenton, Labour’s Associate Immigration spokesperson. “In the past 12 months, temporary...
    Labour | 17-04
  • Resignation rates among cops soar
    The number of frontline officers quitting the police force is at a four-year high, with more than 350 walking off the job in the past year, Labour’s Police spokesperson Jacinda Ardern says. “Since 2009 resignation rates among sworn staff have...
    Labour | 17-04
  • Service for victims of sexual violence pushed out in cold
    The Green Party is calling on Housing New Zealand to revisit its decision to evict an essential community organisation in Christchurch with only eight weeks notice.Yesterday at the Select Committee inquiry into funding for sexual violence support services the organisation...
    Greens | 17-04
  • Legal high ban worthy of wider pick-up
    Auckland Council’s ban on using legal highs in a public place is an excellent idea that should be replicated around New Zealand, says Labour’s Associate Health Spokesperson Iain Lees-Galloway. “Auckland Council has implemented a by-law banning the use of psychoactive...
    Labour | 17-04
  • Smith sells state P-houses to first home buyers
    Nick Smith must reassure worried first home buyers that any Housing NZ houses sold under his First Home policy will be tested for P contamination after revelations that three out of seven properties sold in Wanganui tested positive for methamphetamine,...
    Labour | 17-04
  • PM’s China visit assisted Oravida, not Fonterra
    Questions must now be asked whether it was Fonterra or Oravida who really benefited from the Prime Minister’s recent visit to China, Labour’s Primary Industries spokesperson Damien O’Connor says. “Before his departure, John Key said he would wait until all...
    Labour | 16-04
  • New Zealand’s use of ozone depleting gases increases
    A new Government report highlights that the amount of ozone depleting gases New Zealand is using is increasing, the Green Party said today.The report tabled in Parliament yesterday shows that total use of ozone depleting gases in New Zealand has...
    Greens | 16-04
  • Manufacturing Upgrade
    Labour is determined to support and grow our manufacturing sector. These policies grew out of the findings of the 2013 Parliamentary Inquiry into Manufacturing.  ...
    Labour | 16-04
  • Collins must admit misleading Parliament
    ACC Minister Judith Collins must front up and admit she has misled Parliament over ACC’s policy to stop paying compensation to clients who refused to fill in its privacy form, Labour’s ACC spokesperson Iain Lees-Galloway says. “Judith Collins claimed Labour...
    Labour | 16-04
  • English confirms he has no plan to raise wages
    Finance Minister Bill English has confirmed he has absolutely no plans to lift wages, Labour’s spokesperson on Labour Issues, Andrew Little says. “Bill English told the Chamber of Commerce yesterday that workers could expect a rise in average income of...
    Labour | 16-04
  • Govt careless and callous about threatened birds
    The National Government is increasing the threat to two of the world's most threatened and unique birds by opening up Victoria Forest Park to petroleum drilling, the Green Party said today.Scientists have recently published a ranking of the 100 most...
    Greens | 16-04
  • Genesis: The biggest fire sale of them all
    National has finished its asset sales with a massive bonfire of a fire sale, showing once and for all how much of a disaster this programme was, says Labour’s SOEs spokesperson Clayton Cosgrove. “Just 68,000 Kiwis bought shares in Genesis,...
    Labour | 16-04
  • Interest rates rise but only smokes increasing
    Mortgage rate rises are making life harder for homeowners, and many of them will be surprised the latest CPI figures show inflation would be zero were it not for tobacco tax hikes, says Labour’s Finance spokesperson David Parker. “New Zealanders...
    Labour | 16-04
  • Term One Report Card for Hekia Parata
    Assignment Teacher’s Comments Grade      ...
    Labour | 16-04
  • Hekia Parata kept exam book errors from schools
    Schools will be appalled to learn Education Minister Hekia Parata knew since January that hundreds of exam booklets had been returned to the wrong students but said nothing about it, Labour’s Education Spokesperson Chris Hipkins says. “Exams are stressful enough...
    Labour | 15-04
  • What has ACC Minister been doing?
    The ACC Minister needs to front up and explain what, if any, changes she has made to the broken culture of ACC rather than denying that she has any part to play in the dysfunction of her Ministry, the Green...
    Greens | 15-04
  • Promise of jam tomorrow takes the cake
    A claim by Minister of Finance Bill English that average wages will climb by $7,500 over the next four years is a cynical promise of jam tomorrow by a government whose record on wage growth is atrocious, Labour spokesperson on...
    Labour | 15-04
  • Judith Collins has to fess up on ACC blunder
    ACC Minster Judith Collins must front up and tell New Zealand how many people who refused to hand over their private details to ACC have been denied cover, says Labour’s ACC Spokesperson Iain Lees-Galloway. “The legality of ACC’s privacy waver,...
    Labour | 15-04
  • Board of Inquiry conditions will save rivers in New Zealand
    The Ruataniwha dam decision released today has protected the Tukituki River and dashed the Government’s hope of the “one nutrient model” (TRIM) being adopted nationwide, says Labour’s Conservation spokesperson Ruth Dyson. “It is a massive victory for those in the...
    Labour | 15-04
  • Labour turns wheels for cycling safety
    With more than a million New Zealanders now using cycling as an attractive alternative means of transport it is past time their safety was taken seriously, Labour’s Transport spokesperson Darien Fenton says. Due to speak to a cycling rally at...
    Labour | 15-04
  • SPEECH: Institute of Directors
    LEADING AND MANAGING OUR ECONOMIC FUTURE David Cunliffe MP, Labour Leader Speech to the Institute of Directors 15 April 2014, Auckland It's a privilege to be speaking here. The Institute of Directors has a proud history of developing New Zealand's...
    Labour | 15-04
  • More Oravida endorsements from John Key
    The use of a picture of John Key in an advertisement for Oravida’s scampi products in a Chinese airline magazine is further evidence of an unhealthily cosy relationship between the National Party and this company, Labour Leader David Cunliffe says....