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OPINION: New Zealand and China are being pushed towards greater regional economic integration as part of the Regional Comprehensive Economic Partnership (RCEP) signed last month.
At first glance, the RCEP is a positive step for cross-border investments. It also integrates trade between the two nations, along with Japan, South Korea, Australia and the ten countries of the Association of Southeast Asian Nations (ASEAN).
But perhaps we should stop to wonder if the rush with which this is happening will generate equitable and sustainable benefits.
One of the main criticisms of globalization is that, in an aggressive and politically driven push for economic integration, institutional differences (legal, political) between trading and investment partner countries have been overlooked.
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The trade war between the United States and China in the last three years, and now Covid-19, have highlighted differences in responses to trade, investment and the pandemic of countries with vastly different political and economic ideologies.
In particular, China is using its global power to expand its influence and reestablish the rules of trade relations. New Zealand must be careful about its exposure to Chinese influence at this level.
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The recently signed RCEP trade agreement fosters even closer ties with China, but this puts NZ’s long-term interests at risk.
Rebalance the books
Our analysis of Foreign Direct Investment (FDI) application data from the New Zealand Office of Foreign Investment from early 2017 to late 2019 shows two conflicting trends.
In financial and insurance services, and in the information, communications and technology sectors, application approvals favored the United States and Australia. But in manufacturing, even after the US-China trade war broke out, approvals favored China.
This increased receptivity to Chinese investment in the manufacturing sector could reflect the push for greater economic integration with China in recent years.
But this approach must be viewed in light of the current confrontation between China and Australia.
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Jacinda Ardern and Damien O’Connor signed the RCEP (Regional Comprehensive Economic Partnership) in November, which is now the world’s largest free trade agreement.
The downside of economic integration
Australia’s recent call (supported by New Zealand, the EU and Canada) for an independent investigation into the origin of Covid-19 shows how much deeper institutional differences matter.
China imposed tariffs and other trade restrictions on Australia’s beef, barley, minerals, wine and, more recently, coal in response to that call and to criticism from the Australian government about suppressing political dissent by Beijing in Hong Kong.
In an ideal world, the Australia-China free trade agreement and the highly publicized regional economic integration represented by the RCEP could have saved the relationship and allowed the parties to speak more openly about their disputes.
But the opposite has happened. The stronger economic relationship and mutual economic dependence have made China’s retaliation even more painful for Australia. The less powerful part always hurts the most when a relationship goes wrong.
Lessons for New Zealand
New Zealand and Australia are not the only ones at a kind of crossroads with China. Many countries face the difficulty (even the impossibility) of balancing the pressure to be part of the economic orbit of China and its fundamental institutional differences.
In essence, it is the tension between greater political and economic freedoms and state intervention and control. The implications for the resolution of trade disputes and other economic disagreements are profound.
For that reason, New Zealand’s FDI policies and application approvals should reflect a preference for countries with similar institutional conventions. While balancing its business interests is critical to New Zealand, it should not be based solely on immediate economic benefits.
New Zealand’s FDI policies should reflect its own long-term best interests: continued regional economic integration with Australia, increased post-Brexit leverage of political, historical and cultural ties to the UK, and closer economic ties with economies in development (especially Commonwealth countries like India and Malaysia).
By doing so, New Zealand will reduce the political and economic risks of over-integration with China and avoid the kind of conflicts based on deep institutional differences that we are now witnessing.
Hongzhi Gao is Associate Professor at Te Herenga Waka – Victoria University of Wellington; Ivy Guo is a research assistant at Te Herenga Waka – Victoria University of Wellington, and Monica Ren is an assistant professor at Macquarie University
This article is republished from The Conversation under a Creative Commons license. Read the original article.
