Murray McCully Speech: 8.30am Thursday 6 April 2011

Opening address to public symposium "New Zealand, Australia and China's Rise"

Thank you for the opportunity to make some introductory remarks at the commencement of what I regard as a very important symposium.

May I start by commending the organisers and sponsors for bringing together a very constructive programme and some speakers of the highest calibre.

The rise of China and the growth of its influence on regional and global affairs has been one of truly remarkable phenomena of the past decade.

For New Zealand, the implications have been profound.

A surging Chinese economy has become the dominant influence in a region that has become the powerhouse for world economic growth.

China has become our second largest trading partner - both our second largest source of imports and second largest export destination - in both cases behind our closest neighbour Australia, and is poised to become the world's largest economy within a decade.

Indirectly, China's influence on our economic success is even greater when you take account of the importance of its dominant role as a trading partner for our large and growing markets in Australia and ASEAN.

The global economic, trade and security implications of these developments are substantial.

And the implications for trade, security, diplomacy and development within the Asia Pacific region are even greater.

It is critical that New Zealand's role within the region in each of these respects should be managed with considerable care and strategic reflection.

All of which makes a symposium of this sort such a valuable contribution to a critically important process.

In particular I welcome the fact that this task is being undertaken in conjunction with our good friends and neighbours from Australia.

Next year it will be 40 years since both New Zealand and Australia recognized China.

Despite all of the changes that have taken place we have continued to work in close cooperation and consultation in the intervening years.

We have approached our expanding links with Asia, and have defined our position within the developing regional architecture in the same spirit.

Crucially, we have worked hand in glove within our own South Pacific neighbourhood, where our interests and objectives are so closely intertwined.

Trans-Tasman cooperation is underpinned by a number of formal structures, like the Australia/New Zealand Leadership Forum that will meet tomorrow, and by personal contact between leaders and ministers of both a formal and informal character.

Regardless of the vagaries of political processes on both sides of the Tasman, that cooperation has endured.

As I have said, the growth in New Zealand's trade with China has been phenomenal, with exports to China growing by 33% in the calendar year just completed.

That is reflected in growth in transport links and communications.

Air service capacity has increased massively and will expand even further after this weekend, with the inaugural flight of China Southern's new direct flight between Auckland and Guangzhou.

China is now our fourth largest tourism market and our largest source of foreign students.

Simply put, China is now a very very important economic partner for New Zealand.

However, our interest is not simply economic; we are developing more texture to our relationship with China.

I take this opportunity to remind you that as well as having the big discussions - on trade, human rights, regional affairs and foreign policy - we also work together on smaller things.

One that is particularly significant to me is rugby.

China is investing resources in developing rugby with a view to the 2016 Olympics in Rio de Janeiro, where Rugby Sevens will make its debut.

To lead up to this, China has introduced Rugby Sevens as a sport in its National Games from 2013 - prompting the establishment of teams throughout the provinces.

If China could not look to its rugby-loving friends in New Zealand to assist in the development of the sport in their country, there would be something seriously wrong with our relationship.

This 'rugby diplomacy', which saw Dallas Seymour undertaking coaching work in Shandong province last year and will see a number of follow up visits this year, is a small example of the broadening texture of our relationship.

In recent months we have been thinking hard about the best way of broadening and deepening this important relationship.

The Shanghai Expo provided an initial and easy opportunity for frequent high-level contact.

But from here on in, we need to be more creative, more energetic, and we need to include a wider range of private interests to maintain the momentum.

I have no intention of announcing new items of architecture today, but you may safely assume that I intend to do so in the near future.

Turning now to the wider region, let me reflect briefly on what China means for New Zealand, first in terms of our engagement in Asia, and then in relation to the Pacific.

Our South East Asian neighbours have long and varied histories of dealings with China.

Many have substantial ethnic Chinese populations.

Geographically, ethnically, and in other ways they are more tightly tied into China's orbit.

We have seen a growing influence from China's currency, extensive two-way investment flows and patterns of bilateral trade, including a trend for componentry manufacturing in South East Asia as input into Chinese finished products.

China is today the largest market for the nations of South East Asia.

None of this runs counter to New Zealand's interests.

We are already substantial beneficiaries of the economic growth generated amongst the ASEANs, and with the implementation of the AANZFTA agreement we will be even more so in the future.

What is important to New Zealand and to Australia is the manner in which China defines itself in the slew of regional organisations based upon ASEAN.

It is critical that it does so in a manner that does not restrict our countries' participation in the emerging architecture of the region.

Put simply, it is critical to us that an ASEAN plus 6 or even 8 model is adopted, rather than ASEAN plus 3.

While motivations of simplicity or convenience might move China and others to see an ASEAN plus 3 followed in due course by an ASEAN plus 6 model as desirable, it is hugely in New Zealand and Australia's interests to ensure that China and ASEAN understand the strength of our desire to be fully and immediately engaged.

China and ASEAN need to see that we and others are prepared to bring real value with our engagement.

May I take this opportunity to place on record the New Zealand Government's commitment, and my own very strong personal commitment to advancing the relationship with ASEAN.

Two years ago when I came into this role New Zealand was lagging behind other ASEAN partners, partly the result of a three year period in which Burma was our official dialogue partner.

In summary, there was not much dialogue, and the ASEAN relationship was affected.

Since that time the New Zealand Government has made a serious commitment to lifting the ASEAN relationship to a top priority.

In part this was because the impending AANZFTA deal - a unique inter-regional FTA - was moving towards a successful conclusion.

The prospect of being part of a single market of 600 million people is of huge significance for both New Zealand and Australia.

But considerations well beyond trade motivated us.

ASEAN has become an essential regional broker on a wide variety of important matters.

The ASEAN Regional Forum, the ADMM-Plus meeting and the EAS suite of meetings now lie at the heart of regional conversations on matters relating to the prosperity, stability and security of the Asia Pacific region.

We have greatly appreciated China's participation in these important regional conversations, made even more meaningful by the recent membership of the United States and Russia in the EAS.

Moving closer to home we have watched with interest the growing level of engagement of China with the nations of the Pacific Islands Forum.

China already has more diplomats in the Pacific than New Zealand and Australia combined.

That is even more extraordinary when you consider that China has diplomatic relations with only eight of the fourteen Forum island members.

That the six other Forum members have diplomatic relations with Taiwan was for some time a source of very active competition and tension within the region.

Thankfully, recent years have seen a significant and very welcome diminution of this tension - a reflection, no doubt, of the very constructive progress in the dialogue between Beijing and Taipei.

While it has attracted little attention in this country, the progress in Cross-Strait economic relations has been extraordinary - some would even say breathtaking.

The fact that Beijing and Taipei signed in June 2010 an economic cooperation framework agreement with most of the features of an FTA, that there are currently over 300 flights a week between the two, and massive flows of investment are all signs of huge progress.

In this context, we need to press harder for improved co-ordination and transparency from both Beijing and Taipei in their donor activity in the Pacific.

I do not regard greater Chinese activity in the Pacific as a great mystery.

Nor do I attribute unwholesome motives to that activity.

China is simply doing in our neighbourhood what it is doing in every neighbourhood around the globe: undertaking a level of engagement designed to secure access to resources on a scale that will meet its future needs, and establishing a presence through which it can make its other interests clear.

Minerals, timber and fish are all commodities that Pacific is able to trade, and that China wants to buy.

I do want to take the opportunity to express the hope that China as a major donor to the region, will in the period immediately ahead become more closely engaged with other donors in the spirit of the Cairns Compact.

I have already conveyed to senior Chinese figures my own ambition to see New Zealand, as the first developed country to enjoy a free trade agreement with China, also become the first nation to partner China in development projects in the Pacific region.

I also hope that this might lead on to other partnerships involving third party donors.

New Zealand's hosting of the 40th Pacific Islands Forum meeting in Auckland in September of this year, and role as chair for the subsequent twelve months, provides an opportunity to pursue this objective.

There is also one concern I wish to voice today, not aimed at China, but which I hope that China as a major donor and other donors will take into account.

While the sums involved are to larger countries not that significant, we have seen an accumulation of debt on the balance sheets of some Pacific nations.

Loans have been made available for a variety of purposes to the extent that some Pacific countries being assessed by ratings agencies, the IMF or other international institutions are now the subject of adverse comment as a result of their overall indebtedness.

There have also been cases where the ready availability of finance has diminished the incentives for sound budgetary practice and good fiscal management.

All of these are reasons why I hope that we will see the donor community, China included, move towards greater coordination, improved cooperation and increased transparency.

With China's growing power and influence comes a growing investment in stable international processes and institutions.

New Zealand is a small country which enjoys a unique relationship with the dominant economic power in our region and a growing force in global affairs.

How we manage that relationship will matter to us, but also matter to others.

The role we play in developing the emerging architecture of our region will be important.

We want to get it right.

For that reason, I look forward to the results of your deliberations.

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