New Zealand should be wary of China’s Belt and Road Initiative

NZ Herald
9 May, 2024

New Zealand has an infrastructure deficit of at least $100 billion, a huge amount for a small country and a significant drag on productivity and economic growth. Not all of this can be financed from within New Zealand, meaning a need for overseas investment.

National’s infrastructure policy for last year’s election expressed interest in sourcing finance from overseas. China’s Belt and Road Initiative (BRI) has been touted by some commentators, including former Prime Minister John Key, as a potential source. 

Meanwhile, China is our largest trading partner, with around a fifth of our two-way goods and services trade.

Although there is plenty of allure to promises of infrastructure investment and greater trade opportunities, New Zealand must tread carefully when considering participation in the BRI.

The BRI was launched by China in 2013, aiming to increase trade between participating countries by improving transportation infrastructure and lowering trade costs. That sounds positive, but the BRI is also a central component of Xi Jinping’s “Major Country Diplomacy” strategy, which envisions China taking a more assertive leadership role in global affairs.

Around 150 countries participate in it in some form, although Australia, Japan, the US, the UK, Canada, and most Northern and Western European countries remain outside.

Proponents of the BRI argue that it could significantly expand trade flows, attract investment in critical sectors, and foster cultural and educational exchanges. In 2017, New Zealand signed a Memorandum of Arrangement with China. The non-binding agreement aimed to explore cooperative opportunities within the BRI framework, focusing on areas such as policy coordination, cultural exchanges, and economic partnerships.

There has been little progress since 2017, but the Memorandum of Arrangement was allowed to be automatically renewed in 2022.

The world has changed since 2017, and recent experiences of other countries involved in the BRI have raised concerns about the strategic implications of deeper involvement.

China's increasingly assertive foreign policy, exemplified by its "wolf warrior diplomacy" and growing geopolitical tensions, has led some countries to reassess their engagement with the BRI. After being the only G7 country to have joined, Italy's recent withdrawal from the initiative is a testament to growing scepticism surrounding the BRI.

New Zealand's independent foreign policy, a cornerstone of its national identity, emphasises autonomy, values-based decision-making, and a commitment to multilateralism. Deeper engagement with the BRI could strain New Zealand's ability to maintain this independence, as China's economic and strategic priorities may influence decision-making processes.

The experiences of countries like Pakistan, Laos, and Sri Lanka serve as cautionary tales. These countries have faced significant challenges from their involvement in the BRI, including unsustainable debt levels, reduced sovereignty, and economic and foreign policies favouring China’s interests. The concept of "debt-trap diplomacy" suggests that China may be leveraging its massive loans to exert influence over other countries, potentially undermining their autonomy and long-term stability.

Some question how China’s BRI investments, and its responses when they get in trouble, are any different from those of private investors. Private investors have a strong financial stake in ensuring projects succeed and meet their cost of capital, whereas state and state-backed investors often have additional non-financial motivations. Based on international experience, BRI investment decisions appear based more on geopolitical considerations than financial. Another cause for concern is China’s approach to debt restructuring, where it tends to go alone and refuse to work with other creditors.

In response to disappointing financial returns and domestic economic challenges, China has recently refocused the BRI away from large and costly infrastructure developments to "small but beautiful" projects, limiting its potential to help meet New Zealand's infrastructure needs. Moreover, the high cost of construction in New Zealand compared to developing economies may make big projects less attractive for Chinese investors.

New Zealand must carefully consider the long-term implications of deeper engagement with the BRI, weighing the potential economic gains against the risks to its independence and economic resilience. As a small, open economy, it should work with other like-minded countries to strengthen the multilateral rules-based international system, which has served us well for many years. The alternative is a ‘might is right’ system where large and powerful countries call the shots and draw smaller countries into subservient relationships within spheres of influence.

Meanwhile, the Government should work to address existing barriers to investment and foster a more conducive environment for infrastructure development. This can be achieved by reforming the restrictive overseas investment screening regime (while retaining national security considerations), streamlining resource management laws, and improving funding and financing arrangements to encourage private investment. By prioritising these reforms, New Zealand can attract foreign investment while maintaining its economic sovereignty and independent foreign policy.

In an increasingly complex and unstable world, New Zealand must navigate the challenges and opportunities presented by initiatives like the BRI with great care and foresight. While the temptation to tap into the BRI's resources may be strong, the long-term costs to New Zealand's independence, autonomy, and economic resilience could be greater than any short-term gains.

To read the full article on the NZ Herald ($) website, click here.

Stay in the loop: Subscribe to updates