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5.1 An overview of investment policy and measures
5.2 Overall impact of liberalising investment
5.3 Possible future investment opportunities
Both China and New Zealand encourage foreign investment. They recognise that inward investment not only provides capital for increased production and job creation, but also assists in the exchange of technology, skills and sector knowledge. Investment flows contribute to the development of economic linkages between countries and so are a key aspect of both Governments' economic growth strategies. Reflecting this, New Zealand was one of the first countries to sign an Investment Promotion and Protection Agreement (IPPA) with China in 1988.4
China
China attaches great importance to attracting foreign direct investment (FDI). Since China's accession into the WTO, it has worked to provide a more attractive environment for foreign investors. The legislative framework for foreign investment is becoming increasingly transparent and comprehensive. The number of sectors open to foreign investors is increasing.5
China's FDI legislative framework has basically taken shape since the Chinese law on Chinese-Foreign Equity Joint Ventures was enacted and implemented in 1979. Foreign-invested enterprises in China fall into three categories: Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises.
Chinese-foreign equity joint ventures are those jointly established within China by foreign individuals, enterprises or other economic organisations on one side and enterprises or other economic organisations in China on the other. Laws covering Chinese-foreign equity joint ventures hold that they should take the form of limited liability companies and the proportion of investment contributed by the foreign participants to the registered capital of a venture should be not less than 25 percent. All parties to a joint venture must share the profits, risks and losses of that joint venture in proportion to their contributions to the registered capital. Each party to a joint venture may contribute cash, capital goods and other materials, as well as industrial properties, know-how and land use rights as its investment in the venture. The highest authority in a joint venture is the board of directors. Members of the board shall be appointed by the parties concerned, while the chairman and vice chairman of the board must be selected through consultation or be elected by the board members.
Chinese-foreign contractual joint venture arrangements require parties to agree on the conditions for investment, ratio of distribution, sharing of risks, form of operations and management, and ownership of the assets at the time of the termination of the venture. A contractual joint venture may take the form of a limited liability company or an economic entity without legal person status. Parties to the contractual venture may not share risks and profits in proportion to their contribution to the total investment. The form of contribution, the amount of investment and the rights and responsibilities of all parties to the cooperative venture must be specifically laid out in the contract. The profits as well as rights and liabilities of the parties are treated in accordance with the provisions of the contract. Contractual joint ventures are more flexible than equity joint ventures.
Wholly foreign-owned enterprises involving capital investment made solely by foreign investors may be established within Chinese territory. The term "wholly foreign-owned enterprise" does not cover branches of foreign enterprises established within the territory of China. The establishment of a wholly foreign-owned enterprise must be beneficial to the development of the Chinese economy.
In the case of a company limited by shares, its entire capital is divided into shares of equal value and shareholders are liable to the company to the extent of the shares held by them. A company limited by shares is liable to the debts of the company and all its assets. Chinese and foreign shareholders should jointly hold the company's stock.
The following are the details of the investment proposals and sectors that are subject or not subject to investment screening:
Proposals guidelines/conditions:
In the following sectors there are guidelines and conditions:
New Zealand
A key aspect of the New Zealand Government's growth strategy is the development of strong international linkages including both outward and inward investment. New Zealand has a very welcoming and open attitude towards inward FDI. New Zealand welcomes and encourages FDI from all countries without discrimination. This is reflected in the facilitative nature of the Government's foreign investment policy regime.
With regard to outward investment, there are no impediments to investing offshore. As New Zealand is a net capital importer with ongoing requirements for capital, the Government is more active in promoting inward rather than outward investment.
However, a minimal level of controls are maintained over "significant" overseas investment. The Overseas Investment Commission (OIC) is responsible for administering the Overseas Investment Act. It assesses applications to purchase certain land, business and fishing quota investments by overseas persons. Decisions are made by the OIC or by Ministers based on criteria set out in the Act and regulations made under it.
An "overseas person" must obtain consent to acquire or take "control" of 25 percent or more of 6:
Approval is also required for any overseas ownership or interest in fishing quota.
While 100 percent overseas ownership can be approved in all industry sectors, some New Zealand based companies have restrictions relating to foreign ownership:
The New Zealand Government recently completed a review of the Overseas Investment Act. The objective of the review was to provide better protection for sites of special historic, cultural or environmental significance while also encouraging foreign investment where it can make a positive contribution to the economy. The key changes are:
These changes require an amendment to the Overseas Investment Act. It is expected that this legislation will be introduced to Parliament later this year.
Promotion of investment opportunities in New Zealand is carried out by Investment New Zealand.11 The agency actively promotes New Zealand as an investment destination, working closely with New Zealand companies and foreign investors on significant opportunities. It looks to match high growth potential New Zealand businesses with current and potential international investors, supports the management of multinationals' New Zealand subsidiaries to attract further investment from their overseas parents, and promotes New Zealand as a relocation destination.
Investment New Zealand's activities focus around six core sectors: biotechnology, creative industries, information and communications technology, specialised manufacturing, food and beverage, and wood processing. The first three sectors listed form the basis of the New Zealand Government's Growth and Innovation Framework.
There has been a significant increase in foreign investment in China in recent years and a more modest increase in New Zealand. As discussed in chapter 2, investment flows between China and New Zealand have been relatively modest when compared to investments by other countries. Both countries could benefit from an increase in bilateral investment, and the exchange and transfer of knowledge, technology, ideas and export opportunities that would flow from it. Intra-industry investment is particularly beneficial in the export sectors of both countries as companies are able to share in international market information and strategies leading to improved competitiveness in the global market place.
In the FTA negotiations between China and New Zealand, it will be important to consider potential areas where further liberalisation and/or cooperation could be considered in order to help facilitate even greater levels of investment between our two countries.
5.2.1 Strengthening investor confidence in bilateral investment
Since the China - New Zealand FTA will be an international treaty, the parties can negotiate legal obligations into the commitments. Therefore, the future China-New Zealand FTA could provide more stable policy frameworks for investors, which could see the two countries developing bilateral trade and economic relations more actively, and open domestic markets to each other more quickly. Ways in which the FTA could contribute to these aims include:
5.2.2 Promoting bilateral investment
In addition to promoting bilateral investment by strengthening investor confidence in bilateral investment, an FTA could be expected to promote bilateral investment through its impact on market perceptions, and lead to increased investor interest in new business opportunities in the other country. In addition, in the long run, more integrated markets based on the FTA could improve the competitive capacity of enterprises, the efficient distribution of resources, and promote two-way investment.
The opening of bilateral investment may encourage expansion of the current partnership into new areas of manufacturing and service industries. At present, the main target areas of New Zealand investment include agriculture and forestry, textiles, specialized manufacturing, food processing, and information technology. In New Zealand, Chinese investments include forestry, manufacturing and commercial construction, property, meat processing, electronics, fish farming, tanning, light manufacture, and hospitality and tourism. These trends suggest potential for bilateral investment cooperation beyond the traditional sectors.
5.2.3 Promoting investment from international investors
Under a future FTA, it is expected that China and New Zealand would make new arrangements for liberalising two-way trade in goods and services, by lowering tariff and non-tariff barriers below their commitments to WTO (in APEC, there are no specific commitments). In addition, the establishment of the FTA would enhance bilateral cooperation on important issues such as trade and investment promotion, transparency and intellectual property protection. In order to take advantage of the opportunities provided by the China - New Zealand FTA liberalisation, international investors may establish or increase investments in the FTA partners.
5.2.4 Increased cooperation in investment promotion
As referred to in the Trade and Economic Cooperation Framework between China and New Zealand, the Chinese Government is interested in economic development in Western China and the revitalisation of old industrial bases in North-East China. China is committed to providing information on the opportunities for New Zealand business to participate in these areas. China is interested in encouraging New Zealand businesses, to take part in this development particularly those with comparative advantages in animal and plant genetics, animal husbandry, forestry development, environmental protection, and food processing. New Zealand recognises the importance of investment in these regions by New Zealand businesses.
Under the Growth and Innovation Framework, New Zealand is interested in promoting investments in: biotechnology; creative industries; information and communications technology; specialised manufacturing; food and beverage; and wood processing. Investment New Zealand undertakes activities to promote opportunities for investment in these sectors.
Publicity surrounding the signing, implementation and promotion of the FTA will highlight investment possibilities in both markets and improve awareness of the opportunities for joint ventures and strategic alliances. Scope for greater cooperation between Chinese and New Zealand investment promotion agencies will need to be considered as part of the FTA negotiations.
As outlined above, a future FTA has the potential to encourage investment in both China and New Zealand across a wide range of industries. Some examples of investments of likely interest to investors in China and New Zealand are discussed below.
Livestock and Agriculture
As one of the world's largest exporters of livestock products, New Zealand has extensively adopted modern technologies and management methods in agriculture and livestock management. Chinese businesses wish to enhance cooperation with New Zealand enterprises in this sector, including in areas such as pasture management, herd improvement and product processing. In addition, there is also great potential for bilateral cooperation in fruit industries. An FTA can help encourage Chinese and New Zealand businesses examine investment opportunities in both China and New Zealand to further develop high value-added agriculture.
China and New Zealand also expect to enhance cooperation in the research and application of agricultural technologies.
Dairy Industry
Demand for dairy products in China continues to rise along with the improvement of Chinese household living standards and income levels. China, with a population of 1.3 billion, is undoubtedly a potentially huge market for milk, milk powder, cheese and other dairy products. The Chinese dairy industry is likely to attract significant New Zealand investment. An FTA may encourage Chinese and New Zealand businesses to examine investment opportunities in the dairy industry in both China and New Zealand.
Forestry and wood processing
New Zealand has a sophisticated sustainable plantation forestry industry. Given its vast territory, China's percentage of forest coverage is relatively low. Although China has been engaging in large-scale forestation, the timber supply still falls short of demand in the domestic market. New Zealand has some of the most advanced forestry management technologies in the world, and is also a source of quality forest products. An FTA may encourage Chinese and New Zealand businesses to examine forestry and wood processing investment opportunities, in both China and New Zealand, aimed at helping meet China's demand for forest products.
Biotechnology
China recognises the importance of science generally, and biotechnology in particular, to its future, and sees as beneficial the creative application of biosciences and biotechnology to areas such as food production. New Zealand investors can bring valued skills to Chinese industry and are looking for Chinese partners in biotechnology and agricultural research, as well as opportunities to scale up production. This suggests that biotechnology research and application will be a fruitful area of future investment in China and New Zealand.
Information and Communications Technology
As described above, the economic strategies of both China and New Zealand promote investment in the information and communications technology (ICT) sector. China and New Zealand have relatively complementary capabilities in this sector, suggesting that over time ICT will develop as an area of bilateral investment.
Fisheries
China has a large fisheries industry and is the world's largest exporter of fish and fisheries products. With the improvement of living standards and rise in household consumption in China, demand for aquatic products is expected to continue to increase. New Zealand, with an exclusive economic zone of over 13 million square kilometres, the fourth largest in the world, is rich in fisheries resources. In view of this complementarity, an FTA may encourage Chinese and New Zealand bilateral investment in this area.
Manufacturing
China has a number of comparative advantages in this sector, including large labour and manufacturing infrastructure resources. New Zealand has abundant natural resources, some important industrial raw materials and strong specialised manufacturing sectors. Bilateral investment could take advantage of vertical integration brought about by complementary comparative advantages of the two economies. Two-way investment in these sectors could give full play to the two countries' comparative advantages and lower production costs, as well as the prices of the final manufactured products. This would be beneficial for the producers and consumers of both countries. A future FTA will also further enhance existing investments and future investment opportunities.
5.3.1 Cooperation in developing the western and north-east regions of China
The Western region of China is abundant in natural resources such as energy, minerals, tourism resources and land. Furthermore, with a quarter of China's population, the Western region has enormous market potential. China welcomes investment by New Zealand businesses, including SMEs, in the development of Western China. This includes investments drawing on New Zealand's comparative advantages in sectors such as agriculture, stock breeding, forestry and tourism. China also welcomes New Zealand investment in ecological and environmental reconstruction, and environmental pollution treatment and control.
The rejuvenation of the North-East region as a heavy industrial base is an important economic development strategy of China. China welcomes New Zealand investment participation in the North-East region.
4
The formal title of this agreement is the "Agreement between the Government
of New Zealand and the Government of the People's Republic of China on the Promotion
and Protection of Investments".
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5
Further detail on China's foreign
investment policies[external link] is available online. back
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6
Further information on the New Zealand Overseas Investment Regime and the procedures
for seeking approval for foreign investments in the areas outlined is obtained
on the NZ Overseas Investment
website [external link]. back
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7
New Zealand's requirements are expressed in NZ dollars, but this amount is approximately
US$33.5 million at a 1 October 2004 exchange rate of US$0.67=NZ$1.00. back
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8
Approximately US$6.7 million at a 1 October 2004 exchange rate of US$0.67=NZ$1.00. back
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9
All results of the review are expressed in New Zealand dollars but this amount
is approximately US$67 million at a 1 October 2004 exchange rate of US$0.67=NZ$1.00. back
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10
Approximately US$6.7 to US$67 million at a 1 October 2004 exchange rate of US$0.67=NZ$1.00.
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11
For further information on Investment
New Zealand [external link]. This website offers information about investment
opportunities in New Zealand and the services offered by Investment New Zealand.
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