Agenda

1
Agenda

• Jump! How high?
• Our second chance
• Unfit, unready
• Shaping up
• China the phenomenon
• China the opportunity
• Our challenge, our genius

2
New leaders

• In 2050 Brazil, Russia, India and China will be
  the stunning success stories
• Goldman Sachs the Path to 2050, Sept 2003

3
New leaders

• Poor countries will be big, powerful, eager
• Rich countries will besmall, weak, reticent
• NZs role gets smallerhas to get smarter
• NZ has very specialrelationship with China

4
is this possible?

• Yesbased on the past 50 years
• In 1960Japans GDP/capita smaller than
  Argentina Korea, Taiwan, China destitute
• In 1793China 40 of world economy
• 19491 20005 202515 205020
• Chinese growth will slow
• if it didnt, at 8 pa growth
• 2030 Chinese economy 3 x US economy
• 2050 Chinese economy 5 x US economy
• Just as Japans slowed
• 1960s 10.4 pa 1970s 5 1980s 4 1990s
  1.8

5
Necessary conditions

• High degree of macro-economic stability
• Eg low inflation low volatility
• Relatively low exchange rate
• To allow rolling economic development
• High degree of political stability
• Private ownership some democracy
• Widespread economic benefit
• Excellent environmental practices
• Education managerial competence
• Strong institutionseconomic, political, social
• Command of technology
• Open economies, world trade, investment flow

6
China near term

• Many sourcesin particular
• Clint Laurent, Auckland www.asiandemographics.com
• Economist Intelligence Unit
• Over the last 10 years, steep rise in number and
  wealth of urban households
• 70 increase in households to 173m
• of households earning over 16,000
  RMB/pa(NZ3,000) has risen from 32 to 82
• Over the next 10 years, another steep rise
• 40 increase in households to 234m
• 32 will earn over 40,000 RMB/pa (NZ7,620)

7
China near term

• Extraordinary productivity rising incomes

8
Threat? Or opportunity?
9
Agenda

• Jump! How high?
• Our second chance
• Unfit, unready
• Shaping up
• China the phenomenon
• China the opportunity
• Our challenge, our genius

10
NZ-China relations

• The Chinese have long admired New Zealand
• the people, the country
• Strong relationship for generations
• Rewi Alley and others
• Today Chinese see NZ as
• A clever, independent country
• i.e. not satellite of US or Europe
• A place to learn agriculture, education
• A good friend
• Promoted Chinas WTO entry
• Recognises China as a market economyand thuswe
  dont impose punitive trade barriers
• A safe place for up and comers to practise
• E.g Visit October 03 by President Hu Jintao

11
Free trade agreement

• We are first developed country to negotiate an
  FTA with China
• A reward for our support
• Were a small, easy OECD country to try 1st
• Framework agreed when Hu visited Oct 03
• April 04 complete June 04 sign
• Then detailed negotiations begin
• Possible to conclude 2005
• China already our 4th largest trading partner
• NZs 2003 exports 1.3bn goods, 1bn services
• Their tariffs Agric 10-40 Mfgs 10-30

12
How to compete?

• China is already an extraordinary bi-lateral
  trade opportunityand will get more so
• But it will be a very hard relationship to
  developand to ensure we get fair value out of
  it
• Some issues
• Language and culture
• Tim Clissold Mr Chinaand US418m disappearing
  day by day
• Vast disparity in size
• Finding the right way to compete
• Upskilling ourselves
• Building relationships

13
On cost?

• Deane Apparel is only Trans-Tasman player
• Eg serves Mobil across Australasia
• Manufactures in Christchurch
• Distributes from Manukau City
• Phenomenal manufacturer
• Batches of 1 lt 250
• Maximum turnround time 7 days
• Fast eg 5 women, 300 trousers/day
• Lower unit costs than the Chinese
• Complex businesskept simple, flexible,
  personable
• E-business - customised internet orders, -
  interact with customers

14
On technology?

• Some Chinese technology is very sophisticated
  and more fast becoming so
• Offshoring goes on the Offensive
• www.mckinseyquarterly.com Issue 2004, No. 2
• E.g.
• Shifting operations from North America to China
  trebled productivity for one electronics company
• Cheap labour? Yesbut sophistication too
• Cycle time and defect rates fell sharply
• Engineering graduates each year
• US 90,000 China 350,000 (at 1/10th the wage)
• World leading technology eg wireless chips
• Increasing strength as not just OEMs but ODMs

15
On innovation?

• In 1995, Haier was a rag-bag of
  state-ownedappliance manufacturers
• Charismatic leader brought them together
• Went off shore, innovated strongly
• E.g. small fridges for US students rooms
• Moved from niches to mainstream
• Established its name as an international brand
• Today
• Sells in 160 countries
• Has plants in 13, including the US
• But
• Struggling with intl complexity
• Probably not profitable