Why China is increasing infrastructure investment in NZ

While the Chinese economy is slowing overall, stronger growth is being recorded on the consumption and services side of the economy. However, a re-balancing away from infrastructure investment inside China is being matched by a growing appetite to invest in infrastructure in places like New Zealand.

That’s the message Milford Asset Management portfolio manager David Lewis has brought back from a visit to study the investment environment in China.

“The Chinese are trying to rebalance their economy away from fixed investment and towards services and consumption,” he said in an online interview. “It’s a move towards a more Western-style economy where you’ve got people spending money on restaurants, financial services, health, education and retail, which would typically be 70% of most economies in the West. In China that portion is still only about 40%.”

However, he sees a marked increase in China’s interest in funding and physically building infrastructure projects in New Zealand.

“The Chinese Government is trying to direct the outward investment of its companies towards a number of foreign countries, including New Zealand. And the interest isn’t just in investing in New Zealand infrastructure projects but also in doing the actual building and construction – including bringing labour in to do it.”

Lewis acknowledges that “this type of foreign investment in the New Zealand economy is always going to be met with some resistance in certain quarters. But New Zealand does have a heavy infrastructure need at the moment and we’ve got a limited number of options to deliver it, given the limited number of major infrastructure players here – and that’s particularly the case now that Fletcher Building has pulled back from its infrastructure division. So, we need to look at a number of creative – including foreign – options to deliver our infrastructure.”

He says that our willingness to accept Chinese involvement in local infrastructure projects has to be seen in the wider context of a vital trading relationship.

“China is a hugely important export market for New Zealand. Some of our biggest sharemarket success stories, such as A2 Milk, have done hugely well out of exporting to China, so we can’t have that trade relationship all one way. If they want to come here and help deliver some infrastructure, that’s potentially the quid pro quo for us exporting so much of our agricultural products to China.”