Back on inflation alert

Prime Minister Christopher Luxon visiting India before China could be seen as an insult in China, Beijing-based New Zealander David Mahon says. But he says China's recently announced strategic partnership with the Cook Islands, through which NZ was kept in the dark, shouldn't be viewed as insult to, or provocation of, NZ.

Mahon, who is Managing Director of Mahon China Investment Management and has lived in China since 1984, spoke to interest.co.nz in a new episode of the Of Interest podcast.

Luxon, who before the 2023 election said achieving a free trade agreement with India would be a major strategic priority for a National government, is set to visit India next month. He's yet to visit China as Prime Minister, but is expected to do so this year.

"If the Prime Minister had gone to China and conferred upon it as a great power the respect it deserved in the last year or so of his tenure, it'd be fine. But it's almost a statement of a diplomatic insult not going to China before going to India," Mahon said.

He said potentially the prospects for NZ products in China over the next two to three years are very good, with China retaining a great need for protein, wanting to buy seafood, and NZ logs still selling reasonably well.

However, Mahon suggested after a good relationship with China for many years, highlighted by the 2008 Free Trade Agreement (FTA), NZ is now seen as "a country of diplomatic infidelity."

"And for most of my life, we've been the opposite of that. Under Helen Clark, John Key, Jim Bolger, we were the country that was respected. Now people are scratching their heads and saying, what's wrong with New Zealand? It seems to have lost its sincerity, its sense of loyalty."

The recent signing of a China-Cook Islands comprehensive strategic partnership, which the NZ Government was kept in the dark over, shouldn't be viewed by NZ as an insult or provocation from China, Mahon said. The Cook Islands is a self-governing state in ‘free association’ with NZ with its citizens having NZ passports.

"...what China is determined to do is to make sure that it retains this relationship with New Zealand, although New Zealand is struggling in many ways to hold up its end."

"We shouldn't be too peevish that they [the Cook Islands] want to do a deal with someone with more money than us," Mahon said.

"In the end, China is going to invest throughout the Pacific, where it can. Part of it is that it wants to express its influence."

The Cook Islands-China agreement reportedly includes plans for co-operation on seabed mining, the establishment of diplomatic missions and preferential treatment in regional and multi-lateral forums, but excludes security ties.

An attraction of the Cook Islands deal for China will "definitely" be minerals, Mahon said.

"If you go back to the technological revolution, which is really what's occurring in Chinese manufacturing, they need these minerals very much," said Mahon. "China is actually very poor in resources."

'China is full of Deep Seeks'

Meanwhile, Mahon said recent surprise around Chinese artificial intelligence (AI) company Deep Seek highlights westerners taking their eye off China and its burgeoning technology sector.

"China's full of Deep Seeks. There are companies in China, the names of which we just have never heard of, that are about to change major sectors that influence our lives."

So Deep Seek is like the first, I don't want to say shot across the bows because it makes a sort of military metaphor, but it is a flare, a signal."

"This is what China's been focused on in the last 10 years. Getting away from making nylon socks and teddy bears and cheap stuff and making really good technology, really sophisticated technology. And so this is what's going to come out of China now in waves and make all our lives cheaper in terms of buying stuff that's important to us," said Mahon.

"And it's going to be a major challenge to the major tech companies of the West, creating the kind of competition that markets run on. Innovation's driven by it. So this should be perceived as a positive thing."

In the podcast audio Mahon talks about these issues in more detail, plus this week's meeting between President Xi Jinping and Chinese business leaders, th...