China puts Ardern visit on hold, postpones tourism launch

China appears to be putting a squeeze on Jacinda Ardern and New Zealand, with a visit to China by Ardern being postponed, and a joint ‘Year of Tourism’ launch being scuppered.

In part this appears to be in response to block Huawei from supplying equipment for a major 5G broadband installation.

Barry Soper (NZ Herald):  China, New Zealand links sink to new low: PM Jacinda Ardern’s visit on hold, tourism project postponed

Diplomatic links with China appear to have plummeted to a new low as Prime Minister Jacinda Ardern is given the cold shoulder by Beijing and a major tourism promotion is postponed by the superpower.

Ardern was scheduled to visit China early this year but the invitation has been put on hold.

The 2019 China-New Zealand Year of Tourism was meant to be launched with great fanfare at Wellington’s Te Papa museum next week, but that has been postponed by China.

The initiative was announced by the Key Government almost two years ago when Chinese Premier Li Keqiang was in Wellington.

Richard Davies, manager of tourism policy at the Ministry of Business, Innovation and Employment, said: “China has advised that this event has had to be postponed due to changes of schedule on the Chinese side.”

It looks like a deliberate distancing and point making by China. This has significant implications for trade and tourism.

Ardern said after the Cabinet meeting yesterday that the official visit to Beijing is being worked on. Late last year she was on standby to visit but said they could not co-ordinate their diaries. New Zealand sources in Beijing say her first visit to China is not expected any time soon.

The decision by the Government’s chief spy agency, the GCSB, to axe Chinese telco giant Huawei from the Spark 5G broadband rollout is seen by China as New Zealand taking sides with the United States. The Trump Administration publicly asked its Five Eyes partners not to do business with Huawei.

The GCSB’s version that Huawei posed a risk to national security isn’t enough for Beijing. It wants a better explanation before opening the door to Ardern.

This could take a lot more than a bit of PR poncing to resolve. The real world of international trade and diplomacy involves more than photo ops and friendly articles.

Asset management and corporate adviser David Mahon, based in Beijing, said governments needed to get over thwarting Chinese economic aims in a way reminiscent of the Cold War struggle between capitalism and communism.

“It’s unhelpful for politicians and a few anti-Chinese professors to feed uncorroborated McCarthyite conspiracies about Chinese spy networks in their countries and targeting anyone who doesn’t share their view”.

Philip Burdon, a former National Government Trade Minister and recently chairman of the Asia New Zealand Foundation, said New Zealand couldn’t afford to take sides.

“We clearly need to commit ourselves to the cause of trade liberalisation and the integration of the global economy while respectfully and realistically acknowledging China’s entitlement to a comprehensive and responsible strategic and economic engagement in the region,” he said.

Sources in Beijing say China plans trade retaliation and the turning back of an Air New Zealand plane at the weekend may not have been a coincidence. Sources say the airline has been trying to secure extra landing slots in Shanghai without success.

NZ Herald: Air New Zealand takes blame for administrative blunder that meant Shanghai flight turned around

Air New Zealand has taken responsibility for a costly blunder that resulted in a flight from Auckland to Shanghai being turned around.

A spokeswoman said the aircraft at the centre of yesterday’s problem was new to the route and hadn’t gained the necessary approval.

Asked whether the Chinese stance had changed, she said: ”No, this was the result of an administrative issue on our end.”

An odd sort of ‘administrative issue’. getting approval for a route and landing is a fairly basic part of flight planning.

Prime Minister Jacinda Ardern said the mistake was Air New Zealand’s and was separate to China-New Zealand relations.

“It is important to be really clear and not confuse administrative and regulatory issues as issues to do with the relationship.”

Asked how she could be sure that this had nothing to do with any political reasons, she said: “Aircraft travelling into China are required to be registered. This one was not. That is the issue that has occurred here.”

Sounds like a sensitive issue.

Ardern can’t even get a plane off the ground for a visit to China. This isn’t a good sign in New Zealand-Chinese relations, and the late postponement of the launch of the 2019 China-New Zealand Year of Tourism should also raise some alarm bells. When is it going to be launched ? Later in the year?

This may not just be a problem for Ardern. Pror to getting into Government with coalition partner NZ First:

China may not be able to tell New Zealand what to do, but they seem quite capable of telling us what they won’t do with us.

This may not help either:

And from RNZ: Government has its ‘eyes wide open’ on China: Winston Peters

Mr Peters comments follow a report by Stanford University’s Hoover Institution, Chinese Influence and American Interests: Promoting Constructive Vigilance, which criticises New Zealand for not doing enough to counter Chinese influence.

“New Zealand’s government, unlike that of Australia, has taken few steps to counter foreign interference in its internal affairs,” the report said.

“Charity fund-raising, which has been used by Chinese United Front organisations to mask contributions, remains excluded from disclosure requirements.

Mr Peters said that he accepts the comments made in the report.

“When we came into government in 2017, on these issues we came in with our eyes wide open.”

He said that the government has already taken action by implementing its Pacific Reset policy.

“That’s why we’ve got the Pacific Reset, which is a huge turnaround in our approach to our neighbourhood and our engagement with it.”

“We all need to understand the changed environment and the Pacific Reset had a proper, serious evaluation of that and that’s why it’s a very, very critical part of our present foreign policy.”

However, he said the policy wasn’t designed to counter the influence of China specifically.

“No, it’s to ensure that the shape and character of our neighbourhood maintains the level of influence of countries who believe in democracy … who believe in sovereignty and countries who have got the best interest of the neighbourhood in mind, not some wider and larger purpose.”

Mr Peters wouldn’t say whether he thought China was becoming increasingly authoritarian.

“When the leader becomes what effectively looks to be the president for life, then that is a changed circumstance that would be naive not to understand.”

“China’s a one-party state – it’s not a democracy”.

These comments are likely to have been noticed in China.

Mr Peters said that he doesn’t believe there will be any reaction from China on the Huawei ban.

Maybe he will need to revise that belief.

Ardern may be caught between China versus US trade battles.

And also between Peters and China.

Contrasting asset sale dividend claims

Greg Presland did some “back of the envelope calculations” on dividends on assets part owned by the Crown in Imagine if National had not sold the shares in our companies 2015 version.

About 12 months ago I wrote this post on the loss of dividends that would otherwise have been paid to the Crown because of National’s privatisation activity.  I calculated the country had lost $360.7 million in dividends although there had been a saving in interest.  And the country had also missed out on $485 million in the increase of the value of the shares.

I did another back of the envelope calculation today based on the latest company announcements.  I am afraid that things are way worse.  It looks like we lost $471 million in dividends not to mention further capital gains in the value of the shares we sold.

My calculations may be wrong.  Back of the envelope calculations while watching Auckland v Canterbury even using Excel are not optimal.  And I have not tried to understand any changes in capital structure and what consequences they may have had.  But I think that the New Zealand nation has been royally rogered by the sale of the power company and Air New Zealand shares.

I repeated the calculations and the figures this year are worse.  Far worse …

The results are:

  • Meridian paid a total dividend of 18.23c a share compared to last year’s result of 13.01c per share.  If the shares had not been sold the dividends that would be paid to the Government would total $229 million this year not to mention $163.4 million last year.
  • Mighty River Power’s profit went down but it still paid a dividend of 19c a share.  Dividend loss to us, $128 million and last year $91.2 million.
  • Genesis Energy increased its dividend payout to 16c per share compared to last year’s payout of 13c per share.  Dividend loss to us last year was $61.9 million and this year is $78 million.
  • Air New Zealand had a bumper year and announced a total dividend of 16c per share.  The value of the shares National sold increased by $186 million and the dividend loss this year was $35 million.

My quick calculation is that since their sale the shares the Government sold have increased in value by $1.378 billion.  Over the past two years we have lost that in capital increase and $831.7 million in dividends.  We did receive $4.7 billion in sale proceeds although this is before the cost of selling the shares.

Overall in two years we have gained $4.7 billion less expenses but we have lost $1.4 billion in capital gains and $831.7 million in dividends.  That is $2.23 billion or nearly half of the sale amount.

Brian Gaynor looks at some different numbers at NZ Herald in Air NZ privatisation has paid off for taxpayers:

There is a widely held belief that the partial privatisation of state-owned assets is a complete ripoff, that taxpayers are being taken to the cleaners.

This opinion was expressed in a letter to the Weekend Herald following Air New Zealand’s recent profit announcement. The reader wrote: “Just a few years ago, the taxpayer bailed out the airline to the tune of $900 million. Wouldn’t it be lovely to run a company that when you make a profit, management takes credit and if you make a huge loss, the taxpayer bails you out. It is now time to repay its profits to the taxpayer.”

These comments are totally inaccurate, as an analysis of Air New Zealand – as well as Genesis Energy, Meridian Energy and Mighty River Power – illustrates that taxpayers have achieved fantastic returns from the Crown’s shareholdings in a number of NZX-listed companies.

That’s quite a different story. On Air New Zealand:

In September 1996, Air New Zealand acquired 50 per cent of Australia-based Ansett Holdings and in February 2000 it acquired the remaining 50 per cent.

Ansett went bust in September 2001 and Air New Zealand was in serious financial difficulty.

The company reported a loss of $1425 million for the June 2001 year, and in October 2001 the Crown agreed to put $885 million into the ailing carrier. This comprised a $300 million loan, in the form of convertible preference shares, and the purchase of new shares for $585 million. The convertible preference shares were switched into ordinary shares in 2005.

In 2004, Air New Zealand had a rights issue at $1.30 a share and the NZ Government purchased a further $150 million worth of new shares.

What has the Crown received in return for its $1035 million Air NZ investment?

• It has collected total dividends of $765 million.

• It received $365 million for the sale of 221.3 million shares in November 2013 which reduced its shareholding from 73.2 per cent to 53.1 per cent.

Thus, the Crown has received a cash return of $1130 million for its $1035 million investment. In addition, its remaining 582.9 million Air NZ shares were worth $1446 million at Thursday’s closing price of $2.48 a share.

It is inaccurate to claim that taxpayers have been shortchanged by Air New Zealand and its management team when the Crown’s total investment of $1035 million is worth $2576 million. This includes dividends received, the proceeds from shares sold and the value of its remaining shares.

The Air New Zealand investment has had an extremely positive outcome for taxpayers.

And on the more recet part asset sales:

The Air New Zealand investment has had an extremely positive outcome for taxpayers

Another issue is the partial privatisation of Genesis Energy, Meridian Energy and Mighty River Power and whether taxpayers have had a positive outcome from this strategy.

One of the major arguments against the sharemarket listing of these electricity generators was that the Crown would lose 49 per cent of its dividend income if it sold 49 per cent of these companies.

The figures in the accompanying table tell a different story.

The Crown will receive total dividends of $440 million from the three electricity generators for the year to June, when they are all 51 per cent owned by the Government, compared with $485.8 million two years ago when they were all 100 per cent tax-payer-owned.

Thus the Crown has received $4308 million from the partial sale of these companies yet its dividend income has fallen by only $45.8 million. This is a remarkably positive outcome for taxpayers.

The reason for this is that companies usually lift their performance after an IPO, mainly because they are subjected to far more scrutiny. It is somewhat similar to a football team performing much better in front of 50,000 fans compared with at a training run with only a few coaches.

For example, Genesis Energy has gone from one shareholder to more than 55,000 shareholders, Meridian Energy from one to nearly 49,000 and Mighty River Power from one shareholder to in excess of 100,000.

The combination of a large number of outside shareholders, directors and senior management owning shares, and greater scrutiny by these shareholders and the media means that partially privatised companies are likely to perform much better than 100 per cent Crown-controlled entities. As a consequence, they also tend to pay higher, more sustainable dividends.

Gaynor concludes:

It is patently clear that a sharemarket listing and 51 per cent Crown ownership has been a win-win situation for taxpayers and investors in Air New Zealand, as well as the three electricity generators.

That’s quite different to Presland’s back of an envelope claims.

Referendum irrelevant to Air New Zealand sell-down

The announced sell-down of 20% of Air New Zealand shares has been slammed by opposition party leaders, criticisng the timing with the asset sale referendum about to be held.

David Cunliffe:

“This is an arrogant, out-of-touch Government desperate to get the sale done before the public has its say.”

Russel Norman:

“It’s a deeply cynical and desperate measure but a Government that knows there’s a referendum about to happen.”

I don’t know how sensible the timing is from a business and share-market point of view is except that Air New Zealand shares are at a record high which sounds like a good time to sell.

I don’t know if the Government has timed the sell-down to deliberately coincide with the referendum, if that was a primary factor in the timing it would be cynical and stupid.

But the referendum shouldn’t be an issue. It is irrelevant to the asset sale programme, it shouldn’t and won’t make any difference to whether the MOM sales programme continues or not. Like all Citizen Initiated Referenda everyone always knew it could and would be ignored. Cunliffe and Norman knew this.

Cunliffe and Norman know that Government will not pause or halt sales because of the referendum.

They are using the referendum as a political campaign weapon. That’s all it has ever been.

Their posturing is desperate and cynical politics.

Government programmes and parliamentary legislation can’t be scheduled by and dictated by the eighteen month timeframe of a Citizen Initiated Referendum.

Delay Mighty River float

National is making an announcement today on it’s share float plans.

Due to market conditions and the current messy situation I think they should delay the Mighty River share float, but put a definite date on it of early next year – a delay of six months.

I don’t think they should delay things until all water issues and Maori claims are resolved – things have previously been able to be done pending Waitangi claims, so that should be able to happen here.

They could schedule one further energy SOE float, but subject to market conditions and how successfule the Mighty River float was.

A Solid Energy float should put on hold until that SOE is in a much better market position.

I don’t think selling a few more Air New Zealand shares will make much difference one way or another, except for market conditions. The airline sector is very volatile and risky so reducing state exposure is probably a sound idea.