The Belt and Road Initiative is clearly a great ‘enterprise’ with significant implications for the global economic order but how does it relate to New Zealand?

To the extent that its scope and operational mechanisms have been made clear, B&RI is largely a network of partnerships for infrastructure, production and service projects between China and countries along the Silk Road Economic Belt to the northwest of the East Asian continent and the Maritime Silk Road to the south. The Belt and Road will presumably connect East Asia and Europe. But not everyone was certain about whether the Belt and Road would extend down under.

The B&RI comes at the time when New Zealand is well ahead among ‘Western, developed countries’ in forging dynamic trade and economic relations with China. In the words of Prime Minister Bill English, China is ‘New Zealand’s second-largest trading partner, its biggest market for export goods, a fast-growing services market and a small but increasingly important source of foreign investment’. Products, services, capital and people movement from China have become important to the working of the New Zealand economy.

New Zealand was the first among Western, developed countries to sign a Free Trade Agreement (FTA) with China, and first to join the China-led Asian Infrastructure Investment Bank (AIIB), to name just two indicators of New Zealand’s advanced economic relations with China.

Yet the strength of economic relations with China has led to debate in Wellington about how New Zealand is balancing its relations between China and other countries, particularly its traditional economic, political and security partners. Intensified strategic competition between the United States and China appears to take this challenge to a higher level. New Zealand has been under pressure to take a position on issues such as the South China Sea tensions and other regional security issues.

In addition, China’s greater economic presence in New Zealand — with large inflows of products and services, capital and investment projects, students, tourists and immigrants — began to have visible effects on the economy, impacting its growth performance, long term economic development strategy and priorities, as well as social, cultural and urban development. These economic exchanges with China have become an issue in politics and policy in Wellington. Not wanting to simply control or stop the inflow, the government hopes to turn it into a positive force for New Zealand’s economic growth and social development.

There is a call from both sides of New Zealand politics for an upgrading of the bilateral relationship with China. At the core of this is the upgrading the FTA. The NZ–China FTA, signed in 2008, was considered the ‘most forward looking’ that either country had entered then. It covered a wide range of issues including investment and people movement which were not much of an issue 10 years ago. A decade on, though economic relations have greatly expanded, China recently signed an FTA with Australia which is seen as ‘more advanced’.

New Zealand and China now have real issues to address, particularly those associated with growing cross border investment, people movement, e-commerce and building production networks and supply chains. These activities are expected to be promoted under the new framework of NZ–China cooperation on the Belt and Road Initiative.

In substance, the B&RI is a platform for a China-led global division of labour in the 21st century. It’s not the first time in world history that global integration has been advanced by a major manufacturing, financial and trading power. This time around though, global economic, technological and institutional conditions are different; and the platforms, mechanisms and geo-economic scope of such integration will be different as well. More importantly, the B&RI is very much organised by the Chinese state.

With top level political backup, economic relations under the B&RI will be easier to develop and potential political and institutional barriers will be easier to resolve. The Chinese experience of ‘going global’ in the past decade or two has convinced Beijing that the key to the successful internationalisation of its economic interests and relations in today’s world is to connect Chinese activities and projects to the established interests and relations with the partner countries.

This is the broad context in which Beijing and Wellington came to see the need to ‘upgrade’ their relations when Chinese Prime Minister visited Wellington last week. At the top of the 20 agreements they signed during Li’s visit is a memorandum of understanding on ‘arrangements to strengthen cooperation on the One Belt One Road Initiative’. New Zealand is the ‘first developed country to be part of the initiative,’ as the Chinese media reported.

At the same time, it was reported that a major Chinese state-owned enterprise, China Rail, has signed a memorandum of understanding with New Zealand’s Northland Regional Council to redevelop a regional rail line across the northern part of New Zealand’s North Island, a typical Belt and Road project. This project would not only be a first major China-led infrastructure project in New Zealand, but it will also involve many issues confronting this type of project, including the question of introducing Chinese workers to New Zealand to work on the project.

Prime Minister English and Premier Li paid an official visit to the R&D Centre of Fisher & Paykel, a flagship New Zealand company making household appliances. This company is now owned by China’s Haier Group, with products going not only to the domestic market but also being delivered to markets all around the region. Li sees this as a good example of New Zealand and Chinese cooperation in integrating their production capacity for expansion and competition in ‘third-party markets.’ This is certainly a practical way through which New Zealand can engage with B&RI and advance the competitiveness of its economy internationally.

Beijing and Wellington certainly laid out a positive framework for the upgrading of their relationship during Li’s visit. Much work will need to be done in the months and years to come. But in a concrete move in that direction, both have agreed to start formal negotiation on the upgrading of their FTA this month.

Xiaoming Huang is professor of international relations at Victoria University of Wellington.