China Railway's agreement with a regional council created a media splash when it was signed in 2017 – but the SOE's withdrawal from New Zealand has stayed below the surface, despite hundreds of thousands of dollars in unpaid debts
A multibillion-dollar Chinese company whose entry into New Zealand sparked rumours about planned infrastructure investments quietly folded its operations here with nearly $800,000 in unpaid debts.
The liquidator assessing the liabilities of China Railway Zhongji Holding Group (NZ) Ltd – majority-owned by a state-owned enterprise which declared roughly $6.2 billion in profit last year – has also identified breaches of the Companies Act, although none meriting legal action for the time being.
In 2017, China Railway and the Northland Regional Council announced the signing of an agreement to “identify potential projects for strategic cooperation and collaboration”.
The news came shortly after New Zealand and China’s governments signed a “memorandum of agreement” to work together on the latter’s Belt and Road Initiative, a trillion-dollar effort to invest in infrastructure and other projects around the world.
At the time, New Zealand First leader Winston Peters accused the National government of beginning an “economic kowtow” to China and said soft loans for development were not in Aotearoa’s interests.
But five years on, the Belt and Road agreement appears to have gone nowhere, while Newsroom has discovered China Railway’s New Zealand holding group went into liquidation in April 2019.
An initial liquidator’s report from that time said: “The director stated that in January 2018, the majority shareholder ceased operation and abandoned the business. The company was placed in voluntary administration on 1st March 2019.”
The latest report, from last November, identified six unsecured creditor claims worth a total of $725,339.85, with a preferential claim from Inland Revenue for $39,760.69.
The liquidator had reconstructed the shareholders current account from bank statements and determined it was overdrawn, but a demand for repayment had led to the shareholder claiming the withdrawals had been for business expenses.
“The shareholder has engaged an insolvency practitioner to negotiate this matter. The liquidator has received some information and requested further information [and] is assessing the information before taking any further steps.”
As part of an investigation into the company’s books and records, the liquidator had identified breaches of some sections of the Companies Act.
“However, it is the opinion of the liquidator that the breaches are not sufficient to warrant legal action at this point.”
Bill Shepherd, the former chairman of Northland Regional Council who signed the China Railway agreement in 2017, told Newsroom he was unaware of the liquidation but no projects had ever come from the deal with the company.
“At the time we did actually say we were only talking to them to see where they were at and what they were interested in.”
Shepherd said China Railway had been looking for projects “in the order of several billion dollars” which did not fit with the council’s plans, and several meetings did not result in any proposals which suited both sides.
No central government politicians or officials had ever got in touch to express concerns about the agreement or potential projects, although that may have changed if any plans had ever firmed up.
In 2016, Wellington property investors the Chow brothers announced a partnership with China Railway, worth up to $100 million, as part of its house-building efforts in Auckland through Stonewood Homes.
"The new joint venture company will help fund Stonewood Auckland's expansion as well as potential infrastructure projects and PPP [public-private partnership] opportunities," Stonewood Homes chief executive Warwick Isaacs was reported by the NZ Herald as saying at the time. The Chow brothers did not respond to a request for comment about what had come of the partnership.
Investment in high-speed rail within China has waned amid concerns about growing debt levels and insufficient demand in less populated areas where lines have been built.
Global think tank the Observer Research Foundation last year noted that China Railway's interest payments had been "significantly higher" than its operating profits since 2015, with China's State Council choosing to halt investments into high-speed rail.
China Railway did not respond to questions about why its New Zealand business had folded and why it had not paid its creditors.
