China Business Summit 2023: Call to order
MC: Tim McCready
China Business Summit 2023: Summit close
MC: Tim McCready
Infrastructure: A billion-dollar plan to build resilience (NZ Herald)
Infrastructure: A billion-dollar plan to build resilience (NZ Herald)
The Government set aside $6 billion in last month’s Budget as part of a National Resilience Plan for strategic investments to “build back better” following the damage from Cyclone Gabrielle and the Auckland Anniversary floods.
This is in addition to the Government’s $71b infrastructure plan over the coming five years.
Damage from Cyclone Gabrielle and the Auckland Anniversary weekend floods has been estimated by Treasury as ranging from $9b to $14.5b — second behind the Canterbury earthquakes in terms of damage from natural disasters New Zealand has faced. Of this, $5b to $7.5b of damage is expected to relate to infrastructure owned by the central and local governments. These costs relate to damage, without including all the immediate and ongoing support for communities and businesses.
The North Island weather events hit the country when the Budget 2023 process was already relatively advanced, requiring Minister for Cyclone Recovery and Minister of Finance Grant Robertson to reprioritise other initiatives in the draft Budget to make way for the response.
Robertson said while the investment will initially focus on building back better from the recent weather events, it will include future-proofing road, rail and local infrastructure wiped out by extreme weather, as well as telecommunications and electricity transmission infrastructure.
“Addressing vulnerabilities in our infrastructure systems to function during adverse conditions and quickly recover after an event is fundamental to the wellbeing of communities,” he said.
“I expect to continue to build on the plan over many years to reduce the severe infrastructure deficits that have held New Zealand back.”
The package would also deliver a new Crown infrastructure delivery agency, Rau Paenga, which could be engaged to assist agencies to deliver the projects in the National Resilience Plan at a cost of $100 million over five years.
This funding follows the $1.1b pre-Budget announcement to assist with repairs to basic infrastructure including road, rail and schools and providing flood resilience support.
Infrastructure funding in the announcement included:
- Roading: An additional $275m into the National Land Transport Fund to support the immediate response and recovery costs for state highways and local roads. This comes on top of the $250m allocated to fix roads in the aftermath of Cyclone Gabrielle.
- Rail: $200m to repair North Island railways, with repair work to rail tracks, sleepers, bridges and other structures on the North Auckland line, Palmerston North to Gisborne line, Auckland metropolitan network, North Island main trunk and East Coast main trunk.
- Schools: The more than 500 North Island schools damaged by the severe weather events would receive $116m for repairing and rebuilding, with additional funding for the potential redevelopment or relocation of schools. A further $700,000 would be invested over two years for Special Reasons Staffing funding, with $315,000 available immediately.
- Stopbanks: Regions affected by the recent North Island extreme weather events will be able to apply for funding from an initial $100m in Budget 2023 for local solutions to keep them safe from future floods. This includes raising stopbanks and shoring up lifelines that failed during the record rainfalls.
Capital Markets: Can ChatGPT predict share price performance?
It’s clear that the capital markets will continue to face significant headwinds, with many of the same pressures and external forces that have shaped the sector in recent years still in play.
Persistently high inflation remains a top concern. While it remains stubbornly elevated, there are encouraging signs that it may have peaked after a considerable effort from central banks to rein in spending.
Much of the supply chain disruption caused by Russia’s invasion of Ukraine has stabilised, but persistent geopolitical tensions and fragmentation, particularly between China and the United States, continue to pose a risk to economic and financial stability.
Adding to the complexity, the pandemic-induced global talent shortage is still acutely felt in multiple sectors, including certain areas of the capital markets.
Gaining momentum are several megatrends that have become entwined with the capital markets sector. These include the rapid technological evolution, the growing need for robust cybersecurity measures to protect against digital threats, and the ever-increasing demand for sustainable investment options.
Against this backdrop, here is a wrap of some of the key issues that are likely to shape the capital markets over the coming year.
Key drivers for capital markets
Despite a challenging global economic environment, the Asia-Pacific region is expected to offer some hope for the coming year.
Earlier this month, the International Monetary Fund (IMF) released a report on the region, noting that despite weakening external demand — such as the downturn in demand for tech exports — domestic demand has remained strong. China’s reopening is providing fresh impetus to the region and a glimmer of optimism for the rest of the world.
The IMF projects Asia-Pacific’s GDP to increase this year to 4.6 per cent, after growing 3.8 per cent in 2022 and contributing around 70 per cent of global growth. This will be driven primarily by the recovery in China as a result of its reopening and surging consumption, along with resilient growth in India.
It said the near-term economic impact of China’s recovery “will likely vary across countries, with those more heavily reliant on tourism likely reaping the most benefit,” and expects the rise in China’s imports to be most strongly reflected in services.
But despite its optimism for the region, the IMF downgraded its projections for Japan, Australia, New Zealand, Singapore and South Korea.
“Stronger external demand from China will provide some respite to advanced economies in the region, but is expected to be largely outweighed by the drag from other domestic and external factors,” it said.
Mind v machine in investing
A few months ago, ChatGPT was launched publicly and has quickly disrupted diverse sectors.
Analysts at Goldman Sachs believe artificial intelligence (AI) algorithms could ultimately replace 300 million jobs, and with its ability to interpret vast amounts of data and identify patterns, AI is expected to significantly disrupt the capital markets.
Recently, the University of Florida analysed the accuracy of ChatGPT in predicting whether a news item would affect stock prices positively or negatively.
The results showed AI could make accurate predictions on stock performance and demonstrated that traditional models did not provide any further predictive power over ChatGPT.
Since AI algorithms can process market data in real time, they can react to changes faster than ever before. This will inevitably lead to more algorithmic trading, where machines are able to make trades at the appropriate time without human intervention.
Financial firms are already using AI to understand their customers better. As this tool is refined, it will be able to assist in developing more personalised products and services based on customer behaviour and potentially other public data, such as social media activity.
AI-driven technologies are also being used to detect fraud and money laundering. By analysing large pools of data and identifying suspicious patterns, AI can help financial institutions prevent fraud far more quickly than before.
While AI offers an exciting future for the capital markets, there are some concerns that its increased use could have negative consequences, such as creating market bubbles or amplifying financial instability. But despite that, the rapid introduction of AI tools means that by this time next year, they will undoubtedly have had a significant impact on the sector, offering faster and more accurate decision-making and analysis.
ESG focus remains high but pushback is growing
Investing with ESG principles in mind has become a hot topic and the fastest-growing segment of the asset management industry.
ESG principles consider environmental, social and governance factors alongside financials.
Ethical investment principles saw companies unwind their investments in Russia last year and the pandemic highlighted the need to consider societal impacts alongside investments. Locally, the recent climate events highlighted the importance of integrating ESG factors into investment strategies.
Despite growing interest in sustainable investing, the number of new sustainable fund launches has declined this year, according to financial services firm Morningstar. Regulatory uncertainty and increasing concerns about greenwashing are likely contributing to this trend, highlighting the need for greater transparency and accountability in the ESG space.
But while major investors continue to emphasise the importance and performance of ESG investing, some of Wall Street’s largest asset managers, private equity firms and brokers have warned that a backlash against sustainable investing has become a significant risk.
Larry Fink, CEO of BlackRock — one of the world’s largest asset managers — was one of the early and vocal supporters of ESG and stakeholder capitalism. However, in his annual letter this year, he de-emphasised ESG investing and entirely avoided using the three-letter acronym.
ESG has become a complex and challenging topic, particularly in the United States, where anti-ESG sentiment has gained momentum. Republican governors from at least 19 US states have pledged to resist ESG investing, and high-profile Republican figures Mitch McConnell and Ron DeSantis have campaigned against the use of strategies that penalise fossil fuel producers.
According to Fink, Republican state treasurers withdrew around US$4 billion ($6.3 billion) from BlackRock last year.
There are indications that US investors’ interest in green investing is waning due to repeated attacks on “woke capitalism”.
Scepticism towards ESG investing is likely compounded by the poor performance recently by technology stocks — a sector that green funds typically favour.
Increased interest in alternative investments
Alternative investments, or “alts”, are gaining popularity and finding their way into the portfolios of everyday investors.
These investments, which include hedge funds, private equity, venture capital, cryptocurrencies, commodities and rare collectables, have little or no correlation with traditional asset classes like stocks and bonds, providing investors with more diversification options.
The alternative investment industry gained momentum and accessibility after the economic downturn in 2008. With last year’s volatile stock market and the anticipation of slower growth and persistently high inflation, demand for alternative investing continues to rise.
Previously, alternative assets were only easily accessible to sophisticated investors. However, the growing number of alternative exchange-traded funds (ETFs) and managed funds are making them more mainstream, as investors look beyond conventional asset classes for returns in an unpredictable year.
All eyes on October
The coming general election is poised to have a significant impact on New Zealand’s capital markets.
Current polling suggests Labour v National could be one of the closest contests in some time, and likely to hinge on the decisions of kingmaker coalition parties — potentially Te Pāti Māori or New Zealand First.
Elections are viewed as significant risk events for market participants due to the potential changes in government policy and associated uncertainty.
It is already clear that wealth inequality, tax and inflation will feature prominently in the upcoming political debates and investors will be closely assessing the policies, platforms, and “bottom lines” of parties, and their wider implications for the economy and capital markets.
In the lead-up to October 14, the stage is set for a period of increased fluctuations in share prices and currency value, and uncertainty in the capital markets.
Project Auckland panel: Simon Bridges, Viv Beck & Mark Thomas
Project Auckland panel: Simon Bridges, Viv Beck & Mark Thomas
NZ Herald’s Tim McCready leads Heart of the City CEO, Viv Beck, Auckland Chamber CEO, Simon Bridges and Committee for Auckland Director, Mark Thomas in a discussion on the pain points plaguing Auckland’s infrastructure.
Project Auckland: Opportunity costs lie in flood and cyclone response
Project Auckland: Opportunity costs lie in flood and cyclone response
The recent weather events that battered Auckland have left the city with significant damage to public and private assets, including infrastructure, land, houses and businesses which will take a lot of work to put right.
Auckland Council chief economist Gary Blick says the city is worse off and while there will be a bump in activity to put the damage right, it will not necessarily mean Auckland is further ahead, with funding and capacity constraints leading to other projects – and their benefits – being deferred.
“Economists think about the opportunity cost,” he says. “What are we forgoing by having to turn our limited resources – labour, capital, equipment – into putting things back.”
As chief economist, Blick is focused on the medium to long-term implications of decisions that are made by the council. His approach to economics is broad, considering trade-offs in resource use as well as the wellbeing of the community.
Recent events have revealed the need for the city to consider its policies for managing future natural disasters and climate change and have focused policy debate on Auckland’s resilience.
Blick says it is important to be quite considered and have a good evidence base around causality and impacts.
“If we are going to take a policy action, we have got to consider all of the impacts on our resources and the associated trade-offs,” he says. “As an example, adapting to the changing climate and natural hazard risk in a way that doesn’t undermine our other objectives such as accommodating growth, enabling more housing, and reducing transport emissions. And we want to respond in a way that is consistent with financial sustainability and the prudent use of public funds.”
Given the evidence of how natural disasters can impact on mental health, Blick has been reflecting on the potential impact of weather damage on the wellbeing of Aucklanders. “Particularly for younger people, and the disruption it can have on their home life and their engagement with education, training and employment pathways. We are trying to get a good evidence base around that in terms of characteristics of affected households and their potential vulnerabilities.”
Blick is particularly interested in Auckland’s ability to accommodate growth, and its long-term competitiveness and attractiveness to current and prospective residents. With this in mind, he is closely watching Plan Change 78 – the council’s response to the Government’s National Policy Statement on Urban Development – which is now before an independent hearings panel. The initiative was created from a cross-party law in late 2021 when National and Labour collaborated to bring about significant modifications to the existing plans for major urban areas, leading to big changes to the Auckland Unitary Plan.
Some of these include requiring the council to enable buildings of six storeys or more within walking distance of the city centre, large metropolitan centres and around rapid transit stops. It also enables three-storey housing to be built on most residential sites in urban Auckland.
In the aftermath of the January floods, some councillors have expressed concerns about the impact of new housing density laws, fearing multi-storey residential buildings could further strain the already-overburdened infrastructure.
Blick acknowledges the weather events have highlighted challenges that will need to be addressed in policy settings on land use and infrastructure investments. He notes these are discussions many international cities are grappling with, particularly in coastal or flood-prone areas.
Such decisions can have significant and far-reaching consequences for Auckland’s growth patterns. It is Blick’s responsibility as the city’s chief economist to consider and advise on the full range of consequences.
Land use policy and transport infrastructure investment are big, powerful levers for a city’s attractiveness, Blick observes. They influence where households can locate, the accessibility of different locations, and the decision-making of people in New Zealand and overseas who are considering relocating.
“More flexible land use gives households more choice, and the option to locate in locations that are in relatively high demand due to their proximity to jobs, transport links and other urban amenities.”
Enabling more people to locate closer to the things they value is positive for wellbeing and productivity and improves Auckland’s competitiveness in comparison to other cities and regions.
The Auckland Unitary Plan shows the power of changes in land use policy. Upon its implementation in 2016, it increased Auckland’s capacity to accommodate growth and allowed land in some locations to be used more intensively.
Research conducted by the University of Auckland has analysed the impact of the Unitary Plan by modelling the counterfactual if it hadn’t been introduced. The study found that over the first five years, the Unitary Plan led to the construction of an additional 26,900 dwellings, 50 per cent more than otherwise.
“This really shows how powerful land use policy can be, and so potential changes need to be carefully considered,” Blick says. “People may notice changes in some neighbourhoods and some people may not feel entirely comfortable about it.
“But we also need to consider where we’d be without those extra homes and where those households would otherwise locate. Enabling the market to deliver more homes in response to the demand has been a positive step for improving housing affordability over the medium term.”
Looking ahead, this will help Auckland retain its competitive advantages. “Auckland still offers a diverse range of employment opportunities, specialised roles, higher income prospects, urban amenities and consumption possibilities not available in other regions,” Blick says.
Project Auckland: International cities show how to soak up stormwater
Project Auckland: International cities show how to soak up stormwater
In 2015, China implemented a concept known as “sponge cities” in 16 urban areas to combat flooding caused by stormwater.
The initiative was in response to the devastating Beijing flood in 2012, which claimed 79 lives and prompted authorities to make sponge cities a nationwide policy.
The idea was promoted by Chinese landscape architect Yu Kongjian, who advocated for the integration of nature’s ability to absorb, store and filter water into city infrastructure to mitigate against runoff.
This approach involves using green infrastructure to allow water to follow its natural channels, with streams and creeks uncovered, parks and grasslands restored, and planting used to slow down the flow of water and enable natural absorption, infiltration and purification. This is in stark contrast to the conventional grey infrastructure solution that speeds up the flow of water using pipes and drains.
Qunli stormwater park, in the northern Chinese city of Harbin, is an example of the concept. The park collects, filters and stores stormwater, and has become a popular urban amenity for recreational use. Capable of retaining and filtering up to 500,000 cubic metres of stormwater, the park has solved the stormwater inundation issue for an area 10 times its size, spanning over three kilometres.
The success of the initial pilot has seen a further 14 cities in China adopt the idea of sponge cities, including Shanghai, Shenzhen and Beijing, and has seen the concept grow in interest in other international cities.
In Auckland, the concept of sponge cities has also been put into practice. One example is Stonefields, with its large tiered floodable park, created by preserving some of the existing wetlands and preventing floodwaters from flowing into properties during heavy rainfall.
Another example is Te Auaunga Oakley Creek, a Healthy Waters project in Mt Roskill.
Te Auaunga is one of Auckland’s longest urban streams, winding its way from Hillsborough through Mt Roskill, Owairaka and Waterview to the Waitematā Harbour. The creek has breached its banks during heavy rainfall, but that is part of its design — the connected parks collect excess stormwater and slowly release it back into the creek, preventing flooding for nearly 200 homes.
New York’s pocket rain gardens
On a smaller scale, New York City has implemented pocket rain gardens to help manage its stormwater. These tiny gardens help with the natural absorption of rainwater into the ground instead of allowing it to flow into the sewer system. Strategically located, the pocket rain gardens are installed in areas where their impact on the health of the city’s waterways will be most significant.
Thorough soil testing is conducted before installation to ensure the pocket gardens can efficiently absorb stormwater. The area is then excavated to a depth of around five feet (1.5m) and backfilled with stone and soil, with the kerb replaced with one that allows water to flow in and out. Appropriate plants, flowers and trees are then selected and planted in the area.
The benefits go beyond stormwater management. They help to combat the urban heat island effect, clean the air, promote biodiversity and beautify neighbourhoods.
Tokyo’s underground cathedral
Tokyo, a city built on a flood plain and crossed by five river systems and dozens of individual rivers, has taken a unique approach to risk mitigation. In 1992, construction of the Tokyo Metropolitan Area Outer Underground Discharge Channel began in the northern Saitama Prefecture on the outskirts of the city.
Over 14 years, the world’s largest underground floodwater diversion facility was built to counteract the overflowing of city rivers during intense rain and typhoon seasons. The system’s tunnels and chambers run for 6.3km east to west, featuring 18m-high concrete pillars that create a cathedral-like space underground.
Before it was constructed, the water level from rivers used to flood a large area. The facility is activated around seven times a year, and allows Tokyo to divert and store water in the underground channel, and pump it into the larger Edo River at a rate of up to 200 metric tonnes of water per second.
The facility proved its effectiveness during Typhoon Hagibis in 2019. The artificial caverns were able to take in more than 12 million cubic metres of water, saving Greater Tokyo from an estimated 26.4 billion yen ($330 million) in damage.
Rotterdam’s green rooftops
The Netherlands’ second-largest city, Rotterdam, is home to the DakAkker, a farm on top of a roof covering a massive 1000 square metres.
The roof holds a thriving garden filled with fruit trees, vegetables, flowers and herbs. Bees are kept and even chickens wander around. It is one of the largest rooftop farms in Europe, capable of collecting 60 litres of rainwater per square metre.
A portion of the farm’s roof has been transformed into a smart roof that can respond to heavy rainfall predictions.
The system can make extra water storage capacity in advance of a rainfall event by releasing water slowly up to 24 hours ahead of the rain, giving it the capacity to handle heavy downpours more effectively.
Over the past decade, Rotterdam has transformed rooftops across the city, with green roofs installed on thousands of buildings, covering about 330,000sq m, or around 2 per cent, of the city’s flat roof space. These green roofs are playing a crucial role in keeping water out of the city’s ageing stormwater system and preventing flooding.
Rotterdam residents can apply for subsidies to create these green roofs and install water retention systems. The smart technology being trialled on Dakakker’s smart roof could ultimately be expanded across the city, so water levels on rooftop storage tanks could be co-ordinated to empty when rain is forecast, allowing them to be fully operational during heavy rain events.
In 2013, Rotterdam built the Benthemplein “water plaza” with a similar goal. The plaza is sunken into the ground, with a sports area in the centre accessed by steps. During heavy rain, the plaza collects runoff and stores water to dissipate safely.
“Instead of making bigger sewer pipes, we chose to invest in redesigning public space in a way that contributes to a nicer, better, more attractive district,” says Arnoud Molenaar, Rotterdam’s chief resilience officer.
World’s spongiest cities
Engineering consultancy Arup released its Global Sponge Cities Snapshot in 2022, which examined the amount of green space and permeable soil in major cities. Auckland was ranked the spongiest city, given its lower urban density and high level of green space areas.
1 Auckland — 35%
2 Nairobi — 34%
3 Singapore — 30%
3 Mumbai — 30%
3 New York — 30%
3 Toronto — 30%
4 Montreal — 29%
5 Shanghai — 28%
6 London — 22%
7 Sydney — 18%
Auckland Council Panel: Deputy Mayor Desley Simpson, Josephine Bartley & Julie Fairey
I had the fun job last night of moderating a panel with Auckland’s Deputy Mayor Desley Simpson and Councillors Josephine Bartley and Julie Fairey for the Onehunga Business Association. It was a wide-ranging conversation covering the budget, flooding, transport, rates, congestion, bus cancellations… But a couple of things stood out to me:
1. These three Councillors, while covering the full political spectrum, have each other’s backs and want to support each other – this was evident right throughout the panel discussion.
2. The recent weather events had a significant impact on them. They knew the people who lost their lives and were open about how these deaths affected them.
3. My final question to the panel was to ask for something positive for the year ahead. It’s nice to remind ourselves that not everything is bleak all the time!
4. Deputy Mayor Desley Simpson does a fantastic ghost impersonation (hear it between 1.01 -1:23) 👻 👻
Listen via Onehunga FM’s ‘Too Much Talk’ podcast in the link below