As economists forecast an economic slowdown in China, a new report has offered fresh data on how reliant Kiwi exporters are on the Asian superpower
The share of New Zealand’s exports heading to China has grown almost a third since 2018, despite the Government’s repeated cautions about over-reliance on a single market.
The figures come in a new report from the NZ China Council, which says the trade relationship has played a significant role in helping New Zealand weather the economic effects of the Covid-19 pandemic.
But the report, commissioned by the council and carried out by Sense Partners, also shows how New Zealand’s most exposed export goods could face a billion-dollar drop in annual revenue in the event of a trade freeze with China.
Since taking power in 2017, the current government has drawn increasing attention to the share of New Zealand exports heading to China.
In her first major speech on Aotearoa-China relations last year, Foreign Affairs Minister Nanaia Mahuta said it was “prudent not to put all [New Zealand’s] eggs into a single basket” when it came to trade.
The Sense Partners report said China was now taking 32.6 percent of New Zealand’s total exports, up from 25 percent in 2018.
Taiwan (50.1 percent), Australia (40.3 percent) and Chile (39.8 percent) all had a greater share of their exports heading to China, but New Zealand had seen a faster rate of trade concentration than for most other countries.
There had been a 210 percent increase in Kiwi exports heading to the Asian superpower between 2010 and 2021, compared with a 24 percent increase in total New Zealand exports over the same period.
“The result is a growing concentration of exports and imports in the Chinese market. This is the perhaps inevitable result of a trade relationship that has proven to be highly mutually beneficial. It comes with both benefits and risks.”
The risks were highest for goods where a large share of total exports went to China, but where the country had other large sources of imports it could switch to.
For instance, 96 percent of New Zealand’s rock lobster exports were sent to China but made up just 4 percent of Chinese imports, while 87 percent of our log exports went to the country but accounted for just 29 percent of its imports.
“New Zealand’s aggregate exports to China represent the sum of thousands of individual business decisions. Who determines which companies should export which products to China, and how much is too much?”
– NZ China Council report
A ‘scenario model’ examining how those highest-risk sectors would be affected by a complete disruption of exports to China estimated there could be nearly $1.15 billion in lost annual revenue.
The worst-hit exports would be logs, with a $445m – or 16.1 percent – drop in annual revenue, followed by infant formula ($343m, 25.1 percent) and shelf-stable cream ($221m, 26.3 percent).
“These illustrative impacts are not trivial and could be material for smaller sectors. But neither are they particularly large relative to our total goods exports to China of $20 billion or our aggregate exports to the world of $63 billion.”
The model assumed a total disruption for one year, with 10 percent of exports unable to be sent elsewhere and the remaining 90 percent reallocated among other markets based on current trade flows.
It was also based on China not seeking to replace its imports from New Zealand, although in reality the country’s consumers would likely look for alternative sources elsewhere.
“Wherever Chinese consumers opt to source this alternative, they will need to displace existing customers. Those customers, in turn, will seek to find their own alternative. That alternative may very well be New Zealand,” the report said.
While the model was “not a forecasting exercise with any suggestion of precision”, the findings were similar to other analyses of how certain Australian exports to China had been disrupted.
The report acknowledged calls to diversify New Zealand’s exports had become louder since an earlier iteration in 2020, saying that such declarations were “fine in theory but difficult to achieve in practice” given the nature of individual companies’ decisions.
“New Zealand’s aggregate exports to China represent the sum of thousands of individual business decisions. Who determines which companies should export which products to China, and how much is too much?”
Exporters were generally well aware of the risks of concentrating on a single market, but decided the risk was justified by the returns they made.
Trade ties ‘delivering value’
NZ China Council chairman John McKinnon told Newsroom the growth in exports to China over recent years showed the trade relationship was delivering value for New Zealanders.
Kiwi businesses that had proved successful in China were those which managed to figure out the best approach to the Chinese market, McKinnon said.
“This [report] is not necessarily saying don’t think about other markets or don’t reduce your reliance on China, but it is saying businesses need to make decisions in the light of the range of factors which they are confronting, and they have done so and will presumably continue to do so.”
The effect of Australia’s trade tensions with China were among the factors that would need to be taken into account, but the two countries had continued to trade across a number of areas despite the dispute.
McKinnon said the Government had an important role to play in helping Kiwi businesses operate in offshore markets, while the negotiation of new free trade deals was also critical.
The report’s release comes as economists warn of an economic slowdown in China as the country battles its first significant Covid-19 outbreaks in some time.
The International Monetary Fund last week cut its growth forecast for China to 4.4 percent, below Beijing’s own target of 5.5 percent, with IMF chair Kristalina Georgieva warning “a prolonged slowdown in China would have significant global spillovers”.
“As the world’s second largest economy, actions to counter the growth slowdown here in China, and achieve the authorities’ ambitious growth target, are also vital for the global recovery,” Georgieva told the Boao Forum last week.
The Sense Partners report also noted that a slowdown in China’s growth could lead to weaker export demand, but McKinnon said “ups and downs in the Chinese economy” would not affect the country’s status as a significant market for New Zealand.
