Opinion: Prime Minister Chris Hipkins is leading a “29-strong business delegation” to the People’s Republic of China. This follows trips earlier this year to Australia and the UK to “advance NZ’s economic interests” and a May 2022 “trade mission” to the United States led by the then Prime Minister Jacinda Ardern.
The last time a New Zealand government emphasised trade in lieu of diplomacy this much was when Prime Minister Robert Muldoon quipped, “our foreign policy is trade”.
We must be broke again.
* NZ’s uneasy stability with China
* NZ pushes China on lethal aid concerns over Ukraine war
* Mahuta’s China trip a test of NZ sensitivities
* China envoy: ‘There is no red line redder than the Taiwan question’
Indeed, we are. The balance of payments deficit has reached a 34-year-high driven by the cost of imports rising faster than export earnings and foreign investors earning more from New Zealand than New Zealand investors earn abroad.
That’s sadly the New Zealand story. We’ve been living beyond our means in a way that has been covered up by the phenomenal growth of exports to China over the past few decades. Now that Chinese demand for New Zealand goods is more subdued, and many sector outputs such as dairy have peaked, those chickens have come home to roost.
We’ve seen this story play out in tertiary education, where the drop in international students uncovered a funding model not keeping up with inflation. That situation is now leading to significant staffing cuts and the downgrading of New Zealand tertiary education and research.
Similarly, the balance of payments deficit suggests New Zealanders will need to adjust their spending habits, or the country earn more export revenue, lest debt continues to grow and the credit agencies downgrade us.
The PM’s trade delegation to China is therefore driven by pragmatic New Zealand interest in an election year revolving around economic concerns. He’ll be seeking to stabilise relations with a more challenging partner to promote New Zealand business interests.
He’s already talking as if our China policy is trade.
This is because New Zealand spends more than it earns: we earn primarily through commodity exports and those exports have become overly dependent on the China market.
We enjoy a significant, but contracting, trade surplus with China that is out of step with our economic relations with other markets. Dairy, wood, and meat, the lion’s share of New Zealand goods exports, have all historically enjoyed higher returns in the Chinese market, as have services such as education and tourism.
These sectors form the backbone of New Zealand primary sector and the Māori economy.
In short, the diversification problem is about what we offer the world, not simply China’s demand for commodities.
Even 10 years ago, we’d likely see a New Zealand government agreeing to “ambitious new trade goals”, such as growing two-way trade to a specific amount by 2030, but we’re unlikely to see that today. While this is a formulation preferred by Chinese officials, such a policy today would send the wrong signal to New Zealand businesses.
There is no guarantee China’s prolonged economic slump will come right soon or that its evolving industrial policy will create conditions conducive to consumers choosing to buy more luxury foreign food products from New Zealand.
Chinese consumers are increasingly price sensitive and show a preference for local products, raising the costs for New Zealand businesses seeking to sell into China.
There is no guarantee that New Zealand policy, either unilaterally or in partnership with others, won’t create a political skirmish with China that depresses New Zealand trade into that market.
There is general agreement for a ‘China-plus’ diversification strategy, where China remains an important market for New Zealand’s primary products, but these are among many products offered across many markets.
Commodity exporters bring huge value to the New Zealand economy, and without them we’d be an even poorer country, but there is value in continuing to grow other industries to diversify our risk profile, provide more skilled employment, and improve our standard of living.
Countries all over the world, including China, are considering ways of growing and supporting industries that provide high-quality jobs and incomes, with a focus on investing in sustainable and high-tech industries.
A similar focus in New Zealand would help diversify our risk profile and exposure.
It would help ensure that Chinese demand for commodities does not lock New Zealand into being a narrow commodity-driven economy focused primarily on one market, much as we once were with the UK.
Given the economic challenges New Zealand faces, it makes sense for the Prime Minister to lend his weight to the New Zealand export sector, to seek a return to services trade, and to demonstrate his government’s pragmatic management of the China relationship at a time of heightened bilateral challenges and geopolitical instability.
But the challenges New Zealand faces are much more than this most pressing one. Just as it was never true that our foreign policy is trade, our China policy must also be much more.
Reducing a polity as ambitious, powerful, and consequential as China to just trade is not a viable strategy for long-term management of this important yet formidable relationship.