Wan Chinese economy loses its appetite for NZ exports

In times of economic strife, New Zealand has often looked to China’s mass market to help weather the storm.

But as the Government deals with the impacts of a technical recession, the Asian superpower is still grappling with an economic slowdown of its own – with flow-on effects for Kiwi exporters.

China is a noteworthy outlier in new export figures released by the Meat Industry Association.

While sheep meat exports for February were higher in nearly all markets than the same time last year, they were down 8 percent in China by volume, and 24 percent in value. The volume of beef exports to China did increase by 4 percent, but that was lower than the average increase across all markets, and the value of those exports dropped by 4 percent.

Other industries have been affected too: forestry consultant Allan Laurie recently told RNZ the sector had been “struck to our knees” due to a lack of demand from Chinese importers, with prices likely to drop further as a result. 

In a new economic update for East Asia and the Pacific, the World Bank says growth momentum in China had slowed after a strong post-Covid rebound in early 2023, with the property market “undergoing a protracted but necessary correction” and high debt levels constraining investment in new infrastructure.

Infometrics chief executive and principal economist Brad Olsen visited Beijing and Shanghai late last year to get a better feel for the economic picture, and tells Newsroom the weaker economic tone was clear to see – albeit from a higher base than most countries.

“Consumers are more worried, they aren’t as free spending with their money, and that is having implications.”

New Zealand China Council executive director Alistair Crozier tells Newsroom that China’s delayed exit from Covid-related restrictions compared with other major economies helps to explain the “bumpy year” it has experienced.

“I think we’ve got to cut China some slack – this is just part of the inevitability of coming out of three very disturbed years.”

Crozier says the slow economic growth has been “a mixed bag” for Kiwi exporters, with some sectors struggling but others doing well; he mentions kiwifruit as an example of the latter, with Zespri recently announcing the shipment of a bumper crop to Shanghai.

Dairy Companies Association of New Zealand executive director Kimberly Crewther is relatively positive about the state of the sector’s exports to China.

While there was a high-profile “rebalancing” last year, caused by high domestic production within China coupled with low demand, Crewther says exports to the country were up 25 percent for the year to February compared with the 12 months to February 2020 (before Covid-19 hit the global economy).

There is also optimism about the path ahead, with the country’s ministry of agriculture forecasting a 25 percent increase in dairy imports over the next decade.

Sluggish consumer demand isn’t the only explanation for reduced trade, either. Explaining the drop in red meat exports to China, the Meat Industry Association’s policy and trade manager Ashlin Chand cites an increase in imports from Brazil and Australia as a contributing factor.

“You just had this abundance of supply, as well as China working through its Covid stocks, which effectively depressed prices in that market … you couple that with a general economic slowdown, people watching their pennies and food inflation being high, [and that] meant that demand slowed down,” Chand tells Newsroom.

Looming over the fiscal environment are ongoing geopolitical tensions between the West and China, which are having their own economic impact.

Foreign direct investment into China has fallen to a 30-year low, according to Chinese government data, with concern about unequal treatment for foreign firms mixed with a push in some countries for “de-risking” of supply chains.

That has led to a Chinese push to attract investors back, with the government pledging to put foreign firms on a level playing field with locals and Chinese president Xi Jinping meeting with American business leaders in Beijing.

Crozier welcomes the rhetoric, saying China is aware of the importance of remaining open to the global economy and isn’t becoming as insular as some critics claim. But as he notes, “the proof will be in the pudding”.

“They’ve got to walk the talk, and sometimes there are contradictions, because China’s definitely strongly promoting investment and yet there’s been cases of corporate raids in China … and foreign business people detained, which doesn’t instil confidence in investors that it’s a good place to put their money.”

“I don’t think we’ll go back to where we were back in the heady days [when] we signed the FTA in 2008, we had excellent first mover advantage in many product areas [and] as a result, lower tariffs … and people were just making hay.”

Alistair Crozier

Despite those headwinds, there is a degree of confidence among Kiwi exporters about the future of the Chinese market.

Chand says the meat industry is hopeful its drop in trade will “work itself out” within a year given increasing demand for red meat exports and the popularity of New Zealand products, while Crewther believes the dairy sector is similarly well placed to capitalise on market growth.

But while the Chinese economy may stabilise, the golden days of New Zealand’s trade with the country may be harder to reclaim.

Olsen is less confident than others about how well China’s economy will rebound, and believes Kiwi exporters will have to think more carefully about their trade relationship – not foregoing the market entirely, but being more proactive in looking for opportunities elsewhere and adapting their business models to suit the economic environment in China. 

“I don’t think we’ll go back to where we were back in the heady days [when] we signed the FTA in 2008, we had excellent first mover advantage in many product areas [and] as a result, lower tariffs … and people were just making hay,” Crozier says, with China’s staggering double-digit growth of years past replaced with a more “steady as she goes” outlook.

But if consumer confidence rebounds and positive news stories return, exporters might start to look to China with greater interest again – “probably not to where it was, but neither will it remain in the doldrums permanently”.