On 7th April 2008 New Zealand became the first OECD country to sign a free trade deal with China, an economy which in the 1970’s was one of the poorest countries in the global economy. Today China is the world’s second largest economy and the fastest growing at a rate around 7% per year. China is now comfortably New Zealand’s largest export market, accounting for the largest share of our exports in all but a few sectors.
In 2017, China surpassed Australia and became our largest export market. But as exporters’ focus has switched to China, New Zealand’s exports have become less diversified, exposing exporters to concentration risk.
Westpac Bank reported in their November 2020 Quarterly Overview that while the New Zealand-China trade relationship is strong, China could in the future choose to disrupt New Zealand exports. Recently Australian exports into China had the following restrictions imposed on them:
- 80% tariff on Australian barley exports
- ban on Australia’s biggest grain exporter
- suspension of beef imports from five major meat-processing plants
- China has also launched an anti-dumping investigation into Australian wine exports
- Chinese cotton mills were told not to process Australian imports
At a high level, NZ-China trade flows reflect each economy’s comparative advantage and because of this trade relationship New Zealand faces less risk exposure. The risk exposure really depends on how important New Zealand’s export supply is to China and the other markets where the product/service can be sourced which includes other countries as well as domestically.
More Options = More Risk
China exposure risk by export sector
It seems that tourism, seafood, and gold kiwifruit have the highest exposure. For these exports, essentially China has options (including domestically) for alternate supply. Education (universities and English language schools) also faces similarly high risk.
Also kiwifruit as New Zealand only account for 4.5% of China’s total fruit imports. China does have a competitive domestic horticulture industry which has started to grow Zespri’s Sungold kiwifruit variety.
Wood and wider fruit sectors – have medium exposure risk. New Zealand accounts for a relatively significant share of global meat and wood exports, so China is reliant on New Zealand.
Meat – China also recognises New Zealand as a reliable and safe exporter. Looking at the wider fruit sector, exporters remain relatively diversified and thus less reliant on China.
Dairy – in a strong position as China imports around 50% of its dairy produce from New Zealand.
Wine – China is a small market for New Zealand, so the sector’s reliance on China is also small.
Overall the complementary nature of the NZ China trade relationship means New Zealand’s risk exposure is less than the outright level of exports would suggest.
China needs New Zealand’s food (and wood) as it cannot produce enough (efficiently) on its own – while New Zealand remains the most competitive supplier. New Zealand needs China’s manufactured goods – while China remains the most competitive supplier.
Source: New Zealand’s exports to China: where is New Zealand most exposed? Westpac Economic Bulletin – 8 October 2020