New Zealand’s economy and living standards would not face any catastrophic risks if it were to lose access to imports from China, a new report has found.
The NZ China Council commissioned Sense Partners to assess the country's exposure to Chinese imports and to ask whether there was a need to diversify.
There has been an unofficial Government policy to encourage Kiwi exporters to diversify their target markets, and new trade deals have been intended to help make that possible.
It is up to businesses to decide for themselves which markets they want to focus on but trade officials have been nudging them to hedge the economic and political risks in China.
Council chairman John McKinnon said while there was a lot of discussion about China as NZ’s largest export destination, there was less focus on its role as our largest import partner.
New Zealand exports 27% of its goods to China and imports 16.5% of its products from there.
The importance and fragility of imports was made apparent during the pandemic, when shipping delays and pandemic restrictions resulted in shortages on Kiwi shelves.
Plus, recent Reserve Bank research demonstrated how these shortages were a driving factor in the inflation crisis the country has been facing for the past three years.
McKinnon said there was a possibility that imports from China could be disrupted in other ways in the future: Geopolitical disagreements could affect shipping lanes, the China-United States trade conflict could cause problems, or there could be other unforeseen shocks.
Not worth the hassle
Despite these possibilities, Sense Partners’ report found it would be difficult and expensive to reduce the proportion of imports from China, and that it wasn’t necessary in the first place.
In the vast majority of sectors, China did not supply more than 50% of imported products to New Zealand or the rest of the world. Only 3% of imports by value were products that China was the dominant supplier of, and they tended to be basic consumer goods.
“Losing access to these imports would impose a cost on households, but it is not likely to pose a systemic risk to our economy or standard of living,” the report said.
This means that for most imports from China, Kiwis could either get by without the product or find an alternative supplier — albeit at a higher, sticker price.
If New Zealand did opt to diversify anyway, it would run into two problems. First, it would be hard to source goods that didn’t link back to China, and secondly replacement products would likely be more expensive.
“There are other markets we could buy from. But diversifying away from China for non-market reasons is likely to be costly and challenging. And many alternative markets will themselves be integrated with China,” the report said.
China outlook
The possibility of China’s economic growth slowing in the future has been pointed to as one reason exporters should consider investing more in other markets.
Sense Partners’ report said there were challenges in the world’s second largest economy, including high debt levels, speculative property bubbles, and trade tensions.
But it warned that it was easy to “over-egg” these challenges and underrate the ability of the Chinese government to overcome problems as it has done in the past.
For example, there has been a lot written about the decline in China’s working age population and what it might do to an economy which has previously relied on abundant cheap labour.
But Sense Partners argued China could lift its retirement age from 54 to 65 and that would see an extra 225 million people remaining in the workforce by 2030.
Labour shortages could also encourage even more automation in manufacturing and possibly incentivise workers shifting from the agricultural sector into services jobs.
Agriculture employs 22% of all workers in China, compared to 6% in New Zealand and just 2% in the United States and Australia. Providing rural workers with a social safety net that allows them to move into cities could boost productivity and better use the existing workforce.
18 Comments
Don’t think, in the grand scheme of things, what NZ decides to do or not do vis a vis its trade either way with China will be of any vital importance to China and the same for any other nation for that matter, if it is to be considered brutally. Nobody owes us a living and NZ being small in nature and positioned remotely at the south east end of the line, must out of necessity exist as a mercantile nation. That in turn means realistically, to quite some degree, living by its wits and in safeguard of the success of that, diversification of its trade, is surely a sensible strategy as far as it can be implemented.
The key takeaway from this piece would appear to be...
"If New Zealand did opt to diversify anyway, it would run into two problems. First, it would be hard to source goods that didn’t link back to China, and secondly replacement products would likely be more expensive "
The problem is not so much how much NZ imports from China, but rather how dependent ALL the worlds exporters are on Chinese supply....it is a globally integrated supply chain.
And the US State Department website still says that the USA has a longstanding commitment to a One China Policy via the Taiwan Relations Act. Of course, if a country like the USA signs treaties that officially say one thing then goes ahead and acts in a completely different way it might be seen as duplicitous and no longer be trustworthy in the diplomatic arena.
But Sense Partners argued China could lift its retirement age from 54 to 65 and that would see an extra 225 million people remaining in the workforce by 2030.
Not likely to happen. a few reasons, A, the Chinese economic growth was not all from throwing more people into work force, but largely from improving efficiency. B, retirement age don't mean people actually retire. it only means employer don't pay pension tax in China, and the employment relationship legal status changes.
Probably won't look so rosy if you step back down the supply chain to manufactured item's component parts, as China supplies parts for almost everything from Teslas (a large part of their battery supply) to clothes pegs (stainless steel making) to footwear (rubber and plastic components) to electronics (a lot of the discrete electronic components) to...
I wonder just how deep the analysis went, and whose opinion it was meant to support.
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