National Australia Bank and BNZ eye opportunities for New Zealand wool in China

By Gareth Vaughan

There are big opportunities for New Zealand wool in China, according to the man who heads up National Australia Bank's Chinese operations.

The Beijing-based Vincent Lo was in Auckland yesterday with five representatives from the state owned Agricultural Development Bank of China talking to staff from NAB's local subsidiary BNZ, clients including wool exporter Wool Services International which has two offices in China, and learning about the New Zealand farming and wool industries. Lo said New Zealand's Free Trade Agreement with China, signed in 2008, was working well for New Zealand.

Among the Agricultural Development Bank of China staff visiting with Lo was a customer manager who oversees wool and textile companies nationwide. Lo told interest.co.nz there was a "deficit" of wool in China and consequently good opportunities for New Zealand wool there. Next year NAB and BNZ were looking to take New Zealand clients to China and the Agricultural Development Bank of China was aiming to bring textile clients to Australia and New Zealand.

China is our second largest market for wool taking about 25% of New Zealand’s total wool exports by value, or about NZ$170 million annually. The European Union, which takes 40%, is our only bigger export market.

China has a tariff quota for all countries, where the tariff rate inside the quota is 1% or 3%, depending on the product, and the tariff rate outside the quota is 38%. There's also a tariff-free country-specific allocation for New Zealand of 25,000 tonnes, which covers about 75% of New Zealand’s current exports. This quota exclusively for New Zealand wool will grow at 5% per year for eight years, to a maximum of 36,936 tonnes by 2017.

China is also opening a tariff-free country-specific allocation for New Zealand wool tops of 450 tonnes, equivalent to about 120% of our current exports. This quota will also grow at 5% for eight years, to a maximum of 665 tonnes by 2017. A wool top consists of similar-length wool strands laid parallel to each other and is a step in the process of converting raw wool into woollen yarn.

Lo said the Free Trade Agreement was "really working" for New Zealand.

"Particularly when you talk to (large) Chinese business, they're all somehow involved with the Chinese government and they're very supportive," Lo added.

"So when they talk about New Zealand they'll always put their thumbs up, being the first western country to have a free trade agreement (with China)."

Chinese businesses involved in the dairy and meat sectors were especially aware of the Free Trade Agreement.

Asked about growing concerns around inflation in China and food shortages as the Government looks to sell state food reserves, crack down on the speculation of and hoarding of agricultural products, and provide poorer households with subsidies in response to food inflation that reached 10% last month compared with 4.4% headline inflation, Lo said given China was so big there were a lot of diverse, regional economies.

"If we talk about inflation, if we go to the major cities there is fear of a housing bubble and so on," said Lo. "You go to certain provinces (and) there's a distribution issue also about the food prices. I think overall, the Chinese government, particularly the Agricultural Development Bank, one of their missions is to stabilise food prices."

There were always shortages of food, especially quality food, in China because of huge demand from people willing to pay up for quality.

 "So I do think there is a huge, huge opportunity ahead of New Zealand in China," Lo said.

"Food security is a huge opportunity for New Zealand, which has the best reputation."

People would pay three to four times normal prices for New Zealand milk, dairy products and kiwifruit, and there were also good opportunities for New Zealand wine.

The relationship between National Australia Bank and the Agricultural Development Bank of China stems from a Memorandum of Understanding signed between the two.