The New Zealand- China relationship

Material for New Zealand-China Council Delegation

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China is a central part of a huge structural shift in the global economy…

Source: OECD

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…and New Zealand is responding to that shift

Source: Statistics New Zealand

Goods exports to China have risen from $2 billion to $7 billion in 5 years during a global recession

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From humble beginnings…

Source: Statistics New Zealand

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…China is NZ’s hottest export market and eased the pain of the global financial crisis

China is responsible for $4.9bn of NZ's additional $9.5bn of exports since 2007

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Trade is becoming more balanced

Source: Statistics New Zealand

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Strong growth in top 7 exports to China

Source: Statistics New Zealand

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An increasingly important source of imports…

Source: Statistics New Zealand

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…that are used by households and New Zealand firms for further production

Top 10 = ~82% of total

Source: Statistics New Zealand

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Exports of services are growing too: Chinese tourism spending has risen strongly

Since GFC hit, Chinese tourism spending has risen by $380 million.

Total spending by all tourists fell by $720 million.

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Expect visitors from China to double by 2018

Tourism market is changing rapidly, driven by Chinese income growth

Source: NZIER, MBIE

New Zealand tourism operators needs to think carefully about Chinese visitors’ demands

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Commercial services exports are small but widespread and growing

Source: Statistics New Zealand

Overall, China is now New Zealand’s 3rd largest services market, worth over $1 billion per year and growing

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New Zealand remains a popular place for Chinese students to learn

Sources: http://www.educationcounts.govt.nz; Infometrics

Chinese students accounted for $560 million of GDP in 2011: 27% of the total GDP generated by overseas students

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Investment has risen – both ways

Source: Statistics New Zealand

Only 0.61% of New Zealand’s total stock of foreign investment is from China…

…compared with 16% of our total imported goods

Of New Zealand’s total investment abroad, China received 0.59% in 2012, up from 0.13% in 2007

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FTA provides a competitive edge

• 91% of tariff lines are duty free• By 2016, all imports from China will be duty free• By 2019, 96% of New Zealand exports will be duty free• Leaders’ goal of doubling exports within 5 years from

2010 is an ambitious but feasible target

Total trade with Growth since 2000

Growth since 2008

Growth since 2010

World 55% 2% 9%

China 411% 62% 26%

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But FTA preferences won’t last forever: we need to maximise our first-mover advantage

China’s signed FTAs

In negotiation or being considered*

ASEAN GCC

Pakistan Australia

Chile Iceland

New Zealand Norway

Singapore SACU

Peru India*

Hong Kong Japan and Korea*

Macau Switzerland*

Costa Rica RCEP

Product NZ FTA tariff 2013, 2019

MFN tariff 2013

Milk & cream 5%, 0% 10%

Kiwifruit 6.7%, 0% 20%

Chilled lamb 5%, 0% 15%

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Chinese economic challenges present opportunities for New Zealand firms

Challenge Potential implications for New Zealand

Environmental pressures More demand for exports of environmental goods, services and technology (e.g. energy-efficient materials)

Rapid urbanisation Demand for New Zealand building products

Food security and availability Food exports; technical cooperation to boost Chinese agricultural productivity; greater ‘exports of experts’

Rebalancing of economy away from investment towards consumption

Should boost Chinese demand for imports of consumables, including foodstuffs, wine, fashion, etc.

Fiscal pressures related to healthcare and education spending

Enhanced demand for health technologies, opportunities for education via JVs/commercial presence

Regional integration models: TPP vs. RCEP

New Zealand has a strong interest in TPP accession clause accommodating future Chinese entry; can act as neutral ‘bridge’ between RCEP and TPP

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Key takeouts

• The economic relationship has developed rapidly and is maturing well

• It’s more than just goods exports – the services, investment and people links are deepening

• The FTA has generated real momentum• But preferential tariff advantage will be eroded

over time as both countries sign more FTAs with other competitors

• Opportunities abound for New Zealand firms to help address big structural challenges in China