By Gareth Vaughan
China is far and away New Zealand's key export market. But this comes with risks.
China is an authoritarian one-party state. Its human rights record came under fire from the United Nations this week, and China's growing international assertiveness is seeing it butt heads with the United States and increase its influence in the South Pacific.
Against this backdrop, is it possible that NZ is too dependent on China as a destination for our exports? What are the risks to this relationship? And could we diversify by exporting more of our key products to other countries?
To discuss this I am joined by Stephen Jacobi, Executive Director of the New Zealand International Business Forum, for the latest episode of interest.co.nz's Of Interest Podcast.
*Note the Sense Partners report Jacobi refers to in the podcast, How many eggs, in how many baskets? An update on NZ-China trade patterns, can be found here.
39 Comments
It's certainly a precarious path and authoritarian regimes like making sudden arbitrary decisions.
On the other hand China appears to be losing decent friends and will have to weigh up paying more for food vs. taking grief from the likes of the NZ government.
Unless our allies get spicy with China I'd say the trade will continue in some form.
If it could, it'll punish the UN for the audacity to report on Uighur suppression.
Sell meat and dairy to India or Indonesia, their consumers prefer cheaper alternatives. Did our Labour Government had to compromise on minimum wage. Low productivity vs others in the world restricts us to tourism and residential property sectors, as bedrocks of our economy.
It’s our logs I am most worried about.
We ship more logs than any other country, vast majority to China. These logs deteriorate while shipping and are largely used for cheapest applications (box wood, concrete support etc). We have tailored our forests to support Chinese exports with high volume at expense of quality (from seed to forest management).
China aims to be fibre self sufficient (and is planting huge forests), they have shown with Australia it will use trade to exert political will, and the government incentives that artificially distort log prices will unlikely last if Chinese economy tanks.
NZ is sleep walking into a crisis. Its internal wood/paper processing is dying and no other country can fill the gap as a customer for its low quality logs if the market shifts. It lacks any kind of resilience and is totally dependent on China.
The sector has been far too much short term transactional thinking, rather than long term strategic.
If the world follows the course set out in Peter Zeihan's book 'The End of the World is Just the Beginning' (a book recommended by a commenter on this site) then production pine forests will become gold mines.
If as the book suggests the Americans cease to provide the worldwide security necessary to enable the current high level of specialisation and transport that underpin our current trade system then NZ will have to become more self sufficient.
We will have to find politicians that can do import substitution, pick industrial winners and reconfigure our energy distribution model if we are to make it as a nation.
The stupidity of the Marsden Point refinery dismantling is a symptom of a political class clinging onto a world model that appears to be withering very rapidly. They do not appear capable of realising that the just in time model is fading and that the can we do it model is rearing it's difficult and expensive head.
Trashing millions of dollars worth of engineering and then having to later rebuild a refinery at ten times the cost in order to keep the lights on is not a mistake New Zealand can really afford. Future taxpayers will be paying for such short sighted decisions.
Haven't we been here before?
It doesn't matter what the political ideology of our major trading partner is, the risk is similar, and do we have any choice but to ignore it?
The UK joining the EEC, and the instant impediments to trade with the UK - our major trading partner by far at the time, comes easily to mind.
Its not a question of diversifying markets, New Zealand is a sellout to the highest bidder. The reason goods are going to China is because rich Chinese are paying top dollar. The public over here still think the Chinese are living on a bowl of rice a day, things have really moved on.
A most recent example of recent NZ stupidity is the complete shutdown of our only Refinery at Marsden Pt
Even in the greenest of worlds, and long, long into the future, the many, many products that are cracked out of crude oil are essential to our daily lives and every industrial need.
Fertilisers are a product of the oil and gas industry!! What does NZ need in bulk quantities to make milk and all the food?
Short sighted stupidity!
Oil demand is set to increase for anywhere between the next 7 to 20 years, before transport fuels significantly taper in demand. Petrochemical industries will increase in oil demand, but at a slower rate.
Will will be left completely kneecapped if any of the regional refiners have a "co-ordinated shutdown", national security problem, or shipping is disrupted by one of many reasons.
NZ passes with a AAA+, in short sighted stupidity. Like watching and a slow motion train crash.....and our "leaders??" don''t even have a clue.......
The problem with Marsden Point is that we had to import all the crude oil that was refined there. So it's not really a hedge against supply chain issues - the supply chain for importing refined fuel is that same that is used for importing unrefined oil. Also sourcing refined fuels from multiple refineries removes the single point of failure - arguably more secure.
So the decision for energy security was not "do we close it down or don't we" but rather "do we close it down or do we pile a whole heap of capital into upgrading the facility for locally produced oil". Given that the current government pretty much scuppered the local oil and gas industry at the stroke of a pen shortly after being first elected, a subsidised project was pretty much a dead duck in the first place.
Would this web site exist under the CCP. How many of the commentors here would be in re-education camps.
For some insight into growing up in China try reading some books by Xiaolu Guo. A Concise Chinese-English Dictionary for Lovers and Once Upon A Time in the East are my favourites.
I think a lot of the angst with regard to China has nothing to do with the people and culture. Just the Chinese Communist Party and their behaviour to any individuals and groups that hold a different point of view. That is very unsettling to many of us. Within reason we would like to be able to have an open and honest relationship with our trading partners.
The CCP is more scared of its own people than anyone else. They know their hard handed approach doesn't appeal to everyone in China. Indeed, if China gave their people the vote there would probably be 15 or more nations emerge, that they would have to consolidate into a federation format to have the power they now have. I'm pretty sure they're not that civilised. Anyhow, the UN have let the cat out of the bag, & I for one say good on them for doing so. It's been their best decision for 30 years but that's another story. I suspect China will throw its toys out of the cot, as that what adolescents do, & is what Mr Xi will have to do to get re-elected for life, as is his goal. Everything he does is for internal consumption. Communists are basically cruel people, so the CCP will do what it has to do to stay in power. I wouldn't be surprised to see civil war erupt in China before the decade is out, but that will not help NZ Inc over the short term, sadly. The Chinese are also very close to being able to feed themselves. When that happens all bets are off.
It's not only China where the people have a dim view of their Government.
Liz Truss expected to win, but support is waning among the British electorate even before her expected appointment as prime minister next week, according to two recent polls. Only 12% of Britons expect Truss to be a good or great leader, while 52% expect her to be poor or terrible, according to YouGov.
Everyone who asks whether NZ is too dependent on China also needs to ask themselves: why does it matter? There are some legitimate reasons, but anyone whose answer highlights the idea that 'China is a one-party state,' or more generally refers to some moral problem with China, needs to take a look at the world around them. There is no shortage of such governments around the world with which NZ happily does business, either directly or indirectly. Just keeping to the oil market, Saudi Arabia comes to mind.
Nor does the idea that authoritarian states are less reliable as trade partners make much sense either. The Chinese have shown pretty clearly, for a few decades now, that they are primarily interested in making money and increasing trade. It is only when the West (hypocritically) criticizes their government or otherwise makes threats, that things start to get dicey.
The reality is that the United States is twisting every arm in this region to get countries onboard with US foreign policy, which is shifting to the South Pacific and -make no mistake- regards the maintenance of the post-1945 and especially post 1990 status quo as non-negotiable. The US intends to remain the world hegemon and is prepared to risk world war III to do it, unfortunately. For those who are familiar with recent history, that is the primary reason why we have a war in Ukraine right now, and the reason why 'tensions with China' have flared up so much in recent years (this had nothing to do with Trump).
None of this, of course, is to excuse China or Russia's government or actions. Putin is guilty of war crimes in Ukraine. But for better or worse, NZ's most powerful 'ally' is the United States. However little influence we have over the US, we have much less over China and Russia. In the first instance, we should be taking a look in the collective mirror and (as a sovereign state) asking how we can best steer an independent and beneficial course for NZ. There is no reason automatically to assume that this involves backing whatever the US asks us to do, including 'confronting' China.
I agree with you Joe, We, as in NZ,
should remain neutral with an open mind as to where things will flow. As has Sweden and Finland. We have to earn a living and as any one in business knows sometimes you have to put up with whatever so long as they pay their bills.
OK so now I pressed the wrong button and my post looks like this. Sorry I am not very good with computers.
The point is we need to just get on with it and not to get to obsessed with what the big boys want. They will always do what the will anyway regardless off what we say.
I recon, look after our own self interest as a nation first.
Exactly.
If China pushes the Taiwan situation much further then the question may well come down to a cold war style choice where the US asks its allies to make a decision between supporting increasingly aggressive sanctions against China, and if countries decline to do so - then those countries would likely lose significant trading and security goodwill from the west. With the exception of a few of US's major trading partners - this is pretty much the world is at with russia right now.
Given that NZ'ers are very unlikely to support becoming a member of a alliance with Russia and China and so on (as we would be subservient to a few dictatorships and over time would lose our freedoms), we would then have to align with the west and likely lose our chinese customs overnight.
So the question is, should we take proactive urgent action now - to find new markets and rapidly decouple from China to lessen the impact of a forced decoupling later. or soon find ourselves in the same position with trade that Germany now finds itself with Energy from Russia (where it has become reliant on their energy which has been cut off - with massive economic and social issues resulting)
I hear what you are saying OldSkool, but USA & co won't pay the bills. We should not rush into alliances until we see which way the wind blows. This country is in Asia not North America or Europe. I am not suggesting aligning with China but just to stay neutral as nothing may come of all this.
'China pushes the Taiwan issue much further.' This is typical of most analysis, focusing on the actions of everyone except the US, which is the top dog and has been since 1945. What are its interests? Who benefits? It is the US that is elevating the risk of war; armed force is where it still holds a substantial advantage. You are also wrong to paint a picture of Russia against the world. A substantial part of the world's population is not joining in the sanctions against Russian oil, including China, India, Brazil, etc. Much of Africa and Latin America is skeptical.
I am not advocating joining any alliance with Russia and China, obviously. I think NZ should maintain an independent course as much as possible. We also should not pretend that the interests of rich NZers are the same as everyone else's. As in all countries, class interests matter and what is good for the elites is not necessarily good for the rest. One thing I am sure of is that the interests of ordinary NZers do not lie with supporting an increasingly aggressive US foreign policy in this part of the world.
Interesting points. Would be good to critique the dependence on China imports too. M10 and Bunnings are so littered with Chinese made products its practically impossible at times to find an alternative. That's not good for competition and not good for the consumer.
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