New Zealand’s trade with China faces a list of economic, cultural, and geopolitical challenges which may challenge export growth in the coming years

If success means nothing breaking, Prime Minister Christopher Luxon’s first official visit to the People’s Republic of China has been a triumph.

He spent four days meeting top businesses and political leadership without receiving any obvious rebuke for New Zealand’s subtle shift in foreign policy.

This shift involves speaking more openly about China as a risk to regional security and forming closer defense partnerships with US-aligned countries.  

Debate over whether NZ should join AUKUS Pillar II—an undefined technology sharing agreement—has been the most visible issue, but various decisions have moved NZ toward western security partners, such as Australia, NATO, and the Philippines.

Supporters of the policy say it’s an obvious reaction to China’s growing military presence and regional assertiveness, while critics say it is part of an American campaign to halt its competitor’s natural rise in power and influence.

The truth may fall somewhere in between, but it still puts NZ in the uncomfortable position of having China playing a hero in its economic story and a villain in the security story.

Businesses exporting to China are understandably nervous this balancing act could put their market access at risk if New Zealand oversteps or miscalculates. A China-based Fonterra executive told TVNZ he worried tough talk between the two could lead to “trade disruptions”.

Luxon said businesses hadn’t raised that kind of concern with him on the trip. The challenge he heard about was how to win a share of the huge and competitive Chinese market.

“They’re in this market all the time and so they’ve got bigger issues, around how do you make money, who do you partner with, how do you [approach] a country this size,” he said.

This mostly aligns with what members of the business delegation told Interest.co.nz, although they had been coached to not speak freely with travelling journalists.

With that caveat in mind, Kiwi exporters said they saw the trade relationship as stable for now, even if the risk of it deteriorating lingers in the back of their mind.

Ups and downs

Those anxieties have hopefully eased slightly after smooth meetings between Luxon and President Xi Jinping and Premier Li Qiang. These discussions happen behind closed doors, but NZ officials seemed happy with how they went.

Media are allowed into the room to hear each side give opening remarks and take a few quick photos. These public comments were friendly and respectful, although not as warm as they have been in the past.

Xi complimented Luxon on his “positive attitude” and thanked him for easing visa restrictions for Chinese visitors but also acknowledged some difficulties.

“More than 50 years since the establishment of diplomatic ties, the China-New Zealand relationship has experienced many ups and downs, but we have always respected each other and worked together,” he said.  

Similarly, Luxon said the relationship was “longstanding and of great consequence” and that he wanted to grow two-way trade. But he then encouraged China to play a constructive role in regional stability and said they would have open discussions “as partners should do”.

The two sides sounded somewhat wary of each other but willing work through it to maintain the status quo and keep the key trading relationship steady.

Steady as she goes

Wang Xiaolong, Chinese ambassador to New Zealand, told the Global Times the key outcome of the visit was a recommitment to mutually respectful cooperation.

"It is particularly pertinent given the fundamental interests of the two countries and the turbulent times we are going through at the moment,” he said.

Another column published in the state-run newspaper ahead of the political meetings said the US had been pressuring NZ to join “its small circles aimed at containing China”.

“For New Zealand, it is important to see the broader picture and ensure that its choices align with the prevailing trend of history … the "America First" principle means Washington could abandon its partners at any time.”

A later story reporting on the meetings took a positive tone. It said NZ seeks to balance “economic pragmatism” while still talking about Pacific security.

“New Zealand has shown a strong adaptability to balance its relationships with China, the US and Australia. While being a Five Eyes member with deep alliances, New Zealand values its relationship with China and navigates geopolitical complexities with independence and flexibility,” it said.

A quote from Xi said there were no “historical grievances or fundamental conflicts of interests” between the two countries which should respect each other and appropriately address disagreements.

These stories give the impression that China was also happy with the meetings, even though Luxon indicated he raised various concerns including Chinese warships doing live firing drills in the Tasman Sea earlier this year.

Deals and announcements

While the political goal of the trip was to get through unscathed, there were some moderately significant trade announcements. The largest of these related to relaxing visa rules for Chinese visitors.

Chinese tourists with an Australian visa will now be allowed to also visit NZ, an easy-to-get transit visa has been created, and applicants for a regular visitor visa won’t have to provide a costly licensed English translation.

This is aimed at helping bring back Chinese tourists, many of whom have been choosing other holiday destinations, and enabling a Southern Link air route from China to South America via Auckland.

Playing its part, China agreed to a process which allows Kiwi cosmetic companies to sell their products on store shelves despite not meeting a requirement they first be tested on animals.

This was something former Prime Minister Chris Hipkins raised with Premier Li Qiang when he visited China in 2023. It is projected to bring in an extra $200 million in export revenue, as the products will be more visible and allowed to be sold in larger volumes.

New Zealand Trade and Enterprise (NZTE) estimates the various deals signed in China will add $871 million in export value over an unspecified time. Most of these were routine commercial deals between private companies, although some were new or involved the two governments in some way.

New Zealand sold just over $20 billion worth of goods and services to China in 2024, making the collective value of these deals equivalent to about 4.3% of annual exports.

Blowin’ in the headwinds

While Luxon told Xi he had “big ambitions” to grow two-way trade between NZ and China the trend has been heading in the other direction. Export value peaked in calendar year 2022 at $21.2 billion and has flatlined ever since.

A weak Kiwi dollar and strong commodity prices—most notably milk and butter—pushed these export values to a record high in March but it is unclear if that trend will be sustained with Chinese consumers still feeling cautious.

Consumer sentiment took a nosedive in 2022, as covid lockdowns dragged on and a property bubble began to burst, and has never recovered. Chinese citizens are choosing to keep their money in the bank.

This is a problem for Chinese policymakers who are tasked with hitting a 5% annual GDP growth target while facing an average US tariff of 51% (at the time of writing) on 14% of its total exports.

With exports unable to act as the economic growth engine, China is looking to its own citizens to start spending. Most economies become more consumption based as they develop, but China has remained an exporting economy.

In the long term, it wants to develop its own internal market and reroute more exports to other Asian countries to its south, but it is proving hard to get citizens spending.

Core inflation is likely to be -0.01% in 2025, disposable income growth is at an all-time low, and personal debt has climbed to a historical high. These factors are constraining the ability of households to drive a demand-led recovery.

Southward and inward

Economists think Southeast Asia and India will play a proportionally larger role in global growth in the coming years, as China battles these headwinds. It is no surprise or secret that those two regions are also the priorities in New Zealand’s trade policy.

If China was able to reinflate its economy and get consumers shopping, it might be a boon for New Zealand’s sluggish exports. Many Kiwi products are used in fine dining experiences or are consumable luxuries such as natural cosmetics or manuka honey.

That said, NZ products generally fill a tiny niche in their mega-sized Chinese markets and aren’t overly sensitive to shifts in the macro growth rate.

Cultural consumer preferences and the strength of local competition tends to be a bigger problem for Kiwis looking to capture a slice of the market. A survey of 60 businesses in China found increasing domestic competition was the number one problem.

Chinese businesses are fit, competitive, and full of local knowledge. Consumers themselves are increasingly choosing local brands over international ones in response to the trade war.

The nationalist backlash is primarily aimed at US products, but it can have a spillover effect for New Zealand as the preference for Chinese takes hold in the culture more generally.

China remains a vast market, but it is no longer an untapped one. Businesses must fight for their market share, and it is becoming more difficult—whether for economic, cultural, or geopolitical reasons.