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Guy Trafford points out that our current 'dependency' on one large market is nothing like previous dependences that ended in tears. We are far better diversified now

Rural News
Guy Trafford points out that our current 'dependency' on one large market is nothing like previous dependences that ended in tears. We are far better diversified now

A lot of discussion has taken place around the profitability and also the risks of making a single market, in this case China, the predominant driver of export returns - or so it would appear if we believe the media. The reality is somewhat different. The most recent figures I can find from Stats NZ has China being our biggest returner, but apart from forestry, too much?

  • 33% of dairy product
  • 60% of forestry
  • 40% of meat products
  • Plus 19% of tourist spending within NZ

All of these are 2019 so pre-Covid-19.

New Zealand has experienced ‘single market failure’ in the past when we were totally reliant on the UK market pre 1939 (WW2) the numbers were:

  • 97% butter
  • 99% cheese
  • 99% sheep meat

This along with wool made up the vast bulk of our exports. By the late 60’s early 70’s the numbers for these products were still very high with:

  • 90% butter
  • 80% cheese
  • 80% lamb (note not sheep meat now)

Where the change had occurred was that total exports to UK now made up only 39% of total exports of which lamb made up 12% less than pre-war but still a sizable chunk.

The weakness of New Zealand’s export policy was exposed and went into meltdown mode when the UK voted to join the EEC in 1973. There had been three or more years of warning bells that this was happening but our ability to diversify into new markets was limited and things happened at a slower pace back then. The issues were magnified by the oil price spike which came shortly after and the combined hit led to the Muldoon government’s attempt to leverage a recovery through the heavy subsidisation of agriculture, which, while pleasant while it lasted, ultimately ended in tears for farmers and Muldoon.

So, the China component which in 2019 made up 28% of export returns (up from 24% in 2018) is in a totally different league to what the perhaps naïve influence the UK market had. What I believe has happened with China is that it is basically the ‘new boy in the block’ relatively speaking and its influence has upset what was the status quo in the supply and demand equation and through rapidly becoming our major market has added another tier of profitability on top of the ‘bar graph’ which wasn’t there before.

The line graph below from 2000 – 2020 clearly illustrates this and shows the recent impact of China on our exports.

Given that the earning capacity of the average Chinese is considerably lower to that of the average westerner, especially those shown as being our major trading partners above. It is perhaps interesting to see how they have managed to elevate themselves into that position. A recent article I came across provided a good summary of this comparison. At the individual level the average Chinese citizen ranks 65th in the world (one behind Mexico) so hardly a position of strength for a trading partner.

However, China is a world of two economies, the Urban and the Rural.

The Rural in 2018 made up 41%, so 59% in Urban cities and growing. Back in 2008 the numbers could have been quite tidily reversed. Not surprisingly, the area of China that New Zealand exporters are concerned with is Urban China and 59% of a population of 1.4 billion still makes more than 800 million. To put this into context the EU (the next largest population block) currently has around 446 million and even with the 66 million from the UK added still falls considerably short.

When the urban sector alone is studied, then the China earning capacity and more importantly spending capacity takes on a whole different picture. As with many Asian cultures, Chinese are good savers, although this aspect appears to have weakened with the younger generations. Along with saving, the Chinese have accumulated considerable wealth. This is largely due to the Chinese government decision to privatise the then state owned housing stock in the late 1990’s and most Chinese “were able to buy their homes and apartments at rates that are a fraction of what they are today”. So, when it comes to comparing household debt in China to that of the USA, 57% of Chinese have debt compared to 77% of the USA and of that debt only makes up 16% of assets compared to 36% of the USA. 96% of Chinese own their own homes with 31% owning two more apartments. (I’m not quite sure who lives in these given everybody owns their own house, perhaps the kids??) So, the end result of all this household ownership is that what someone earns has less effect on their spending when you have this degree of wealth behind them and little debt or rent to service. “In fact, China's median urban household net worth stood at US$198,330 at the end of 2019, versus an estimated US$104,000 in the US.”

As my wife, who spent time in China teaching in the outer region, said to me, there is plenty of poverty still in China and so these numbers could convey a false picture of it. However, New Zealand’s focus is on the cities and the wealthier sectors within them.

So, diversifying into other markets is always obviously important but we should not lose sight of just how and perhaps more importantly why China is so important to our returns and how they have managed to achieve that. So long as the fundamental components of why China has ended up being our major trading partner remains sound - so long as this component of our total trading mix remains in balance, and I would argue that currently it still is.

I believe we should be cautious before throwing the China baby out with the bath water. A reminder of the importance of the China influence is what has happened to the venison and wool industries which at least in part can show what can happen when China no longer plays an integral part in their supply chain.

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30 Comments

The stats in this article are useful. I am strongly anti-China (only the policies and actions of its government) but trade should be and usually is independent of belief systems - I've no idea what my dentist, baker, local Indian takeaway, etc believe - they don't tell and I don't ask. When my local restaurant was prosecuted for exploiting low paid immigrants I stopped eating there and it went bust.
Happy to trade with China - buying and selling - except for buying human organs harvested from Falun Gong prisoners or buying clothes manufactered by Uighur slave labour.
Why worry about our exports being dependent on China since we are now in a globalised world with global markets.
Lets keep trading but reduce the political trade missions; in fact avoid any situation that involves shaking hands with leaders of a govt responsible for concentration camps. And discretely ask their spies to leave our parliament.

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But what happens if you really, really need a harvested organ, Lapun? Or if the new IPhone 32, is so cool, but it’s made by slaves in Eastern China, but it is a have-to-have, because it’s got all the new bells and whistles? Hard decisions man... hard decisions....
Maybe a bit of burning and looting in Aotea Square this arvo in protest...

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Honestly and without a shred of doubt if I really need an organ I would rather die than have it from a prisoner who was alive when it was taken. You may have a point if it was the only way to keep my grandchild alive but I hope even then I would do the right thing.

I cannot afford an IPhone32 - I would need convincing evidence that it is made by slaves. Don't forget Chinese could easily argue that NZ milk is from land stolen from Maori - evidence has to be strong and recent. The evidence of the destruction of Uighur culture is easy to find but our govt is looking the other way. Even then it is a cultural genocide not a human one as per Pol Pot, Rwanda, Jewish holocaust.

The burning and looting of Aotea Square may cause ten million dollars of improvements. Hopefully all looters will be standing 2 metres apart.

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Whats your opinion on our trade relations with Israel?

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BDS is needed but NZ likes to pretend it has an independent foreign policy from the US when in reality not so much.

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Lapun
I agree that we should be prepared to trade with China.
I have visited a number of Asian countries: China, Vietnam, Cambodia, Laos, Indonesia, India, Myanmar, Thailand . . . I am one to avoid tourist areas and endeavour to get off the beaten track.
From what I have experienced; while China is authoritarian, I was just as concerned - if not more so - with Cambodia, Myanmar and India regarding issues such as inequality and human rights.
Where do we draw the line as to who we trade with on moral principle?
Probably the more important issue here is economic risk.
(As an aside, personally I consider that Xi Jinping has more integrity than Trump.)

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Who could disagree with your aside? And more relevent Xi Jinping is far more patriotic. That is his danger - he is a believer in Han Chinese superiority and destiny and isn't too worried who gets stepped on to achieve it. Whereas most of the world sees the breakup of the old communist Russian empire as a step towards progress president for life Xi sees it as a terrible warning not to relinguish authority.
NZ would be wise not to criticise either leader but if asked we should say kneeling on a prisoner's neck until he dies is wrong and the law should take its course and only if asked we should say imprisoning 10% of the population of Uighurs is a massive over-reaction to terrorism and that re-education requires emplying more teachers and fewer armed guards, barbed wire and locked gates. Unfortunately in China the rule of law in these situations is weaker than in the USA.

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Yes it's interesting what gets attention isn't it? As someone who has visited Tibet, China's sense of cultural superiority was clearly evident, not to mention it's massive extraction interests.

And the US is certainly no angel either at home or abroad. Everywhere you turn, it's 'manifest destiny' all over again..

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The difference is also that one would hope Trump will turn out to be an aberration and the USA will return to its constitutional roots and checks and balances which actually do enshrine some pretty worthwhile values. What is there on the imperial China's side to provide any basis for appeal or trust?

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'Are we really too dependent on China ?'

Asking this question itself answeres the Question.

No harm in terming NZ - Colony of China = Rock Star Economy.

Question to be asked : Is it possible to Reset and gain our Souverignity from China ?

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" Is it possible to Reset and gain our Souverignity from China ?"
Yes, but it'll hurt for awhile... As a society, are we ready for short term pain, for long term gain?

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Nazi China Party. Lets call it what it is. Disappearing doctors was a gigantic warning. One day they will come for us.

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It started with book sellers. But China is big - plenty of good and bad just like America or NZ but unlike America, NZ and the modern countries of this world there is no free media to discuss such issues. I appreciate the opportunity to make these comments but hope Interest.co.nz keep yours and my identity secret - who knows who may be in charge in 10 years time.

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Belle
USA. Lets call it what it is. Megalomaniac leader, racist police force, inequality . . . all gigantic warnings. One day they will come and influence us . . . . opps, already done that.

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I watched Bill Maher on tele at some ungodly hour this morning. Free to say all sorts of bad shit about Trump. Didnt notice the jackboots at his door to arrest him.

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You wouldn't, he's white

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Although Trump is now hoping to take control over freedom of speech online.

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Your argument is flawed Printer. What one superpower does, does not minimize what another does and viceversa. China is fast becoming something similar to Nazi Germany. On a much much greater scale. In a different way sure. But also very similar.

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Not one single mention of the being a totalitarian regime. Not one single message about human rights or any other abuses.

You didn't even mention that covid-19 came from there...

Just all about they money aye?

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Interesting stats but I think we need to add a few.

~ second largest tourist arrivals by country ~ China
~ second largest FDI in NZ ~ Hong Kong
~ largest number of foriegn students in NZ ~ China

And what is our biggest historical export ? Tourism.

It's not that we are reliant on one business sector like dairy or logs, we are reliant on EVERY business sectors demand from China. There is no diversification.

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Crux here Guy, as you must realise, is that China is an authoritarian dictatorship which oppresses its people and those of other neighbours. I do not like being dependent on that sort of regime thanks and neither do a lot of people reading this website judging by the contributions

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I have no issue with exporting to China so long as we dont have all our eggs in China's basket and we dont subscribe to their belt and road policy.

Whats in it for NZ if China owns the entire supply chain, the farm, the dairy factory, the port and the ships?

But alas as Lenin said the capitalists will eventually sell us the rope we'll use to hang them with.

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you are going to get more of these "dont rock the boat" soft power,soft soap messages.china has dropped the mask and they realise everybody is now on to them.

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If only!

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Seems to a lot of China spruiking articles appearing all of a sudden.
What I would like to know about those %s is, how is the balance made up, does any other country come close to exports to China do? That I believe will tell more of the story of whether we are too dependant on them, which I think we are. Even more concerning is the amount of our stuff they have control of, right here. We have truly sold ourselves up the river in many ways.

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Too late to turn back now.

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Interestingly, I was gazing upon the label of my tin of 'dolphin friendly' tuna this morning and got to thinking about why we don't have 'consumer friendly' label on our exports. Not so much in that our product won't kill our consumers but that our consumers reside in countries where they are treated fairly by law and that is why we should trade with them.

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That's a heck of a good idea..

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well one reason is Dolphin friendly, grass fed on the shelf, makes it look like local product isn't. local producers vote.

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Where's Xing? We need that balanced view!

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