China’s pull is still proving irresistible to New Zealand exporters, despite the government’s call to diversify away from the trade behemoth.
The foreign minister and trade minister have called this year for diversification, worried that, if relations cool between the two countries, exporters could find themselves in a similar position to their peers across the Tasman.
China has hit some Australian products with either tariffs or informal bans in recent months.
But Stats NZ export data analysed by Stuff shows New Zealand’s goods exports to China have in fact increased in the past six months, as exporters find themselves challenged by a lack of similar markets and ongoing Chinese demand.
Stuff has today published an in-depth explainer on the growth of exports to China and the way that newfound reliance has reshaped our export sectors, leaving New Zealand exposed if relations sour.
Export of goods to China in the first six months of this year equated to 33 per cent of all our exports. In the first half of 2019 and 2020 goods exports there made up around 26 per cent of our total exports.
Economist John Ballingall at consultancy Sense Partners said there was a tension between the need to diversify and the actual ability to do so. He added that diversification “is a nice thing to say [but] it’s really hard to do in practice”.
New Zealand’s relationship with China is increasingly under a microscope. Already this year, the government has spoken out about China’s human right abuses in Xinjiang; the treatment of pro-democracy activists in Hong Kong; and its behaviour in the South China Sea.
Most recently, New Zealand stood alongside other Western democracies to blame China for cyberattacks earlier in the year.
This stance has increased the chance China might retaliate and block some exports, analysts said.
“I find it very hard to imagine the businesses are not aware of the risks of being exposed in China,” Ballingall said. However, while there were other big markets, there were also plenty of trade barriers for entry to those, he said.
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Rachel Taulelei, CEO of whānau-owned business Kono, said trade with China was something that she had thought about a lot before the pandemic. Current logistics challenges meant it continued to occupy her mind.
“But it’s got some good company in that space because I worry about lots of the markets that we work into,” she said.
Kono produces and exports a number of food products, including green-shelled mussels, wine and dried fruit bars. In 2015, the business bought out its Chinese partner to take full ownership of its green-shelled business and, with it, the company’s established sales channels.
Taulelei said the company had worked hard over the past five years to diversify not just the markets it sells into but also how and what it sells, to try and provide some protection against risk. But she added that, as a commercial entity, they also had to get the best returns for their shareholders – and that might mean China.
It was a similar story for agricultural producers across the board. Demand from China’s populous and growing middle class has prompted New Zealand companies to send more meat, more dairy, and more fruit and vegetables to sate the country’s appetite.
Dairy giant Fonterra derived 46 per cent of its first-half pre-tax profit from Greater China – which includes Mainland China, Hong Kong and Taiwan. Export volumes to China are, however, only around a third of the goods it produces.
Fonterra said earnings from Greater China had grown in part because the area had recovered from Covid-19 more quickly than other markets the cooperative sells into.
It was now pushing to grow high-value parts of its business, such as expanding its food service business to markets outside of China. Late last year, it signed with US Dairy giant Land O’ Lakes to distribute their dairy in hospitality businesses and major fast food chains through the US.
Zespri was in a better position than Fonterra – just 20 per cent of the company’s sales derived from China. Zespri chief market performance officer Linda Mills said the company had been mindful of risks in the market, including China, and so had made diversification a deliberate strategy.
Even so, the company had seen its proportion of sales in China grow over the past five years.
Mills said, as a co-operative, Zespri always faced pressure to put more volume into higher return markets, but there was a level of understanding of the need to balance the risks.
A report by economic analysis firm Infometrics said that New Zealand not only needed to look at diversifying the countries it sold to, but also the products it sold.
Its findings of where that strategy could succeed were mixed. Products such as whole milk powder did not have much opportunity in new exports markets, while other product – including MDF board and kiwifruit – had the potential to expand rapidly outside of China.
Infometrics chief forecaster Gareth Kiernansaid there were trade-offs to be made. He added that while short term returns from changing markets might not stack up because of how it easy it was to grow sales in China, diversification would provide security for companies down the track.
